JAMES MAPOSA and PATIENCE PANASHE: Increasing incomes support vehicle ownership in Africa

The automotive industry in Africa is small compared to other regions, accounting for less than 2% of global production. In contrast, Europe and North America account for 22% and 17% respectively, and China accounts for 30% of global production.

Using trade as a proxy the African automotive market was valued at $30.2bn in 2021 and is expected to reach $42.6bn by 2026, driven by the increasing per capita incomes that tend to support automotive vehicle ownership. Another driver will be the improving road infrastructure across the region, which reinforces individual vehicle use as mass transit systems remain underdeveloped.

With industry activity largely concentrated in SA, the country is the largest automotive producer and trade partner on the continent, producing over 600,000 units and accounting for over 30% of Africa’s total automotive trade annually. Outside SA the automotive industry is still in its infancy, with investment centred on the set-up of assembly plants, retail and the distribution of vehicles.

Africa’s automotive industry will be largely driven by an expanding middle-class population, which accounts for about 35% of the continent’s total population. To sustain this increased demand the automotive industry requires development from both a policy and production capacity standpoint.

African governments have also earmarked the automotive industry as a catalyst for economic growth and job creation. For example, the Nigerian government established joint ventures with companies such as Peugeot, Volkswagen, Mercedes and General Motors in 1970, to boost production and protect the fledgling industry from cheaper imports. However, none of these plans resulted in sustainable operations.

The turning point was realised in 2019 when the Nigerian government introduced the Automotive Industrial Policy Development Plan to encourage local vehicle assembly and attracted investment of $1.1bn from automakers including Dangote, Sino Trucks Innoson Vehicle Manufacturing, Honda, Lanre Shittu, Mikano and Nord.

In East Africa the Kenyan ministry of industrialisation approved the National Automotive Policy in 2018, which aims to improve the local automotive assembly ecosystem. This has incentivised companies such as AVA to assemble just under 10,000 light, medium and heavy commercial vehicles for Mitsubishi, Fuso, Scania, Toyota, Hino and Tata. These account for about half of new vehicle sales in Kenya annually.

Efforts have been made to capacitate the industry for local production, but lack of funding has limited growth. For example, in 1986 the Kenyan government launched an initiative to promote local vehicle production by attempting to build a passenger car (the Nyayo pioneer car) through the University of Nairobi. Due to lack of funds the car never entered commercial production. The initiative was however relaunched in 2019 by the Kenya Motor Industry Association (KMI) on the back of investments from global automotive companies looking to establish assembly plants in the region.

Other countries where capacitation is a priority include Uganda, where state-owned Kiira Motors produced compact two-seater electric vehicles in 2022 with the possibility of supplying Russia. The company also aims to produce electric buses for public transport. In Nigeria, Innoson Vehicle Manufacturing Company (founded in 2007) was the first company to manufacture vehicles and parts in the country. In 2022 the company debuted its first Keke — a three-wheeled motor vehicle that is the main means of transport in Nigeria. The Innoson Vehicle manufacturing plants in Lagos and Imo state have a combined production capacity of 60,000 Kekes per year. The Keke retails for $1,060.

Though technology is leading towards the development of electric vehicles (EVs) and autonomous vehicles (AVs), there is limited infrastructure to support these developments in Africa. However, the technological convergence between automotive, electrical and information technology companies can create jobs. Investing in research and development to tap into these emerging industries will thus be important to the growth of the sector. This research and development can focus on components manufacturing and value addition through locally sourced raw materials.

Leaning on cases from countries such as Germany, the US, Japan, China and India, Africa can leverage automotive sector development to further promote industrialisation across the continent. Sectors including metal fabrication, chemicals, plastics, and electronics, which directly contribute to the automotive industry value chain, will benefit from the spill-on effects through employment creation, revenue growth and an increase in overall contribution to the economy.

Despite expected growth of Africa’s automotive industry there are still many challenges facing the sector. These include the lack of infrastructure, high import tariffs, skills shortages, the poor and weak supply of prerequisites such as power and limited access to finance. With the right policies and investments, the automotive industry in Africa has the potential to boost industrialisation while promoting economic development on the continent and employment creation.

As per capita incomes rise in the region vehicle ownership is likely to continue to rise in parallel, and as such more vehicles will be required to sustain the spike in demand.

• Maposa is MD and founder, and Panashe a senior researcher, at strategy firm Birguid