The wheels may fall off, so may the propshaft. Tyres may burst, brake pads disintegrate, steering-wheels come loose, engines fail, and fuel leaks cause sudden fires.
Welcome to the world of car-buying in Africa, Reuben Gisore, technical director of the African Organisation for Standarisation, told an automotive forum in Durban last week. About 80% of the 5-million cars sold annually in Sub-Saharan Africa are second-hand, few come with any ownership history and many are dumped from developed countries. In one notorious incident, as Deloitte Africa automotive head Martyn Davies once recalled, cars that should have been scrapped after being severely damaged during Japan’s 2011 Fukushima tsunami-induced flood and nuclear disaster were instead dried out, tidied up and foisted on unsuspecting African customers.
You cannot blame these customers for buying. With little income and no access to bank finance, nearly all vehicle purchase transactions are cash. Buyers take what they can get.
Can the situation change? That was the question at the forum, part of the Intra-African Trade Fair. Both events were held to highlight manufacturing and trade opportunities created by this year’s ratification of the African Continental Free Trade Area agreement. Multinational vehicle and components companies say it offers the chance to create a pan-African motor industry that will not only meet the needs of a growing market for vehicles but also create a base for widespread industrialisation of African economies.
Last year 912,863 new vehicles were sold in Africa, out of a global total of more than 90-million. Mike Whitfield, head of Nissan Africa and president of the African Association of Automotive Manufacturers (AAAM), said it was ridiculous that a region with 17% of the world’s population should account for 1.2% of new-vehicle sales.
AAAM is leading discussions with governments across the continent to encourage participation in a motor industry. It has found a willing partner in the Egypt-based African Export-Import Bank (Afreximbank), which has pledged $1bn of funding over five years to support investment in vehicle and components manufacture, and to encourage the provision of vehicle financing.
SA-based banks are also driving this last issue. Economies and banking systems in many African countries are so disorganised that consumers have no access to finance credit. Not only are banks nervous about offering it in circumstances where it may be impossible to recoup bad debt or missing assets, but they also will not finance vehicles with no identifiable history. Alec Erwin, SA’s former trade & industry minister who is advising a number of African governments on automotive policy, told the forum: “For asset-based finance, you must be able to identify the vehicle properly. No-one will finance a used vehicle from Russia. No-one knows its age, history or condition.”
African automotive industrialisation would not halt the supply of used vehicles. Volkswagen SA MD Robert Cisek suggested their share could comfortably drop from 80% to 50%. But, just as in SA where used imports are banned, their numbers would come mainly from locally made vehicles that are bought new then sold on later into the used market. As Afreximbank put it: “We want used vehicles to be made in Africa.”
Whether that is exclusively possible is open to question but some countries have already started limiting imports. Rwanda, for example, says it will bar vehicles older than five years. If others will follow suit, AAAM CEO Dave Coffey believes Africa’s new-vehicle market could reach 5-million by 2035.
Much of that would be fed by Africa’s new motor industry. SA trade, industry & competition minister Ebrahim Patel said the number of vehicle manufacturing plants across Africa could go as high as 25. There are now fewer than a dozen, seven of them in SA and most of the rest in Morocco, where companies serve European markets. Herbert Krapa, Ghana’s deputy trade & industry minister, said persuading consumers that the loss of cheap imports would benefit them in the long term, was not easy. “People don’t want to pay more for their vehicles but Ghanaians are buying gradually into the idea.” Several vehicle and components companies have begun investing in Ghana since it started limiting imports and introduced investor-friendly automotive policies. Krapa said it planned to be the centre of a West African motor industry — a comment that drew an immediate riposte from Nigeria trade & industry minister Otunba Adeniyi Adebayo, who said motor companies would invest in his country once it implemented its latest automotive policy.
That is not guaranteed, given Nigeria’s previous failures to meet policy promises that have resulted in several wasted investments.
Nevertheless, Johan de Jager, COO of the Automotive Investment Holdings consultancy group, said there was strong interest from several countries in creating a West African motor industry. Gabon, Benin, Mali, Sierra Leone, Ivory Coast, Burkina Faso, Liberia and Niger were among those where manufacturing companies either already made automotive parts or had facilities that could be adapted to do so.
These products included tyres, wiring, radiators, foam, windscreen wipers, rolled steel and seat covers.
Whitfield added that the region was a major global supplier of rubber and copper, both major components in vehicle manufacture. “As things stand, these commodities are exported overseas as raw materials, then come back as finished goods. Imagine the economic impact of an industry that allows all that processing and value addition to take place locally. The benefits would be game changing.”
Article originally published in Business Live