Plans for an Africa-wide motor industry have begun to move beyond the talking stage and into the realms of action. Motor companies have announced significant investment in Egypt and Algeria. Other countries are putting in place automotive-friendly policies that will allow them a slice of the action.
African Association of Automotive Manufacturers (AAAM) CEO Dave Coffey says that if all goes to plan at least half of Africa’s 54 countries will eventually be part of a pan-African motor industry producing more than 5-million vehicles a year.
In 2023, out of a global total of 93.5-million vehicles, the continent produced 1.17-million, of which 633,332 came from SA and 535,824 from Morocco. SA dominated African sales of new cars and commercial vehicles, accounting for 531,787 of the continent’s 1.05-million. Morocco contributed 161,504. The global total was 92.7-million.
In most of the world’s established economies, prospects for real market growth in new-vehicle sales are limited. In Africa the potential for growth is huge. For many multinational companies it makes sense to meet that demand through regional manufacture. For example, Stellantis — whose brands include Fiat, Peugeot, Citroën, Opel, Jeep and Alfa Romeo — wants 70% of demand across the continent and Middle East to be met from assembly plants situated in the region.
The AAAM, representing vehicle and component manufacturers and financial institutions, hopes African production and sales can both exceed 3-million by 2035. That’s the year SA’s government-led Automotive Industry Master Plan, launched in 2021, is to expire.
African-wide automotive development is a core part of the master plan, intended to double the size of the domestic industry by 2035. Even if it does — unlikely in view of SA’s slow economic growth — it will almost certainly lose its long-standing dominance of African vehicle production and sales. This is not necessarily bad news.
Not only will it have a smaller slice of a far bigger pie, but with its long history of automotive development SA is considered by many multinationals to be the base for a continental industry. It is already supplying vehicle kits, components and expertise to nascent industries in several other countries, excluding Algeria, where Hyundai, Stellantis and Chinese company JAC Motors have announced direct investment plans.
Coffey expects Algeria to build more than 350,000 vehicles annually in the next few years. The country was once a significant vehicle producer before rampant corruption put paid to the motor industry. Meanwhile, Egypt has partnered with Eastern Cape-based Volkswagen Group Africa to investigate the feasibility of manufacturing VW vehicles in Cairo.
In 2022 the Egyptian government introduced an automotive industry development programme to “foster local value addition, increase vehicle production volume, boost and attract investment, and improve emission standards”. Egypt wants to be a major vehicle producer, not the small-scale player it is now.
The principle is that Egypt and SA would make different VW products, allowing the two plants to service markets together. Likewise, Algerian-sourced Fiat 500 and Doblo cars could be marketed in SA, where Stellantis is preparing to invest R3bn in a new plant to build Peugeot Landtrek bakkies, whose export markets will include Algeria.
Of course, these investments are all designed for more than two-way trade. Products are intended for almost all African countries. As the ban on sales of petrol and diesel internal-combustion engine (ICE) vehicles takes hold in most of SA’s export markets in coming years, in favour of electric vehicles (EVs), the local industry’s export focus will shift towards Africa.
Enjoying the full benefits of regional markets will require the successful implementation of the African Continental Free Trade Area, which is intended to allow duty-free trade between African countries. For this to happen, countries must agree on “rules of origin”, which define where goods are made. A certain percentage of their value, which includes labour and manufacturing costs, must originate from a country for it to qualify for duty-free trade.
In the words of the SA Revenue Service “the origin of a product is important because it will determine how it is treated at the border of an importing country and the origin may impact on the import duty payable and admissibility into the country”.
Flood of cars
This is now a sticking point in African negotiations. Most countries want a 40% level (SA, with its established industry, is among them), but some are holding out for 30%.
In theory, 40% is not difficult for those countries that are awash with automotive materials and minerals. These include rubber-rich regions in West Africa and the many countries brimming with the raw materials required for EV batteries.
These minerals, such as cobalt, lithium, manganese and copper, are abundant in countries such as the Democratic Republic of Congo, Zimbabwe, Zambia and SA.
But China controls most deposits now being mined and sends them raw to China for processing. African countries want this beneficiation, where most value is created, to happen in Africa. To bypass China’s effective control of supplies, Coffey says American and European private sector investors are starting to show interest in looking for new African deposits, for processing here.
Foreign support is also required to remove another obstacle to African motor industry development: the flood of cheap, used cars dumped from developed economies.
SA bans the import of used vehicles (not always successfully) but in most countries they are the market staple. In Nigeria, for example, despite a population estimated at 220-million — more than three times that of SA — new-vehicle sales amounted to barely 10,000 in 2023 (SA: 531,787). Instead, it imported over 700,000 used vehicles.
Nigeria keeps promising to introduce policies that will encourage vehicle manufacture, but then fails to follow through in the face of consumer resistance. That is why neighbouring Ghana, with a more investor-friendly stance, is the chosen West African base for future manufacture. VW, Nissan and Toyota are among companies establishing assembly operations there.
To a point, one can sympathise with countries that rely on cheap imports. Most lack banking systems that allow consumers affordable access to vehicles. In many countries cash is king. Coffey says the trouble is that consumers don’t know what they are buying. Many vehicles arrive without service histories, or variants unique to the countries they come from, with no suitable spare parts in African countries. He says the average used car arriving from Europe is 17 years old.
Dumping
Some help is at hand. The EU is considering legislation that would require vehicles to be roadworthy before they are exported. Some African countries keen to join the automotive revolution have begun to stem the “dumped” tide.
For example, Ivory Coast, which has ambitions of being a regional bus and truck producer, banned the import of trucks older than 10 years and cars more than five. “It will eventually bring down these time frames,” says Coffey. “The biggest thing to counter dumping is a willing government. Many countries are going from no regulation to some regulation. It takes time to do this.” Not to do it could be catastrophic.
For the foreseeable future most of Africa will remain a market dominated by ICE vehicles. Lack of infrastructure will severely limit the market impact of EVs in all but a few countries.
A study by the University of California estimated that up to 3-million used EVs could arrive in Africa by 2050 from the EU, Japan and US. It also says millions more could flood in from China, which so far shows limited interest in joining the AAAM’s co-ordinated approach to African automotive development.
Coffey says that Kenya is one of the few countries so far to recognise the risk of EV dumping, by insisting that imported vehicles’ batteries must arrive with at least 80% of their power intact. So what would an African motor industry look like? In general terms, the idea is to have four interconnected regional centres in Southern, East, West and North Africa, based around SA, Kenya, Ghana and Egypt. Regional neighbours would supply components, raw materials and services.
Tanzania is considered a potential bus/truck base in East Africa. Ethiopia, once seen as a potential powerhouse linked to both East and North Africa, is slipping down the scale. Poverty, political strife, armed insurgencies and the almost complete absence of foreign currency mean its short-term prospects are slim — even if it has tried to highlight its EV credentials by banning the sale of ICE cars for private use. In 2022 Ethiopia sold 1,503 new cars — a number forecast to rise to 2,257 by 2028.
And what of Morocco, now SA’s only production challenger in Africa?
For now it has almost no interest in the continent. It is an extension of the European motor industry, with its eyes focused exclusively on markets to the north. It has drawn heavy investment from European vehicle makers and, more recently, from Chinese EV producers seeking not only a way into European markets but also a means to export EV batteries to the US.
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