Africa promises plenty as global car hub

Africa promises plenty as global car hub
Africa has tremendous growth potential for automakers in the mid to long-term. And even though this is little to write home about at present, South Africa is already playing an important role as a cost-effective production hub. Finished vehicles are shipped out from here to ASEAN and other parts of the world.

Since the turn of the millennium, some African countries have gained Independence and seen economic stability with an average GDP growth of 4.5 per cent annually. The automotive market has lagged behind this growth as per capita income is still relatively low. As a result, demand for vehicles has been largely met by a robust used car market throughout the continent.

Going forward, rising household incomes could enable a growing middle class to seek new light vehicles. This will give a boost to local assembly in Africa once import duty barriers are in place to incentivise automakers keen on investing in the region.

PwC Autofacts expects light vehicle production to increase from about one million units produced in 2015 to 1.45 million vehicles in 2022 at an annual growth rate of 5.5 per cent. South Africa will continue to lead the surge from 5.84 lakh vehicles to 6.9 lakh in 2022. In the process, its share is expected to contract from over half the production as other regions enter the fray.

Nigeria, for instance, is projected to nearly treble its light vehicle production from 27,000 units in 2015 to 75,000 units over the next seven years. Morocco, likewise, is expected to see numbers grow from 2.88 lakh units to 4.23 lakh in 2022 while Algeria will grow from 19,000 to 1.12 lakh units. Egypt is projected to nearly double output from 89,000 to 153,000 vehicles in 2022 while Ethiopia will be the only laggard with no big assembly expected in the coming years.

South Africa has already implemented the APDP (Automotive Production and Development Programme) which is intended to double the number of vehicles produced to around one million annually by 2020. To achieve this, exports will have to play their part. In 2015, 54 per cent of South Africa’s production was shipped to 85 destinations including the US, UK, Japan, France and Australia.

In the future, exports to the US and Japan are expected to level off though the UK presents a unique opportunity given recent trade flow uncertainties post-Brexit. While domestic sales have been hit by inflation and high interest rates, a strong economy and growing middle-class still promise plenty in the mid to long-term.

The other avenue for growth stems from South Africa’s growing trade relationship with Brazil. Europe is also an attractive destination, especially strong markets such as Germany and France. While C-segment cars have been traditionally sought after in South Africa, their share is expected to dramatically fall by 2022. The eventual winner is tipped to be the E-segment.

The challenge in South Africa is to ensure that manufacturing efficiencies are constantly honed to keep prices in check and make vehicles affordable. It will also have to cope with economic and political uncertainties (including currency volatility) while growing its supplier base and ensuring jobs. All this will ensure that it eventually emerges a force to reckon with as a global automotive hub.

Africa is already a thriving market for two-wheelers especially for Indian companies like Bajaj Auto, while Hero and TVS are as keen on increasing their presence.

At present, there are strong economic headwinds in big markets like Nigeria, but this is expected to be a temporary blip. It is very likely that a section of two-wheeler buyers will shift to cars once income levels increase.