Despite its billion-strong population and rising income levels, Africa’s automotive industry is yet to be unlocked. Apart from a small number of countries, African automotive markets are mostly pure retail markets that are largely serviced by imported second-hand vehicles. In 2015, approximately 1.55 million new vehicles were sold or registered across Africa.
But while Africa’s automotive market is underdeveloped, Deloitte recognises the potential of the automotive industry in Africa and foresees room for growth across the automotive value chain including vehicle sales, aftersales, vehicle assembly and production. We regard the continent as the final frontier for the global automotive industry, and entering Africa’s largely uncharted automotive territories requires a mix of market insights, patience and a medium- to long-term strategy.
Deloitte Africa Automotive Insights – Navigating the African Automotive Sector: Ethiopia, Kenya and Nigeria
To unpack the complexity of the automotive industry on the African continent, we released the first report in our Deloitte Africa Automotive Insights series. In this series, we will monitor the development of the automotive industry on the continent and will provide insights on the industry. The report focuses on three key African economies where substantial business interest is currently being channelled: Ethiopia, Kenya and Nigeria.
We are not claiming that Africa has any immediate comparative advantage that has been extensively exploited, however auto companies are already interested in Africa – being active not only in South Africa, but Egypt, Morocco and Algeria. Most African markets are, however, currently some distance from being open for business given that 80% of the continent’s existing market consists of second-hand vehicles.
Globally, the strategy for manufacturers is to get closer to their consumers – and Africa has a growing number of consumers entering the middle income bracket. The value chain of the automotive manufacturing industry is massive, and on its own can kick-start the industrialisation of Africa, provided the continent can harmonise manufacturing and trade policies.
Deloitte’s vision for Africa’s automotive industry
We have a vision for the automotive industry in Africa. It involves identifying an anchor country, which already exists in the form of South Africa, which has the necessary enabling environment and export-focus, and which has already supported others, such as Nigeria, in establishing its policy. Secondly, it requires a regional approach in order to leverage economies of scale, with each country in the region identifying its unique role within what will be a single cross-country value chain.
This regional conversation has to start with individual countries putting in place their enabling investment environments and deciding where they belong in the value chain. It requires breaking down isolationism and aligning tax regimens – strategies which are not insurmountable, given the political will.
It is our view that achieving scale and unlocking the automotive market in Africa is a potentially sizeable medium- to long-term opportunity. A market-shaping approach, including a combination of interventions by industry stakeholders and governments that target supply-side and demand-side challenges, will however be required in the countries evaluated. Our report outlines some of the challenges, which include:
- Overcoming the over-reliance on second-hand vehicle imports;
- Designing and implementing an automotive policy to unlock the auto market;
- Consolidating a highly fragmented aftersales market;
- Addressing insufficient vehicle finance options; and
- Building a sufficient local supplier base.
Opportunities for the new “China’s” in Africa
The value chain will only be successful if it can compete with low-cost, labour intensive manufacturing bases such as Mexico and Thailand. As China is in the process of retooling its economy away from being a low-cost, labour intensive one, with the prospect of as many as 80 million job opportunities being exported to alternative countries –regions looking to capture these manufacturing opportunities ought to be positioning themselves right now.
Contact us to learn more on how to navigate Africa’s Auto sector. You can also download the Deloitte Automotive Africa Insights report here, for further reading.
Deloitte Africa Automotive Leader
+27 11 806 5173