‘Regional automotive industry ecosystem requires affordable vehicle financing’
Increasing the motorisation rate in Africa from about 42 vehicles per 1000 people to at least the world average of 180 vehicles per 1000 people provide an opportunity for industrialisation, economic growth, balance of payments and job creation in Africa, an industry body African Association of Automotive Manufacturers (AAAM) have said.
According to AAAM, this presents an opportunity to increase the number of new vehicles sold, and facilitate automotive and component manufacturing in African countries.
Effective automotive industrialisation depends on supporting and enabling policies in the countries along with an automotive ecosystem in which companies in various African countries will participate in regional automotive manufacturing hubs-and-spokes.
Chief Executive Officer, AAAM, Dave Coffey, said automotive manufacturing must ultimately be done at scale to allow for competitive and sustainable production over the long-term, but conservative estimates indicate that the fewer than one-million new vehicles sold a year in sub-Saharan Africa will rise to more than two-million new vehicles a year within fifteen years, he says.
The AAAM’s objective is to support industrialisation in Africa and this can be achieved progressively and sustainably by helping governments to develop sound automotive programmes, which require policies and relevant legislation dealing with incentives, second-hand vehicles, quality standards, vehicle financing and skills programmes to encourage automotive and component manufacturing.
However, a regional approach is important to facilitate production at scale, he emphasises, as it is not possible for every country to assemble vehicles competitively. Some countries may assemble vehicles or other forms of motorisation while other countries may manufacture components and provide services to the assembly hubs.
“If African continental free trade is effected, the main beneficiaries will be those countries that are already industrialised with significant automotive manufacturing industries in place. Free trade on the continent will increase the barriers to creating automotive manufacturing supply chains in countries that do not already have significant industrial productive capacity unless this aspect of industrial policy is specifically catered for in the African Continental Free Trade Area.”
Therefore, a regional African approach to identify and leverage the comparative advantages of a country, including existing manufacturing capacity and raw materials availability, as well as their role in an automotive supply chain in a hub-and-spoke approach, will provide the broadest benefits for countries’ industrialisation drives and serve the long-term growth prospects for the automotive industries in Africa, explains Coffey.
More than 90 per cent of vehicles in Africa are bought second-hand, but not all imported second-hand vehicles are of an acceptable safety standard or correctly declared at ports of entry. Putting in place regulations that require second-hand imports to be of a certain standard and below a certain age will enable countries to not only improve the safety and reduce emissions of vehicles on their roads, but also offset substandard-quality imports and incentivise local production.
A successful regional automotive industry ecosystem requires affordable vehicle financing, and the AAAM has engaged various financial institutions on affordability and asset-based financing. This approach is not common across the continent, and financing is typically based on an individual’s earning capacity and not using the residual value of the vehicle in a system where the value of the vehicle is preserved.
“A whole ecosystem approach, including policies, incentives regulations, standards, manufacturing and financing, is required to support the movement of African countries into the effective industrialisation of the automotive industry. The quality of products, maintenance, service and components is crucial to create a supportive ecosystem, and is linked to the insurance of vehicles and impacts directly on affordable financing,” he said.
The aim is to ensure that the countries’ industries add value in the supply chain and participate fairly and sustainably. Further, regional cooperation on policy and standards is important to ensure that automotive industrialisation is sustainable and to the benefit of all participating countries’ industries.
Automotive component manufacturers and suppliers will follow volume production, and original equipment manufacturers are more likely to establish semi-knockdown and progress to complete knockdown assembly operations as the sales of new vehicles grow, supported by an effective ecosystem.
South African component manufacturers are also exploring further opportunities to manufacture in Africa. Their products conform to original equipment manufacturer quality standards and, therefore, policies that regulate good-quality products are important to allow for safety and fair competition with imports.
“An effective way of developing aftermarket automotive component manufacturers is to determine what processes are required and to identify similar processes in existing industries where the manufacture of that specific component does not exist. Additionally, linking up with manufacturers will also help to establish partnerships between companies with similar processes capabilities, which supports the transfer of skills, best practice and technologies.”
AAAM’s vision is to support the industrialisation and development of automotive industry nodes within the Western and Eastern regions of Africa and to link these to the Southern African supply chains and automotive manufacturers to these nodes. The association provides policy advice and market and industrial information for governments and businesses to assist in forming partnerships and drive the development of the automotive industry in Africa, concludes Coffey.