Why Africa Is The Final Frontier For Automotive Growth

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Written by Dana Sanchez

Four countries in North and South Africa account for 80 percent of new car sales on the continent, but that could change as the continent’s auto industry gets more cooperative and more competitive, according to tax and advisory firm Deloitte, BusinessDayLive reported.

Deloitte views Africa’s automotive sector as the final frontier for automotive growth, according to a Deloitte report, “Navigating The African Automotive Sector,” published Thursday. The viability of auto assembly or production in Africa is regarded as limited in the short term, but has largely untapped potential in the long term.

South Africa dominates new auto sales in sub-Sahara. Morocco, Algeria and Egypt cater mostly to domestic, Middle East and European customers in North Africa.

Comprehensive national investment strategies and harmonized regional trade policies could create at least three rivals to South Africa’s domination of vehicle-manufacturing in sub-Saharan Africa, Deloitte said.

Ethiopia, Nigeria and Kenya have the potential to take advantage of a new-vehicle market that some analysts believe could grow by nearly 550 percent in the next 15 years.

In 2015, Africa accounted for about 1.55-million new vehicle sales out of a worldwide total of 90-million — tiny by global standards — the report said. But some analysts think a continent-wide, growing middle class and economic growth could push sales as high as 10 million by 2031, BusinessDayLive reported.

As it stands now, there are 44 vehicles for every 1,000 inhabitants in Africa compared to the global average of 180, Deloitte said. In Ethiopia, there are just two vehicles per 1,000 people.

Nigeria

Like most of Africa, Nigeria’s vehicle market is dominated by commercial vehicles and imported used cars. Only about 10 percent of vehicles sold there are new, the Deloitte report said.

But Nigeria has already started to move in on South Africa’s dominance in new car sales with the help of the South African government itself, which promised to help Nigeria develop its automotive sector.

Several multinational auto companies have already established joint-venture assembly operations in Nigeria — almost exclusively with imported vehicle kits.

South African subsidiaries of Nissan and Ford are among companies exporting vehicle kits to be bolted together and sold in Nigeria as “locally made,” BusinessDayLive reported.

Nigeria has an untapped auto market and a population with relatively high GDP per capita, Deloitte said. That’s why it has generated the most interest among automotive players as a future market in Africa.

Kenya

Kenya’s longstanding auto industry is dominated by truck manufacturing, and it’s relatively low volume. As the gateway to East Africa, the country is a potential hub for auto assembly and production, Deloitte said.

The country’s “progressive business environment, regional market access and history of automotive assembly” position it well to compete, according to the report.

Ethiopia

Ethiopia has astonishing potential, according to Jeff Nemeth, head of Ford sub-Saharan Africa, BusinessDayLive reported. It has the world’s second-lowest vehicle-to-population ratio, Africa’s second-largest population — 94 million — and ninth-largest GDP — $63 billion.

The country’s government is geared toward industrialization, and Ethiopia is “the African economy that is most similar and arguably likely to replicate the development successes of China of the mid-1980s onwards,” Deloitte said.