Industrialise or die, say vehicle manufacturers

Growing a more sustainable manufacturing base is an absolute imperative if we are to lower inequality in Africa, says Martyn Davies, Deloitte Africa automotive industry leader.

Many African economies are over-reliant on commodity exports, and their lack of manufacturing activity leaves them exposed to commodity prices’ downswings. The oil dependence in Nigeria and Angola are cases in point.

While strong GDP growth in many countries south of the Sahara is a positive development, this is a false indicator of the health of an economy, says Davies. A better real-time indicator of competitiveness is a country’s export basket – which provides you with a monthly indication of what people want to buy from you and how much they are buying.

Davies was hosting a discussion alongside the World Economic Forum on “Building Automotive Manufacturing Ecosystems in Africa”. His fellow panellists included Thomas Schaefer, MD Volkswagen Group SA; Markus Thill, President of Africa Region, Bosch; Mike Mabasa, CEO: Naamsa; His Excellency Alan Kyerematen, Minister of Trade and Industry in Ghana, and Dr Yinager Desse, governor of the Central Bank of Ethiopia.

Manufacturing provides structural employment and countries that have industrialised present better opportunities for employment and higher levels of equality. In addition, Davies says, manufacturing is a catalyst of the services sector.

With this in mind, the big motor manufacturers and component suppliers joined forces four years ago to create the Association of African Automotive Manufacturers (AAAM). The aim is to lobby governments to implement policies that would make it possible for local manufacturing and motor vehicle assembly to grow across the continent.

There is a pocket of automotive manufacturing in South Africa and a pocket in Morocco in the north, with nothing in between, says Thomas Schaefer, VP of VW Africa.

“This is a continent with 1.2-billion people and growing - if industrialisation does not take place, it will be a catastrophe. Nigeria has the potential to have a population that is bigger than that of the US. The consequences of not industrialising are serious.”

Of course, the motor manufacturers also see Africa as the last truly untapped market for affordable (new) vehicles, particularly given the stagnant market in South Africa.

If the right conditions are created he believes there is a potential market in sub-Saharan Africa for three to four million new cars, up from just 420,000 in 2017.

“But the potential will not unlock itself. There are structural issues that hold Africa back, such as the unavailability of financing, poor fuel standards, and the importation of second-hand cars.”

The lobby group has been working with governments across the continent, in particular Rwanda, Nigeria, Ghana, Kenya, Uganda and Ethiopia. They are supported by South Africa’s former trade and industry minister, Alec Erwin, “who knows more about policy in this space than practically anyone else”, says Davies. The team provides governments with policy advice, information on technical standards – fuel quality, emissions, crash standards – as well as the training, qualifications and skills to support the industry.

And they are making headway. VW has already established a small assembly plant in Rwanda; the Ivory Coast government signed an agreement in August with Toyota to build a vehicle assembly plant, and in Ghana the government launched its Automotive Development Policy in August.

“It is incredible what the team under the Trade & Industry minister Alan Kyerematen has put together in record time,” Schaefer said.

Ethiopia is working aggressively to establish industrial parks in different parts of the country.

“Our manufacturing performance is not good, so this is a focus of the government,” says Dr Desse. “We would like to have automotive work in Addis Ababa and will work closely with AAAM and Deloitte to get it there.”

The country imports tens of thousands of cars a year from China and the Middle East, consuming valuable forex in the process.

“The people at the port of Djibouti ask if the Ethiopians eat cars,” he quipped.

Whether each country gets the sector off the ground is dependent on several factors. Above all, it is whether a government has the political will to make the structural changes, says Schaefer.

“The difference between Nigeria and Ghana is that Ghana has followed through and implemented a policy,” he says.

The South African story proves that catalysing a motor vehicle industry can be good for a country’s industrial effort. The sector contributes 8% to local GDP, constitutes 30% of South Africa’s total manufacturing output, accounts for 50% of all vehicles sold on the continent, and employs 112,000 people in vehicle and component production.

Growth in the local industry has been stagnant for years, with many component suppliers simply shutting up shop because the profits are no longer there, says Thill.

“Costs have increased but volumes have not and productivity has not.”

“Manufacturing is hard and industrialisation complex,” says Mabasa. “The South African industry has seen sluggish growth, partly because we could not sell cars to the majority of people who lived in the country. Today we have ambitious plans.”

He is referring to South Africa’s automotive industry masterplan which has clear objectives for the industry. The aim is to increase the number of people working in the automotive industry to 224,000 and double the percentage of vehicles assembled in South Africa from 38.7% to 60%.

This will amount to 1.4-million vehicles produced annually.

The push into the rest of sub-Saharan Africa is not a threat to the local industry, adds Schaefer.

“This is not a South Africa push, this has to be a win-win for everyone. We cannot sell cars to Nigeria from here, they need to industrialise.”

“The potential is enormous,” concluded Andrew Kirby, CEO of Toyota SA. “We need to promote intra-African trade and grow foreign direct investment into the region. There are challenges, even when a government has all the will in the world; we have seen that with Ethiopia.

“We need a common vision and strategy as a region and continent. We can’t all be doing the same thing; we need a hub-and-spoke strategy, otherwise we will be competing with each other. From this you need a detailed ecosystem, logistics support and financing.”

However, on a positive note, Toyota has noted a 25% increase in its exports into the rest of the continent. “The demand is there,” Kirby says. BM