Africa, here we come
Volkswagen plans to concentrate its export efforts closer to home
Having created the foundations for a manufacturing and marketing base across Africa, Volkswagen South Africa (VWSA) is preparing to shift its main export focus to the continent and away from traditional market strongholds such as Europe and the UK.
MD Martina Biene says the German parent company’s decision to supply those markets with electric vehicles (EV) from German assembly plants offers VWSA the opportunity to deepen its African penetration with traditional technology.
While most developed world economies urgently pursue an all-electric automotive future, many African countries have neither the infrastructure nor, in many cases, the desire to follow them for many years.
VWSA’s Kariega assembly plant in the Eastern Cape produces internal combustion engine (ICE) cars using petrol and diesel. So do its subsidiary plants in Kenya, Ghana and Rwanda. With more operations planned, the company is well positioned for new-vehicle market growth across Africa.
Kariega builds the Polo and Vivo car ranges the former primarily for export to Europe and the latter for South Africa and Africa demand. The current models, launched in 2018, would normally be replaced in about 2025. But Kariega will continue to build and export Polo until 2029, says Biene.
Vivo and Polo will be joined soon by a third car, a small sports utility vehicle (SUV) just below the imported T-Cross. An announcement is expected before year-end. SUVs’ versatility is winning them considerable market share around the world. Built off the same platform as Polo, and therefore requiring limited new investment, the new VWSA vehicle, also ICE, is a logical choice for African markets.
So is a small bakkie, which Biene hopes to add to the local manufacturing portfolio. The only such vehicle built in South Africa, the Nissan NP200, will be discontinued next March, leaving a hole in the market. VWSA’s bigger bakkie, the Amarok, is built at Ford’s Silverton plant in Tshwane.
In many respects, the changes are inevitable. The EU and UK plan to outlaw the sale of new ICE vehicles after 2035. At least, that’s the plan. In the UK, political parties are arguing about whether the ban should return to its original 2030 deadline, while the EU is softening its stance because of the development of carbonneutral, synthetic ICE fuels.
While they wrangle, VWSA and its parent company have made a firm decision. German plants have the capacity to provide the EU and UK with EVs for the foreseeable future, so Kariega will stick with ICE for now. Some hybrid versions of its products, with dual ICE and EV technology, will follow but it will be 2035 at least before the local company produces full-electric vehicles, known as battery-electric vehicles, or BEVs.
VW may be a leading global BEV company but VWSA has said it will not import hybrids or BEVs until demand justifies it. The same goes for local production. As a mass manufacturer, Biene says VWSA’s rule of thumb is that it needs annual production of at least 50,000 to justify building a new model. In the case of BEVs, that number is closer to 60,000.
Aggregate local motor industry EV production is a tiny fraction of that, and it’s all hybrid. No-one here is thinking seriously of making BEVs in the short term. So Africa beckons. “South Africa will no longer be first choice for European exports,” says Biene. “Africa will offset those losses.”
But a lot of market development is required for the continent to approach its newvehicle potential. Development of the African Continental Free Trade Area and the breaking down of intra-African trade barriers will help.
Biene reckons it will take 10-15 years for the trade area to function properly. In the meantime, local content discussions are well advanced and the African Association of Automotive Manufacturers (AAAM) is facilitating transitional, regional agreements so everyone is ready to hit the ground running. In West Africa, says Biene, several countries are talking about regional co-operation.
VWSA has been a driving force behind AAAM efforts to create the environment for a thriving pan-African motor industry and new-vehicle market. The association brings together vehicle and components manufacturers, banks and any others who can play a part in developing an industry.
They have a lot of work to do. In 2022, 1.1-million new vehicles were sold in Africa –a poor return from a population of about 1.3-billion. AAAM reckons that, with the right
policies, this could increase to 3-million in the next decade, and possibly even 5-million.
That will happen in tandem with growth in vehicle manufacture. Last year, the combined efforts of assembly plants across Africa amounted to 1.02-million. South Africa alone accounted for more than half of both sales and manufacture. Morocco is the only other African country with a substantial manufacturing base, but it is effectively an extension of the European motor industry and has shown little interest so far in its own continent. That could change if African demand grows.
Biene is positive about Africa’s potential, after several governments introduced what she calls “compelling” incentive plans to attract the motor industry to their countries. Only a handful will actually manufacture vehicles, acting as regional hubs for neighbours to provide components, raw materials and services.
VWSA’s hubs will almost certainly be South Africa, Kenya, Ghana and Egypt. Besides South Africa, the company already has operations in Kenya, Rwanda and Ghana, which assemble car kits from Kariega. Egypt would be a new venture. Ethiopia, where VWSA has signed a memorandum with the government to eventually produce vehicles, has fallen down the pecking order because of civil war and lack of policy. But it will feature eventually, says Biene.
She adds that Africa, particularly the Sub-Saharan region, will become very important to the VW group. “We are therefore accelerating our growth strategy on the continent by playing a pioneering and leading role in the development of the automotive industry,” she says.
VWSA’s Rwanda plant typifies the company’s approach to market growth. Rather than a shotgun approach to attract customers, it is creating a market from the ground up, working with local companies to provide services such as car-sharing, ride-hailing, chauffeuring and other forms of corporate and personal mobility.
The VW vehicles eventually pass into the used market, providing a steady supply of well-maintained, reliable vehicles rather than the dumped ones that infest most markets.
Biene says the project, supported by the Rwandan government, can be a model for other markets. “There is a clear need for mobility in Africa.”
Overall, she is satisfied with progress so far in creating the conditions for African automotive development. Algeria and Egypt are using South Africa’s government-led automotive production & development programme (APDP) as the basis for their own policies. Mozambique is among countries to ban the import of dumped vehicles.
History shows that intention doesn’t always translate into action — as shown by Nigeria, which has instituted, then ignored, a number of autofriendly incentive policies. Nevertheless, Biene says: “We are seeing the first successes.” But she admits: “I’m an impatient person, so of course I would like to see things move faster. But we are now seeing definite movement.”
None of this affects VWSA’s commitment to the domestic market. The VW brand remains a market leader, with Polo and Vivo remaining consumer favourites. The influx of low-cost brands, particularly from India and China, is affecting all the established local companies, but Biene is confident of VW’s ability to hold its own. Its proliferation of Ts – Touareg, Tiguan, Taigo, T-Roc, T-Cross and Transporter – plus other imported products such as Golf, Caddy, Kombi, Caravelle, Crafter and Amarok, ensure it has a contender in almost every market category.
Where it doesn’t, buyers can always look at the sister Audi brand.
If Biene has a frustration, it is with the South African government’s lack of urgency in finalising a policy for new-energy vehicles. The APDP, which runs from 2021 to 2035, grants the same incentive to EV and ICE technologies but the motor industry says EVs are penalised through heavier import duties.
Companies say they urgently need policy clarity if they and their multinational parent companies are to make the heavy investments required for an EV transition. Those parents, seeing South Africa’s vacillation, may decide to make those investments elsewhere.
“I fear South Africa may miss the EV boat,” says Biene. “In fact, we may already have done so.”