Putting the continent’s wheels in motion
INDUSTRY COMMENT/ Africa is working hard to make a name for itself in the global automotive market, writes Ryan Bax
Africa is keeping investors on their toes with forecasts far from being true to their word. The inherent volatility and instability of African markets is difficult to fully grasp until seen in hindsight.
As was the case in 2013, new vehicle sales were forecast to exhibit strong growth rates on a yearly basis. However, the weakening economics of developing nations, soft oil prices, growing exchange rate risk and a preference for safe-havens has seen the market fall on a yearly, and even monthly, basis.
SALES LAG
Despite the widespread import of used cars, the average level of motorisation remains the lowest globally in Africa, at an estimated 44 vehicles per 1,000 inhabitants. New vehicle sales in Africa lag behind other regions, with unit sales estimated at 1.55million units in 2014. This represents about 1% of global new car sales and 1.36 new vehicles for every 1,000 inhabitants.
This contrasts with 18.05 and 56.94 new vehicles per 1,000 inhabitants in China and the US respectively in 2016.
If new vehicle sales in Africa grow to seven units per 1,000 inhabitants, which is a significant feat in itself, total new vehicle sales will reach about 7.7million units annually. This would shift Africa to being the fourth largest new car regional market after China, the US and Europe and larger than Japan at 4.3-million units in 2016. It is this potential that has enticed car makers into Africa.
African governments have understood the gains to be made from the automotive sector and adopted policies to achieve the wider government objectives of industrial and economic growth. These policies are export oriented and will permit car makers to assemble cars in the local economy at competitive rates, yet source the necessary demand from foreign markets.
Although SA, Kenya and the countries of north Africa have been producing vehicles for a number of years, it was Nigeria that took the greatest steps to attract investment into its local sector. The government developed the National Automotive Investment and Development Programme in 2013, which provides wide-ranging benefits to car makers wanting to assemble vehicles in the country.
The policy was well received, with more than 10 assembly plants being set up to produce for the local and west African automotive markets.
Although new vehicle sales reached about 50,000 units in 2014, the weak economic climate has cut sales to about 7,000 units up to November. As a consequence, assembly operations in Nigeria have slowed to a halt as inventories continue to expand unsustainably.
Upping the ante, Morocco developed an investment cluster programme which saw Renault enter the local market. Renault will be the only global manufacturer assembling vehicles in the country until the arrival of Peugeot in 2019.
QUOTA SYSTEM
In Algeria, the government’s drive to create a local automotive manufacturing base has led to a quota system being placed on all car makers importing cars to “force” the investment into local assembly. New vehicle sales dropped from more than 300,000 units in 2014 to 160,000 units in 2015 and a forecast shows 95,000 in 2016 due to the quotas. A number of car makers have noted their intent to invest in the country.
Kenya is looking to develop a specialised policy to create a turnaround in their local assembly sector, which started to slow in late 2015 due to a lack of support measures and the enforcement of a 20% excise duty on locally built vehicles.
Placing further pressure on Kenya are the aspirations of Ethiopia, which is looking to become a major assembler of vehicles on the continent within the next 10 to 20 years. The introduction of investment promotion measures has seen a number of Chinese companies establish assembly facilities while, more recently, Hyundai noted its intention to commence assembly in the country.
As the new vehicle sector shows a strong resurgence, the Egyptian government is looking to benefit the wider economy from this trend.
AFRICAN GOVERNMENTS HAVE UNDERSTOOD THE GAINS TO BE MADE FROM THE AUTOMOTIVE SECTOR