Ghana's local automobile assembly sector faces a potential collapse, threatening more than 400 skilled jobs. The Automobile Assemblers Association of Ghana (AAAG) reports that the government's decision to remove a 20 percent Value Added Tax (VAT) exemption on locally assembled vehicles renders the industry unviable.
This policy change, introduced in the 2026 national budget, significantly alters the business environment for automotive assemblers. It jeopardizes investments worth nearly US$80 million made by AAAG members into assembly facilities and workforce development. Without immediate policy intervention, the sector risks losing substantial gains made over the last five years, impacting both employment and economic diversification efforts.
This development poses a significant challenge to Ghana's broader industrialisation agenda and its ambition to become a regional production hub. The automotive sector was a cornerstone of the Ghana Automotive Development Policy, aimed at attracting global brands and boosting local manufacturing. The initial policy included duty waivers for Semi-Knocked Down (SKD) vehicle imports and higher tariffs on fully-built imported vehicles. The now-removed 20 percent VAT exemption, along with duty waivers of 5 to 10 percent, previously created a critical 25 to 30 percent cost advantage for local assemblers.
Jeffrey Oppong Peprah, AAAG president and CEO of Volkswagen Ghana, stated, “For the last three to four years, these incentives enabled us to assemble vehicles competitively, reduce prices for consumers and justify our investments.” He further warned, “This decision has effectively pulled the rug from under our feet. The business case for local assembly is no longer viable.” Mr. Peprah made these remarks during a Presidential Dialogue in Accra, convened by President John Dramani Mahama to discuss economic growth and partnerships.
The removal of the VAT exemption eliminates the competitive edge for locally assembled vehicles, making their production unprofitable. This could lead to the closure of up to seven assembly plants and the loss of over 400 skilled engineering jobs. Global brands have already started ceasing orders for assembly kits. The Association is urging the Ministry of Finance to either restore the VAT exemption or introduce a temporary 35 percent duty increase on imported vehicles. Such intervention is crucial to sustain the industry and protect Ghana's reputation as a viable investment destination.
Vice President of AAAG, Salem Kalmoni, who is also Managing Director of Japan Motors Trading Company Ltd., highlighted the collective investment of nearly US$80 million by members. Japan Motors alone assembled approximately 1,400 vehicles in 2025 and had planned further expansion before the policy shift. He noted that early-stage local assembly industries require sustained government support to achieve scale. Strengthening local assembly also enhances Ghana’s potential under the African Continental Free Trade Area by promoting component manufacturing and boosting intra-African trade. Despite ongoing discussions with the government, progress remains slow, pushing the industry towards a critical breaking point.
The threat to the auto assembly industry could ripple through Ghana's economy, affecting related industries and overall investor confidence. Restoring these incentives or providing alternative support measures is essential for the government to protect jobs and foster a stable manufacturing environment. The situation demands urgent attention to prevent further economic setbacks and uphold the integrity of long-term industrial policies.