Collaboration is key to unlocking motor industry opportunities
African Continental Free Trade Agreement could boost intra-African trade by 52%
Africa is undoubtedly the last frontier in the automotive industry.
According to the Deloitte Africa Automotive Insights report, in 2016 the motorisation rate on the continent stood at 44 vehicles per 1,000 inhabitants, compared with the global average of 180 vehicles per 1,000 inhabitants.
This is also significantly lower than other developing regions such as Latin America (176) and developing Asia, Oceania and the Middle East (79). Four years later, while inroads have been made, there is still a long path ahead.
SA celebrates Transport Month annually in October to raise awareness on the important role of transport in the economy. The transport industry plays a principle role in both an economic and social perspective. Transport Month is an initiative that encourages safe, affordable, accessible and reliable transport in the country.
The automotive manufacturing sector is a critical contributor to Africa’s GDP, economic activity and job creation. The SA government has committed itself to supporting the automotive industry through programmes such as the SA Automotive Masterplan, which aims to double the production capacity in SA in the next 15 years and improve the automotive industry’s competitive levels to that of leading international competitors.
A thriving sector helps insulate the continent from external shocks, fosters innovation and diversifies economies. However, it is not a journey that the government can embark on alone.
Unlocking the potential of the SA automotive industry begins with collaboration. Relevant stakeholders, from governments and financial institutions to global Original Equipment Manufacturers (OEMs) and first-tier suppliers, must collectively pool their resources across regions to commit their efforts to the development and industrialisation of the continent.
Looking outside SA specifically, regional integration anchored on the hub-and-spoke model, where countries collaborate to serve each other’s needs, has worked well in other parts of the world such as with the Association of Southeast Asian Nations, and has the potential to succeed here.
In Africa, key markets such as SA, Nigeria, Ghana, Morocco, Egypt, Ethiopia and Kenya with developed or semi-developed industries are well positioned to serve as strong hubs, supported by spokes in the adjacent countries.
To realise this, policy such as the African Continental Free Trade Agreement (AfCFTA) will be important as the automotive industry has largely been fragmented in Africa and intra-African trade continues to operate at suboptimal levels due to tariffs and taxes.
According to research, it has the potential to boost intra-African trade by 52.3% through the elimination of import duties, and by more than 100% through the elimination of non-tariff barriers. It will also enhance the continent’s competitiveness on a global scale, provide a larger market size and allow the industry to benefit from economies of scale.
The bane of the automotive industry in Africa is poor infrastructure, which is often a precarious combination of unreliable energy sources, a lack of technical skills and a non-functioning transport system. It stymies economic growth, contributes to price inflation and reduces the ease of doing business — anathema for foreign OEMs and suppliers looking to establish a presence in the region. Unfortunately, this is the reality for many countries across the region, including in more advanced markets such as SA.
The bane of the automotive industry in Africa is poor infrastructure
Governments, therefore, will need to create an enabling environment by attracting investment in robust infrastructure. A unified government-led vision is the guiding force that will attract the right partners to fill infrastructural gaps. Ultimately, however, these developments will take time.
Countries that may be grappling with inconsistent automotive policy can redress their issues by working with industry partners such as the African Association of Automotive Manufacturers to ensure that policy that stimulates growth and builds a sustainable auto industry is backed by tangible action and that relevant stakeholders are held accountable.
This policy will need to extend beyond incentives that encourage manufacturing and the assembling of vehicles in-country. While generally effective, auto industry stakeholders and the government need to redirect their energy towards building an ecosystem that allows the entire sector to flourish, from establishing value chains to providing better access to financing for vehicles.
When it comes to the contentious policy of permitting second-hand imports, a phased collaborative approach that enables countries to strike the right balance between pursuing industrial ambitions and serving the interests of local consumers is perhaps the most favourable option. OEMs may also need to explore producing more affordable vehicles that target the mass market.
This year has been a year of immense change. For manufacturers, it has underscored the value of building local industries for local markets, developing innovative solutions for complex problems and, above all, functioning in an enabling environment where this is both supported and encouraged.
For too long, the burden to create this has sat with the government alone. In reality, it requires the knowledge, action and expediency from all industry players, because as individuals we are limited, but together we have great potential.
• Whitfield is chair of Nissan Africa South and MD of Nissan Egypt.
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