Automotive industry in Sub-Saharan Africa

by Johan Burger

Africa has a population of about 1.3bn people (17.5% of the world's population), but produces only 1% of the world's automobiles. In contrast, China, also with a population of about 1.3bn, produces almost 30%. Most of the cars bought and sold in Africa are used and imported. Indeed, it has become something of a ‘dumping ground’ for used foreign vehicles. But more Africans are buying vehicles than ever before and that makes it an attractive market for automobile manufacturing. In 2014, there were just over 42.5 million registered vehicles in use in Africa. The following year approximately 1.55 million new vehicles were sold or registered across the continent.^[1] South Africa, Egypt, Algeria and Morocco have a thriving auto manufacturing sector. Together they account for approximately 80% of the total new vehicles sold in Africa. According to Deloitte passenger vehicle sales could hit 10 million units per annum within the next 12 years. There is therefore an opportunity for investors to benefit from the relatively untapped potential of the automobile sector in Africa. 

Some countries, such as Kenya and Ghana have actively adopted policies to grow the level of contribution. Many other African governments are encouraging global automakers to set up assembly plant operations in their new special economic zones. 

POINTS OF INTEREST

• Ford recently announced a US$1bn investment in its operations in South Africa. In addition to adding 1,200 direct jobs, the investment would also create 10 000 new jobs across Ford’s local supplier network.
  
  
• Entrepreneurs, SMEs, and large corporations can all tap into the massive opportunities to take the local value and supply chains, produce the vehicles where the consumers are and generate export revenues as well. Considering that 70% of a car’s parts are built by outside suppliers, the potential for industrialisation, job creation, and economic development are clear. With more meaningful jobs, the living standards of the local populations increase, which in turn leads to higher levels of consumption and creates a market for higher-level goods such as cars. Investment in Africa’s vehicle manufacturing sector therefore becomes a self-fulfilling prophecy.^[2]
  
  
• In Uganda, Kiira Motors recently launched a new diesel bus model - the Kayoola. This was a major step in the growth of the country’s domestic auto-manufacturing sector. The firm is assembling the cars in partners with the China Hi Tech Corporation (CTHC). However, until local firms can acquire the technical knowhow and economies of scale, Uganda may have to contend with producing such buses as a contract manufacturer. Kiira also makes the Kayoola EVS, which designed for the local conditions which lack charging facilties. Kiira’s factory at Jinja will initially produce 5,000 vehicles annually.^[3]

• Africa is beginning to see emergence of local brands like Kiira Motors. Innoson was the first made-in-Africa automobile brand and is now one of the largest car manufacturers on the continent. It has rolled out more than 10,000 SUVs and sedan cars from its plant in Nnewi, Nigeria. Another Nigerian carmaker Nord is producing vehicles for commercial as well as the private-use market. From its assembly plant in Lagos Nord produces sedan, SUV, mini-bus and pickups.    Wallyscar manufactures a range of small sports SUVs in Tunisia. It was set up by brothers Omar and Zeid Guiga in 2006. The firm sells only 300-600 units a year. aspires to expand beyond Nigeria’s  borders as a designer and assembler of premium cars at “relatively competitive prices.”^[4] The emergence of local car brands is a signal that automobile manufacturing can happen in Africa even if it from a low base.

KOREAN AUTOMAKERS TO MANUFACTURE CARS IN GHANA

Korean automotive giants Hyundai, and Kia are expected to start assembling cars by the end of 2022. Their decision to set up an assembly plant is seen as a success of the Ghana Automotive Development Program, which aims to attract more international carmakers to set up manufacturing units in the country. The Koreans are only the more recent ones to set up an assembly plant in the country. Toyota, Nissan, Volkswagen, and Sinotruck already have production facilities in the country.

Chinese automaker Zonda Tec has so far invested more than US$10m in the construction of its auto assembly plant and a training school in Tema under the government’s One District One Factory (1D1F) initiative.

Ghana is competing with Nigeria to become an auto-manufacturing hub in West Africa.  According to the government automobile manufacturing has the potential to create 3,600 direct and indirect jobs in Ghana. The addition of components and parts manufacturing could add 6,600 more jobs.^[5]

POINT OF INTEREST

• Investments in the automobile sector of Africa have a significant leverage affect, not only creating direct jobs in the main manufacturing plants, but in the upstream and downstream supply chains as well. Ghana is politically and economically stable with strong growth potential. So it is an attractive investment destination for potential investors. The potential for growth in the automobile sector throughout the value chain is significant. The number of corporations that are involved in Africa’s auto sector has increased considerably over the past few years.