‘Nigeria has potential for over a million vehicles a year’
DAVE COFFEY, is the Chief Executive Officer, African Association of Automotive Manufacturers (AAAM). In this interview with BENJAMIN ALADE, he assessed the continent’s automotive market, and urged the Federal Government to implement the National Automotive Industry Development Plan (NAIDP), to attract investors into the sector.
The automotive industry has revved up to a higher gear in Africa, with South Africa and Morocco currently the only significant participants in the global automotive supply chains. What is your Association doing to ensure other African countries come on board?
Morocco and South Africa are really industrial automotive countries; our work in AAAM is working with governments like the Nigerian government, to introduce policies that allow real industrialisation to take place in Africa and that’s not the Semi Knocked-Down (SKD) production. It’s ultimately getting to Completely Knocked-Down (CKD), that is the real industrialisation. We identified a number of factors, which makes that key in the sector. First, is the political will; this is key to developing the automotive industry especially from an investment perspective and attracting investors. It is important that policy is legislated by the government. For instance, there is the National Automotive Industry Development Plan (NAIDP), which needs to be legislated, we need to encourage them, and not just legislating, but policy certainty that would attract investors. The second is to work with governments to create demand for such markets, and key drivers in generating the demand.
The African Continental Free Trade Agreement (AfCFTA) is a treaty yet untapped, how are you going to explore the opportunities?
The generated demands are a number of points that we need to make affordable based on access to funding available to the consumer. Nigeria is into a number of discussions on that. Second, is for the government to support the sale of new vehicles, and the third is to ensure that all the used cars are roadworthy.
In terms of regulation and the policy that is actually implemented, the NAIDP supports the manufacture of one or two avoidable components and when you do that such model can be exported to the regional economy or auto export market, and the assembling of that will offset the duty of bringing in multiple models and lower volumes. This allows the assembler to produce and manufacture cars competitively with high volumes with low numbers of models and the import of fully built units (FBU) would start falling. That introduces an affordable vehicle alongside affordable vehicle financing.
In regional economies, our vision for Africa is a situation where you have a regional economy buy-in into a vision of the auto sector where two countries or maybe three will assemble cars, while countries around those assembling hubs will actually manufacture components, and research around the environment, comparing competing supply chain hubs. This way, you are encouraging a whole regional economy to work. In buying into that economy, the whole region buys vehicles or assembles in one or two hubs, and supports the hubs with supplied components. That way, you are actually creating benefits to all the participating countries.
There will also be demand in the whole region, and everyone supports each other in that region. But it requires collaboration at the national and regional levels, which is very important. And that is the role that we want to play by working with the countries, and we want to work with the African Union to create this industrial strategy, and support these economies.
Second-hand car importation is rampant in the market, what can be done to eradicate this?
What is very important is to introduce a regulation around importing roadworthy second-hand vehicles because it is really about the safety of the consumer. Our intention is not to eliminate second-hand vehicles, because ultimately, second-hand vehicles would come in various countries but it’s a transition of the years.
What countries like Ghana have done is to restrict vehicles older than 10 years; they are making sure that vehicles that are to be imported are roadworthy, also to ensure that imported vehicles are not vehicles that have been written off in other countries. So there are control measures where one knows that you have a market for second-hand vehicles. There are certain regulations that countries can introduce to manage that effectively, because it’s absolutely fine to have second-hand vehicles as long as it is safe. But what happens when you introduce these regulations is that you focus on the safety of consumers and that is critical. That also removes the unsafe vehicle, which is probably extremely cost-effective, that is, depleting the object of cost versus safety.
AAAM was in Nigeria in 2017 with the intention to partner and invest, has there been any development thus far?
There has not been any development yet, and one of the challenges is that the NAIDP has not been passed into legislation. It is very important that this transpires, because it is holding up progress. No global original Equipment Manufacturers (OEM) have come into Nigeria yet to invest, but they are very interested in Nigeria.
Nigeria is currently reviewing the NAIDP, what do you think can be added to achieve the ultimate goal of AAAM?
What is very important is that NAIDP is part of the law, it is absolutely imperative that it transpires because that brings about investors’ confidence. We also have gone through the bill; it supports that a high volume production of automotive components be made locally. As mentioned, imported second-hand cars must be roadworthy, and we believe that the potential in Nigeria is a substantial one. Take South Africa as an example, with a population of 58 million people, about 530,000 new vehicles were sold last year in South Africa, but take the population of 200 million people with the right ecosystem, the market potential of new vehicles in Nigeria would be over a million vehicles a year. Nigeria needs to become a hub in West Africa like Ghana.
Vehicle finance schemes have been a major challenge for citizens to own a new vehicle, what can be done to ensure people can afford such vehicles?
It comes down to a number of institutions. The finance institutions need to work with vehicle manufacturers or dealers in structuring affordable finance. It is important that you keep a value, even when it is sold it becomes a residual value and brings down the cost of money. Some other regulations are critical to the approach. The other one is for the vehicle manufacturers to manufacture a car that is cost-effective. It is also very important for countries that introduce auto policies to follow the process of having the manufacturing of one or two models in high volumes, and they supply within their region or export out of Africa, and are able to import FBUs with no levy. But it’s a number of factors from structuring the finance model to be competitive, and providing cost-affordable products.
AAAM is partnering Deloitte Africa on the Africa Automotive Forum, what are we expecting from this gathering?
What is key in the automotive forum is that we are dealing with the three core topics, which need to be enabled into a large automotive industry in Africa. The first is the policy, second is the value chains, and the third is vehicle affordability. Those are already the topics we need to find solutions for, and the forum is about debating the solutions and trying to agree on the way forward from those discussions. It is really about creating alignment in Africa, in the world that the development journey for the automotive industry in Africa has started. We really want to communicate widely, and we want people’s contributions. At AAAM, we have our goals of what is required, we need to refine and improve them, we need to collaborate with the continent, and we need to work with all stakeholders in the continent to get bound, so we can come together and improve the automotive revolution in Africa. That is what this journey is about. It is about communication, and actually moving forward in the automotive industry.
We have three council sessions, we have a working group coming together to ask relevant questions, and we put this forward to the panellists. When the forum has ended, we are going to create a memorandum for people to be able to see the conversations.
Will this be a one-off, since there are always issues with implementation or amendment of resolutions?
This is the first forum that we are having; we will have a second one shortly as follow up on this. At the end of October, there is the European Union Africa Business Forum taking place in Brussels; there is a Sustainable Mobility Working Group on the 27th of October, which also deals with these issues. So, it is not a one-off, this conversation needs to continue, we are engaging with the European Union to come and support the development of industry in Africa. I recently had an engagement with the Ambassador of Japan to South Africa, to initiate support to work with us to help develop the auto industry in Africa. So it’s not a one-off; it’s a process that we are going through.
What measures would be considered to ensure African countries key into the resolutions from such a forum?
We are going to be working with the Secretary-General of the African Continental Free Trade Area, Wamkele Mene, and we would be supporting the Secretary-General in the development of the auto industry in Africa.
We have already engaged, and we shared the vision for Africa, and we would work with him to develop a forum for the automotive industry. It’s really about collaborating with the countries that are willing to participate, and by that way, we envisage a structure that will develop such economies in the continent. We are also going to engage government ministries in various countries in Africa, and share the vision of what we are doing in the automotive forum. We have ministers, who are very eager in engaging other key African countries. This is not something we are going to stop; we are going to institutionalise it with the broader African Union.
The COVID-19 has brought enormous disruptions to the business world. What is your view of its effects on the global automotive industry especially the African market?
It certainly has a negative impact on the sales of new vehicles, but on the positive side, going forward, is when automotive policies are infused, we still have an opportunity even though the market is tough to generate sales from new vehicles. Within the sector of automotive policy, the intention is to build the numbers of completely knocked down (CKD) cars being sold. Obviously there are key factors that will generate the demands, and to make sure that people have affordable finance. Also, the need to introduce an effective automotive industrial policy, because I see the demands and opportunities in the global market and in Africa, there is still an opportunity going forward, in the medium term to generate new demand and some of it comes from switching second-hand vehicles. The other is providing affordable finance, and affordable vehicles to increase new vehicle sales.
How is your Association mitigating the challenges posed by the pandemic?
Our mission at AAAM is to work with governments to introduce effective automotive policy, and we do that by engaging them and supporting them in the process. That is what we do across Africa, we are engaging with the Nigerian government, Ethiopian as well as Kenya, in actually reviewing their proposed policy so that we can develop a growing automotive industry.
What is your projection for the Africa automotive forum going forward?
The motorisation rate in Africa is 44 vehicles per a thousand people, the world average is 180. We believe that in the medium term that we could increase that with effective automotive policies implemented around Africa, we believe that 1.1 million can grow to five million vehicles sold in a year. Africa is the world’s next automotive power house, but it requires the countries, ourselves, private and public sectors to collaborate effectively with the coming vision of developing Africa. What effective automotive policy does in a country is, it creates good skilled jobs, and brings technology into a country.
The development and actualisation of the auto industry will not happen by chance, it requires deliberate activities on the part of the public and private sectors of the continent, and it requires a shared vision, and that is what we are committed to do. It’s a committed time and a journey and we would be part of that journey.