Africa’s car market remains viable despite COVID-19 setbacks

•As Nigerian sector attracts over $1 billion investments

Despite the COVID-19 pandemic, new-vehicle sales in sub-Saharan Africa, outside South Africa, can grow from about 100,000 to about two-million a year in the next 15 years – and this is a “very, very conservative” estimate, says African Association of Automotive Manufacturers (AAAM), Chief Executive Officer, Dave Coffey.

“I think there is an opportunity coming out of this in that, around the world, organisations may want to diversify their sourcing. Globally, companies will consider localising and regionalising supply chains and new forms of technology.”

Besides, since used vehicles account for more than 80 per cent of vehicle sales in Africa, Coffey sees this as an opportunity, “because we come off such a low base of new-vehicle sales that even in the post-COVID-19 environment, new-car sales will grow in the right automotive ecosystem.”

Already, Nigeria’s automobile industry received a boost with over $1 billion investments from renowned auto manufacturers in 2019, thereby lifting capacity to at least 408,870 vehicles yearly. Furthermore, manufacturers like Honda, Peugeot, Innoson, and Mitsubishi among others have also created employment for about 4,782 Nigerians.

The Director-General, National Automotive Design and Development (NADDC), Jelani Aliu, disclosed this recently in his message to the on-going review of the Nigerian Automotive Policy Bill, and Nigerian Automotive Industry Development Plan (NAIDP), in Abuja. He also said the NADDC has put in place a N5billion vehicle finance package to assist Nigerians to buy new cars, repayable at agreed terms instead of the current craze of patronising fairly-used cars, which has continued to drain the nation’s foreign reserves, and creating jobs for other countries.

General Manager of Stallion Motors in Nigeria, Arpita Roy Luthra, in a chat with The Guardian, said with the finance initiative, 2020 sales will be much better. She said: “I foresee an increase in sales in 2020. In fact, we are very happy with the kind of direction the government is taking. One is the closure of land borders, so that has boosted our businesses.”

However, Coffey insists creating the “right automotive ecosystem,” is key, and “There are many facts out there that show there is great opportunity in Africa – from a growing population to a growing middle class to growing gross domestic product.

“In Africa, we have a median age of under 20, whereas, in Europe, this is in the 40s. And I do want to mention the motorisation rate. There is low vehicle density (in Africa), at 42 vehicles per 1,000 inhabitants. This is substantially lower than the global average of 180. America is on 830, and Europe is on about 580.

“So, there is a huge opportunity for growth and job creation, as long as there are effective automotive ecosystems.”

Key Drivers
It is critical that an African country wishing to start up an automotive assembly and sizeable new-car sales industry has the political will to introduce an effective automotive policy, advised Coffey.

“That is the starting point. And this is where I applaud the Ghanaian Government for approving their Customs Amendment Bill in Parliament in March, this year.

“As used cars account for more than 80 per cent of vehicle sales in Africa, there is an ageing fleet in the heart of Africa.
“This results in safety challenges where Africa has the highest per capita road fatalities in the world. According to the World Health Organisation, this is expected to increase by 112% by 2030.

“Reducing second-hand and grey-vehicle imports is key to driving new-vehicle demand. Africa is used as a dumping ground for used vehicles; so, limiting or managing second-hand vehicles are important to ensuring safety, and to support the manufacturing and assembly of vehicles.”

Admitting that African governments cannot “just switch off” the flow of imported second-hand vehicles. “However, it is important that we, over time, move towards creating a second-hand car market from the sale of new vehicles.”

Equally important are legal certainty and political predictability, “Investors need confidence. A stable regulatory framework is, therefore, required, and, where applicable, certain aspects need to be passed into law.”

Another vital aspect is market demand, Coffey said. “It’s important that asset-based vehicle finance is introduced, as new vehicles must be affordable. It is pointless going in there and having all the policies and developing the ecosystems and people can’t afford the vehicles. We need to work with financing institutions to bring affordable financing to the market.”

Other drivers for developing an auto policy and effective industrialisation involve more conventional investment drives and incentives, with “clear criteria” for automakers to register and enjoy the benefits.

Coffey continued: “Obviously, standards, vehicle homologation, identification are also important. We need to avoid those that are not serious about the real industrialisation in Africa. To that point, the assembler should be an original-equipment manufacturer (OEM), or vehicle manufacturer), or supported by an OEM, thus enabling technology transfer and competitiveness.”

Other challenges include infrastructure, the quality and standard of fuel, as well as foreign exchange to fund imports.

Coffey said the AAAM is working with Ghana, Nigeria, Kenya, and Ethiopia to look at the establishment of strong auto sectors in these countries, adding that “Egypt is busy with the approval of an auto policy which will be in the Parliament soon.”