DAVID FURLONGER: Auto speedbumps hold back progress in Africa’s motor industry
War in Ethiopia, the collapse of the sector in Algeria and Nigeria’s continued failure to meet policy commitments are among the hindrances
Proponents of the concept of continent-wide vehicle manufacturing are confident it will come about, pointing to the successful introduction of automotive-friendly policies in various other countries. Encouraged by them, and by the adoption of the African Continental Free Trade Area on January 1, the SA-based African Association of Automotive Manufacturers (AAAM) is negotiating with several other governments to enable the creation of an interlinked set of regional industries.
A kick-start is urgently needed. Africa, with 1.3-billion people, accounts for about 17% of the world’s population but barely 1% of vehicle sales. In 2020, out of a global market of 78-million, it contributed 912,863. Of those, SA sold 380,206, Egypt 219,732 and Morocco 133,308.
These three also dominated vehicle production. SA built 447,218, Morocco 248,430 and Egypt 23,574. Their combined 719,222 made up almost the entire African total of 720,156.
These countries are the logical core of a pan-African vehicle manufacturing strategy. SA and Egypt have made it clear that they want to be involved. Morocco, however, shows little interest. Its industry, dominated by French companies, exports over 90% of production, mainly to Europe, and considers itself a branch of the European motor industry. Africa is not a consideration. However, AAAM CEO Dave Coffey is trying to convince the country otherwise.
Mike Whitfield, former MD of Nissan SA and now head of its sister company in Egypt, is a leading voice in efforts to turn the Egyptian industry into an African hub. The Cairo government says it supports the idea, but has acted counterproductively by imposing punitive duties on components imported for local vehicle assembly while allowing built-up European vehicles to land duty free.
In Algeria, the motor industry has collapsed in response to prohibitive import duties, shared-ownership demands, political instability and alleged corruption. In 2019 the industry built 60,000 vehicles. Last year the number was 754 after some companies disinvested and others mothballed their plants.
Nigeria, home to Africa’s biggest population and economy, has always been considered the natural West African base, but multinationals are frustrated with its repeated failure to keep its word. A once thriving industry collapsed in the 1980s, when corruption and policy changes provoked wholesale disinvestment by foreign companies. Some returned, on a much smaller scale, after the government agreed to a new, investment-friendly regime in 2014, but this was never signed into law and the government quickly ignored it. Most recently the country announced plans to reduce import duties on new vehicles from 35% to 5%, making local assembly uneconomic.
The country has also failed to rein in imports of dumped, used vehicles – the curse of the motor industry across Africa. A government report estimated that of 734,000 vehicles imported into Nigeria in 2017, 90% were smuggled. By 2019 imports had grown to 1.3-million. The 2020 new-vehicle market, in a country of nearly 200-million people, was just over 5,000.
That’s why motor companies, including Nissan, Volkswagen and Toyota, are shifting their West African focus to Ghana. Nigeria’s neighbour has put in place several auto-friendly policies, including the control of used imports, Coffey says. “Ghana has been very proactive,” he says.
It remains to be seen how Nigeria, accustomed to being West Africa’s top dog, will take to subsidiary status. Some motor industry planners are keeping their options open, saying Ghana and Nigeria can both be vehicle manufacturing centres – though that doesn’t quite fit multinational motor companies’ hub-and-spoke model for regional automotive development, in terms of which one country manufactures vehicles and neighbours provide components, technology and services.
A similar conundrum exists in East Africa, where Kenya, also willing to meet investor requirements, is the chosen hub.
Just to the north, however, is Ethiopia, another country too big to ignore. There, too, the government is making welcoming noises. Several companies have said they are interested in investing there, despite barely 1,000 new vehicles having been sold in 2020. With a population of 110-million, second in Africa only to Nigeria, and natural resources, it’s a tempting prospect.
Given its position in the far northeast of Africa, Ethiopia could partner either Kenya or Egypt, or both, in a regional motor industry. However, with yet another internal war under way in its Tigray province, this is not a good time for multinationals to be seen doing business with the central government, which is accused of ethnic cleansing and atrocities against civilians.
Coffey and others say these challenges are inevitable speedbumps along the way and that a pan-African motor industry will become a reality. Given the active participation in the process by multinational motor companies, there is no doubt about the collective will.
Experience, however, has convinced them to be wary of deadlines. Coffey hopes the sub-1-million African new-vehicle market can grow to 5-million by 2035, providing the platform for a sustainable pan-African industry.
If it takes a couple of years longer, companies are prepared to wait. After all, it’s 98 years since Ford established Africa’s first vehicle assembly plant, in Gqeberha in the Eastern Cape. Others followed, expecting SA and the rest of sub-Saharan Africa to provide them with rich pickings. With regard to the countries beyond SA, they are still waiting.
As Toyota SA executive chair Johan van Zyl puts it: “No view of Africa is short term. It’s always the day after the day after tomorrow.”
Maybe, just maybe, we’re down to simply “tomorrow”.
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