Vision will put African carmakers behind the wheel

19 June 2016 - 02:00 By Mike Whitfield

The global economy is in a downturn. Even so, belief in Africa's potential as the last economic frontier is not misplaced.With 2016 growth projected above 3%, Africa is the only emerging-market region likely to experience increasing economic growth in the next five years.Where is the automotive industry in Africa's economic rise? A recent panel discussion, hosted by Deloitte Africa and in which I was invited to participate, gave some useful insights - some of which I'd like to share.The size of Africa's auto sector opportunity isn't in doubt. High numbers of consumers, growing spending power and increasing urbanisation are driving demand for mobility on a continent where the motorisation rate - at around 44 per 1000 people - is low compared to a global average of 180. That demand will escalate with the anticipated opening up of mega cities, mega regions and mega corridors.story_article_left1Combined spending power in 18 African cities is expected to reach $1.3-trillion by 2020 - about R19.7-trillion at today's rates.The question is how to unlock the potential of this vast opportunity - because there are undoubtedly some stumbling blocks that could impede the growth of Africa's auto sector.Africa is mainly a retail market, dominated by second-hand car sales. New car sales lag far behind. Because of vehicle taxes and import costs, they are generally the preserve of corporate and government fleet customers.High costs, coupled with a lack of access to finance and credit facilities, mean private individuals turn to the second-hand car market at best and to dubious parallel or grey imports at worst. Affordability and credit options are therefore key to opening up the new-car market - of locally produced and imported vehicles - to Africa's significant private customer base.Financial institutions have shown interest in investing on the continent - both to take advantage of the robust second-hand car market and to partner with international car brands to offer financing options for new vehicles.When it comes to product offerings, important for the auto sector to note is that Africa is not a one-size-fits-all scenario.With more than 50 markets comprising varying economies, terrains and infrastructure levels, car companies need to offer a range of tailor-made products. As roads and transport networks improve, we should be ready for a shift in demand from Africa's mainstay - durable pickups and 4x4s - to passenger vehicles.In terms of auto assembly, Africa's capacity is still fairly small, with four main manufacturing hubs - in South Africa, Egypt, Morocco and Algeria. However, more countries are recognising the auto industry's role in their industrialisation policies.Establishing economies of scale, through domestic sales and export programmes, is crucial, as is a consistent and investor-friendly auto policy that attracts local and international players. Is Africa ready for the automotive sector, and is the automotive sector ready for Africa's unique requirements? Certainly  Much can be learnt from our own auto manufacturing experience - the partnerships we have established with key stakeholders and the role of governments in efforts to create a globally competitive manufacturing hub, supported by a strong local supply chain.Nigeria - which has the potential to become an auto-manufacturing hub for West Africa - is a case in point. During this year's bilateral talks between South Africa and Nigeria, I had the privilege of addressing one of the manufacturing sessions on behalf of the National Association of Automobile Manufacturers of South Africa.Our key message was to convey the advantages of a strong auto industry in growing a country's economy, as well as the importance of an auto policy that is conducive to investment.With auto manufacture at the heart of other industrialisation programmes in Africa, this type of cross-pollination and co-operation between governments and stakeholders needs to take place on a greater scale between countries and regions.The newly formed African Association of Automobile Manufacturers is a sign that carmakers believe in Africa's automotive potential and are ready to assist in growing the continent's vehicle- and component-manufacturing capacity.story_article_right2Kenya, for example, with small-scale vehicle assembly and a gateway to East African countries, has the ability to become an auto-assembly hub for the region.A welcome development is that the East African Community intends to curb used-car imports by tightening controls, both to address pollution and to boost the local manufacturing industry.The region is also looking for policy direction from the likes of the South African, Nigerian and Ethiopian auto industries.Ethiopia - whose fledgling auto industry is part of a Growth and Transformation Plan to achieve GDP growth of 8% by 2020 through investment and incentives - is an ideal destination for first-mover visionaries.And so, is Africa ready for the automotive sector, and is the automotive sector ready for Africa's unique requirements? Certainly.I believe vision is what is driving - and will continue to drive - the auto sector in Africa.Seeing the opportunity, believing in it and acting on it. Not for short-term gain but for long-term sustainability that will ultimately benefit car companies, individual countries and the continent as a whole.Whitfield is MD of Nissan South Africa, president of Naamsa and deputy president of the AAAM..

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