Volkswagen SA: Revving up for Africa
The continent has the potential to create a sustainable automotive industry of its own. But getting there will require new thinking
SA can be the catalyst for the creation of a successful sub-Saharan African motor industry — but first it must convince the rest of the world that it’s worth the effort, says Volkswagen SA (VWSA) MD Thomas Schaefer.
Except in SA, attempts by multinational motor companies to establish industries across the region have almost all failed. For example, in the Angolan capital, Luanda, a vehicle assembly plant and component supplier park still lie empty more than a decade after they were launched. In Nigeria, several motor companies have entered assembly joint ventures with local partners in the past five years, only for activities to grind to a virtual halt.
The catastrophic collapse in world oil prices in recent years starved Nigerian customers, including government, of income to buy vehicles. Then there is the blocking by customs officials of government-approved import-duty reductions on partly built vehicles destined for final assembly in Nigeria. These vehicles, known as semi knocked down, or SKD, are the traditional first step towards full vehicle manufacturing in developing countries. The face-off has undermined tariff structures.
The result is that Nigeria’s automotive development plan can’t get going. Former SA trade & industry minister Alec Erwin, who has advised Nigeria on automotive policy, says: "Once you start a programme and let it slip, it’s almost impossible to pull it back."
But pull it back is exactly what Nigeria must do. If Africa’s biggest economy, with one of the world’s largest populations, can’t get it right, what hope is there for the rest of sub-Saharan Africa?
"Our target market should not be 60m South Africans but 1bn AfricansThomas Schaefer
Schaefer, who is also chair of the African Association of Automotive Manufacturers, says decades of unfulfilled market potential have persuaded some international executives that the region is no longer worth bothering about. "There are people who think Africa is useless and don’t believe in potential outside SA," he says. "Fortunately there are others who have looked more closely and see opportunity rather than failure."
That’s why VWSA last week launched an SKD joint venture with a Rwandan development agency. In a world first for the German parent, the new company will not only assemble vehicle kits but also create a market by providing "mobility" services like car-sharing and Uber-style taxis.
The plant, in the capital, Kigali, has annual production capacity of 5,000 vehicles. Schaefer expects it to reassemble about 1,000 cars in the first year. Most of these will be the Polo car built in SA.
It’s VWSA’s second foray outside SA, following a 2016 SKD joint venture with Kenyan partners. Kenya is almost alone outside SA in sub-Saharan Africa in retaining a sustainable, if tiny, motor industry.
Schaefer says Rwanda and Kenya share a willingness to clear obstacles. Arguably the biggest challenge to a pan-African industry is the uncontrolled market dominance of used vehicles dumped by developed nations. In Nigeria, for example, hundreds of thousands of vehicles were bought last year but only 7,000 were new. In SA, the new-vehicle market was over 550,000.
Schaefer says both Kenya and Rwanda have undertaken to rein in unregulated imports. "Kenya has the same population as SA but sells only a fraction of the number of our new vehicles. There’s no reason its market should not be the same as ours," he says. "And why should Nigeria, with three times our population, not sell what we do?"
What it means
The new Rwandan company will not only assemble vehicle kits but also create a market by providing ‘mobility’ services like car-sharing and Uber-style taxis
All this requires co-ordination. Erwin, who describes himself as an "honest broker" in SA’s automotive discussions with other African countries, talks of a "hub-and-spoke" strategy. SA, Nigeria and Kenya would be vehicle manufacturing centres, with neighbouring countries offering support services such as small-scale assembly, components or technology. Rwandan president Paul Kagame said at last week’s Kigali launch: "We need an integrated regional manufacturing base."
Ethiopia has also been mooted as a manufacturing hub, but is not a member of the World Trade Organisation, which could cause trade compliance problems.
The success of a sub-Saharan strategy would require a duty-free trade zone. Past attempts to create one have not got far, but Erwin believes prospects are improving as countries recognise their economic futures are interdependent.
That includes SA.
Last week’s announcement by Mercedes-Benz of a R10bn investment in its SA subsidiary may have underlined this country’s dominance of the regional industry, but it can’t thrive in exclusion. Policy makers talk of doubling SA’s annual vehicle production from its current 600,000 over the next few years — but that will require more exports.
The creation of motor industry hubs, accompanied by industry-friendly policies across the region, will unlock new markets, says Schaefer. "Our target market should not be 60m South Africans but 1bn Africans. New manufacturing centres are not a threat to SA, but an opportunity. They are creating a bigger pie for everyone."