The Rise of Electric Vehicles: How Can Africa Prevent Fuel Duty Losses Experienced in the West?

Excerpt from energycapitalpower.com

With the sale and production of electric vehicles (EVs) taking-off globally due to improvements in technology and the declining cost of lithium-ion batteries, the African continent now has better opportunity to unlock the full potential of electric mobility.

To-date, Africa’s limited infrastructure and heavy dependence on used car imports, in which 40% of global exports of used light duty vehicles are directed to the continent, has constrained the shift towards EVs. South Africa is considered to be the largest EV market in Africa, yet only 1,000 out of more than 12 million vehicles are electric. In global contrast, projections show that by 2025, 22% of international vehicle sales are expected to be electric with figures rising to 35% by 2030.

The opportunity for African countries includes key lessons learned from the sharp rise in the procurement of EVs in the U.S. and Europe. National policies can be accurately informed by these lessons, so as to optimally facilitate a clean energy transition, while avoiding the pitfalls of phasing out internal combustion engine (ICE) vehicles. One such pitfall is the issue of fuel subsidies: earlier this month, it was flagged that Great Britain will start to lose approximately $6.8 billion per year in fuel duty within eight years, owing to its transition to electric battery vehicles. As fuel duties comprise about a third of annual revenues in the country, this poses a major threat to tax income used to operate, maintain and enhance motorways, with electric vehicles already representing more than 10% of the domestic market.

Similarly, fuel taxes also serve as a major source of state revenue for several African countries. In Ghana, for example, at least seven different taxes on fuel comprise $0.40 of the price of fuel, per liter. These include an energy fund levy, sanitation and pollution levy, price stabilization and recovery levy, road fund levy, energy debt recovery levy and a special petroleum tax. As a result, fuel costs are significantly higher for Ghanaian consumers at approximately $1.14 per liter, compared with neighboring Nigeria ($0.619), Togo ($0.91) and Ivory Coast ($1.076). Reduced fossil fuel consumption through the proliferation of EVs, therefore, would result in reduced tax income, which would need to be recovered by other means.