Home Editorial Can Africa emerge as a hub for the car industry?

Can Africa emerge as a hub for the car industry?

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The automobile industry is a key pillar of modern manufacturing, driving growth and technological advancement with extensive linkages across industries.  Mostly this sector is associated with big economies like the US, Japan, China, South Korea and is seldom a part of the  African economies.  But soon this may change as multinational vehicle manufacturers are increasingly turning to Africa for setting up production bases.

In Africa, South Africa has the longest history of automobile production. The industry is nearly 100- years old and hosts major international manufacturers including BMW, Daiman Chrysler, General Motors, Fiat, Ford, Nissan, Toyota and Volkswagen. Nigeria has a strong automobile sector, which took roots in the 1980s and 1990s, followed by Egypt and more recently Morocco.

 Morocco, of late, has truly emerged as a popular destination for automotive manufacturing. In 2018, it overtook South Africa as the biggest African exporter of passenger cars with exports touching $10 billion (€8.5 billion). Apart from supplying to foreign markets, unlike their African peers, both South Africa and Morocco have relatively large domestic markets. VW, Mercedes-Benz owner Daimler and BMW are among the biggest car companies accounting for 90 per cent of all passenger cars produced and a third of the cars sold in South Africa in 2019.

About 80 per cent of the 400,000 cars produced in Morocco are sold to Europe including France, Spain, Germany and Italy. In September, Stellantis the world’s fourth-largest car manufacturer announced that its supermini electric car Opel Rocks-e would be produced at the PSA plant in Kenitra. BYD, a Chinese electric vehicle manufacturer, signed an MOU with the Moroccan government to open a plant in Kenitra. STMicroelectronics, a U.S. company based in Casablanca, has started manufacturing of the main transmitter for Tesla vehicles in Morocco. Perhaps the unique advantage of Morocco is its geographical proximity with European markets and its free trade agreements with Europe, the U.S., Turkey, and the United Arab Emirates. Morocco’s low labour costs compared to Spain and East Europe also is an added advantage.

The benefit of easy access to foreign markets does not exist for sub-Saharan Africa where it is all about limited local markets. Despite that, currently, several multinational vehicle manufacturers have started setting up production units in Angola, Ethiopia, Egypt, Ghana, Kenya, Namibia, Nigeria and Rwanda. Chinese automaker Dongfeng signed an MOU in January 2021 with Egyptian state-owned El Nasr Automotive Manufacturing Company to jointly produce electric vehicles in Egypt. Volkswagen is testing e-mobility in Rwanda. VW opened its first assembly plant in Ghana in August 2020 for the Tiguan, the Passat and the Polo. Nissan is also preparing to launch an assembly plant in Ghana. The strategy of global car makers is to set up assembly plants instead of full-fledged production units in countries like Nigeria, Kenya, Rwanda and Ghana.

While these developments are very encouraging, Africa to emerge as a potential hub for Car industry depends on some critical factors. Some of the critical components required to build a sustainable auto industry include energy, communications and logistics, advanced manufacturing capacity and access to markets. The primary focus of the automobile industry today is on technology concentrating on electric vehicles (EVs) and autonomous vehicles (AVs) . African economies, except South Africa, lack the supportive infrastructure for the industry.

Policy consistency is another crucial factor for the success of the automotive sector. Some of the African governments have played a proactive role to attract investment in the industry. The auto manufacturing zone with Ford and the Peugeot and Automotive clusters like the Durban Automotive cluster in South Africa are instances of this approach.

In most SSA countries, 8 out of 10 vehicles are used cars. Curbing the influx of used cars from Europe, Japan, the United States and other countries into Africa has a decisive role in promoting the automotive sector.

In spite of the contraction of the market due to the outbreak of the pandemic, the recent trend of the multinational vehicle manufacturers setting up production bases in Africa reflects the confidence of the global players in the potential of Africa. The African automotive market was valued at $ 28.45 billion in 2020, and it is expected to reach $ 39.87 billion by 2026, registering a CAGR of 5.55% over the forecast period. The continent is rich in raw materials, such as steel and aluminum, cobalt and platinum group metals, and other base metals which are essential for vehicle manufacturing. African nations have to leverage these for local value addition instead of exporting them as raw materials. As Africa starts in earnest reducing trade barriers and improving logistics, under AfCTA, the opportunities for economies to participate in the automotive industry will further grow.

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