Developing automotive markets in Africa - The industry’s last frontier

28 October 2016

Africa, essentially the last continent representing significant expansion opportunity for the automotive industry, has in recent time become a key focus area for all global manufacturers. Things are starting to happen here.

Traditionally a dumping ground (recipient of) for huge numbers of used vehicles from the major regions (USA, Japan, Europe), key African countries are now changing focus to develop their own industrial base. The automotive industry is one of the key target industries. Strategies are being developed individually, and together by governments, with the assistance of global manufacturers to organise the development in a coherent way.

Why does it happen right now?

The main reason is that many countries in Africa, entirely dependent on commodity exports, have seen dramatic declines in their export revenues in the last two years. They can no longer afford buying large volumes of imported goods, including cars. Another, important reason is that African countries have the youngest, and fastest growing populations in the world. The governments are under increasing pressure to provide jobs for millions of young people. Broadening of African economies is the way forward. The automotive industry, the largest industry in the world, is perfect from this point of view as it has a strong economic multiplier effect – it creates many jobs not only directly in the manufacturing plants, but also in the surrounding supplier and services industries.

According to figures by the Center for Automotive Research, each job for an auto manufacturer creates nearly seven other positions in industries across the economy

What has happened so far?

The first African nation to develop an automotive industry was South Africa. In 1995 they established an incentive program called Motor Industry Development Program (MIDP) to attract foreign investment to the country. Today, several global OEMs produce 600 000 light vehicles in South Africa and export products from there to the world markets.

Other African countries are on the way to copy the South African example.

In the west, Nigeria is re-developing its automotive manufacturing capabilities, and has managed to attract the likes of Ford, VW, Nissan, Kia, in addition to several Indian and Chinese OEMs.

In the north, Algeria and Morocco appear to become hubs of automotive production for north Africa, but also for exports to Europe and the Middle East.

In the east, Kenya is emerging as a similar automotive assembly hub for this part of the continent.

Bright future

With its extremely low car density, Africa has a potential to become a very attractive market for the automotive industry. Automotive production on the continent will grow, for sure. This will make new vehicles more affordable, boost the industrialization of the economies, and lead to the growth of middle income households, which will be the main driver for new vehicle sales. The sophistication of the consumers will gradually increase, and this will in turn create demand for imported new vehicles, as it is the case in other emerging markets. So, the continent is moving in the right direction, the direction other regions went and succeeded before it.

Teresa Lehovd is the Head of Market Intelligence at Höegh Autoliners. She holds over 30 years of experience in the RoRo shipping industry, whereof 20 years in various market research positions where she is specialised in the research of global automotive and heavy equipment industries. Teresa is also a guest lecturer at the Norwegian School of Management in the area of Competitive Intelligence and Shipping, and frequent speaker at various industry conferences.

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