MARTINA BIENE: It is plainly good business to run car plants in Africa

It is hackneyed to say we live in an age of disruption. It feels more true to say we have departed from an age of old certainties and norms, and that we have embarked on a new economic and political era that requires adaptation and flexibility. In the motor industry, that means looking to the horizon and thinking about who we’ll be working with in the future. 

In its original meaning, the word “disruption” suggests an inconvenience that you hope to be temporary. No observer of the motor industry — or any other large globalised industry — can seriously say the changes we have experienced in the past 20 years are temporary. To that I would add that it is neither wise nor helpful to suggest they are inconvenient. That is like scolding the tide for coming in twice a day — and it is your suppliers and customers you are talking about. 

When challenges come it is usually best to remind yourself of what it is you want to achieve. In that way the obstacles are sensibly regarded as environmental, not existential. In SA it is clear that we have had our challenges in the motor and other industries. We all know what they are — energy, logistics, crime, regulatory inertia and sometimes labour unrest — and we have seen good attempts from government to get on top of these issues, with mixed levels of success.

In our industry these issues are some of the negative environmental factors we need to balance when making decisions about future investments that run into the billions of rand. They are among a series of things we know to be true, and what we know to be true is, in the broadest strokes, positive and encouraging for Africa. 

We know that Africa will — with the right interventions — develop into a market of 3-million to 5-million vehicles a year. We have understood the growth potential inherent in what has been called the Africa demographic dividend. Africa presents a vast medium-term opportunity for manufacturers who are entrenched in the continent. The demographic effect, rising per-capita income and projected GDP growth rates show that Africa is developing at pace.

Therefore, it is not an act of kindness or a CSI project to run car plants in Africa. It is plainly just good business. That’s easy to type but harder to get right though. The phrase that “if you build it, they will come” trips off the tongue but doesn’t really reflect the complexity of modern industrial operations. In reality, a whole ecosystem of interconnected moving parts — not dissimilar to an internal combustion engine — needs to move together and with common purpose to create the direction you need. 

In the “old” world of stable and linear technological progress centred in a few key locations, with stable and reliable markets, long-term tax and regulatory certainty and stable global rules of doing business, this was complicated enough. In our “new” world of eye-watering technological change, the frantic pace of regulatory evolution, mind-boggling market development and hugely diverse cultural norms and requirements from suppliers, customers and regulators, it cannot be any clearer that two things must be true for Africa.

One is that the scale of the clean industrial opportunity for the continent, and the social benefits that will come with it, is vast. The second is that the continent will also need to depart the “old” world and embrace the new complexity. 

In the automotive industry, that will manifest in several ways. We will first need to push to move faster in our customs and standards alignment work already under way with the African Continental Free Trade Area (AfCFTA) secretariat. We should not let the execution of a process we all agree on get in the way.   

Continuing reforms

In SA, recently announced tax incentives to establish electric vehicle manufacturing here is hugely welcome, but we will need to see continuing reforms elsewhere, and not just in areas that affect motor manufacturers directly, but elsewhere too, where we believe our partners of the future will be affected.

If we are to take a medium-term view, we will need to start building electric or electrified cars on this continent in the coming decade. For that to happen we need a well-regulated and competitive local mining sector to deliver the minerals we need for battery manufacturing efficiently and reliably.

This will keep material costs down and help us deliver on the dream of developing EVs that are affordable to a mass market consumer in SA, in Africa and in our export markets — as well as ensuring that we keep our local content levels as high as we possibly can. 

It will also aid with cost predictability. Volatile prices in materials such as lithium or steel expose us to cost risks in supply chains and currencies, and can affect production costs. A well-regulated African mining industry means long-term contracts and planning, and means we can diversify our suppliers and ensure that we remain ethical consumers of minerals.

The good news is that it has been done before — in the platinum group metal (PGM) supply chain, which is complete and local, from mine to original equipment manufacturer.

The world is a considerably more complicated place than the 1990s and 2000s when the SA PGM value chain benefited from a surge in demand, but we cannot be deterred by this any more than the tides or the weather. It is the world we live in, and the opportunity is too big for Africa to be timid.

• Biene is chair and MD of Volkswagen Group Africa and president of the Association of African Automotive Manufacturers.