Local car manufacturing in Africa could be boosted by AfCFTA
The pandemic caused severe economic and social disruption globally and it hit Africa particularly hard with many people likely experiencing extreme poverty. For this reason, it’s vital to work together and implement economic policies that will support industrialisation, create jobs and promote trade and investment in local automotive manufacturing.
Africa is in a unique position as the continental free trade area commenced in January which would create the world’s largest free trade area measured by the number of countries participating. That will allow nations to work toward shared rules of engagement and includes the auto sector where local automotive manufacturing becomes the central point.
Although the continent accounts for 17% of the world’s population, global consumption is a mere 1.3%. Experts predict that once free trade is fully implemented, with tariffs removed and rules of origin agreed, the effect of the African Continental Free Trade Area (AfCFTA) should be able to lift the GDP of most economies by between 1% and 3%.
While those numbers are certainly impressive, if we succeed in promoting manufacturing in the automotive sector, and associated skills and technology transfer, the everyday consumer will benefit the most. This could result in more people securing jobs in the formal sector jobs, get the necessary skills training, and vehicle fleets will be safer and kinder to the environment.
The Current State Of The Automotive Sector In Africa
When looking at the automotive sector in Africa, most consumers are unlikely to ever own a private vehicle. And those who do will likely have a second-hand grey import with poor access to a reliable after-sales network should they need parts or general assistance.
Another interesting statistic is that there are only 42 vehicles per thousand people in Africa compared to the global average of 182. With the rapid urbanisation of societies, there is an urgent need for improved mobility that is safer and more affordable.
Currently, existing vehicle fleets mainly consist of pre-owned vehicles from other regions which have been built to various standards. These cars are typically older rather than younger and have not been developed properly to navigate African road conditions and fuel types.
In 25 countries across the continent, emission standards don’t exist as most second-hand cars are imported and older than nine years. This results in fewer passenger and pedestrian safety features required as standard in more developed markets. Another negative impact, of course, is the effect of these vehicles on air quality.
Older models are also more prone to breakdowns but with non-existent or substandard warranties and service plans, they end up costing more to repair. Considering spare parts are so hard to come by, owning a car can be more frustrating than rewarding for many consumers in Africa even if they wanted to improve their quality of life.
Is Local Automotive Manufacturing Possible Across Africa?
Looking at it from a business owner’s perspective who rely on their vehicle, any downtime in service can be devastating. The only way to solve this problem is by implementing appropriate vehicle finance products but it has to be a concerted effort and something that local automotive manufacturing could solve.
Then there is the issue around opportunity costs. While many of these cars are imported legally, they are not part of a specific manufacturer’s official distribution system which is referred to as grey imports. This not only impacts consumer recourse but also deters potential investors from even considering the option of local automotive manufacturing.
By importing cars, the balance of payments for Africa is impacted negatively and that means nobody can buy capital goods necessary for investment and industrialisation. If there was ever a time to stand together and promote local automotive manufacturing, it is now, especially under the AfCFTA.
The automotive sector has been and will continue to be a key enabler of industrialisation around the world and it could do the same for Africa. This will allow countries to move into light industrialisation, trade certain components, raw materials and export goods and even vehicles.
The Future Of Local Automotive Manufacturing In Africa
Agreement on the rules of origin for the auto sector remains crucial as it allows goods with a certain amount of local content to be zero-rated for import tariffs when trading between African countries. The secret to success lies in balancing the needs of investors which will give them certainty for planning.
Governments must look at participating in the entire value chain and determine the best way to promote the sector across different market conditions and levels of readiness for industrialisation. This is exactly the kind of work that is taking place right now and we should all remain optimistic that they will be agreed upon.
Promoting A Unified Automotive Sector
Based on the agreement of the rules of origin, we must promote a unified automotive sector. This will allow countries like Morocco, South Africa and Egypt who already have local automotive manufacturing policies in place to sell their vehicles more freely in Africa. Other countries that are also developing the necessary policies to promote local automotive manufacturing include Ghana, Kenya and Rwanda.
The good news is there is even room for improvement as smaller economies in different phases of development will have the opportunity to join this value chain by supplying components or raw materials. The outcome will be a virtuous circle of investment and skills transfer.
Group1 Cars is a big supporter of local automotive manufacturing and strives to bring you all the latest motoring news from around the world.
