German OEMs set down roots across Africa

Is Africa the next China? Germany’s car manufacturers certainly hope so. They’re setting down roots across the entire continent, counting on rising prosperity to create an appetite for its vehicles – but also working out new formulas to connect its high-priced product to low-income consumers.

With more than a billion people, Africa has 17% of the world’s population. Yet it accounts for barely 1% of global car sales. As pointed out in a recent report by German broadcaster DW, Africa has just 45 vehicles per 1,000 inhabitants, well below the global average of 203.

However, with the continent in the grips of rapid urbanisation and strong economic growth, it could soon catch up with the rest of the world. And Germany’s manufacturers are already getting in position to reap the benefit.

Head start
Germany’s car manufacturing association VDA has joined forces with the Association of African Automotive Manufacturers (AAAM) to improve both the production and the sale of automobiles on the continent.

VDA hopes the model for Africa’s automotive future is China, which had a tiny car market in the 1980s, when German manufacturers first set foot in the country, but which now is the biggest single car market in the world, for example representing 40% of VW’s global sales.

With consumer spending rising in Africa at an annual rate of 10%, the AAAM expects car sales in Africa to grow from 1.1 million in 2019 to 3 million by 2035. In short, Africa does feel like the global automotive industry’s ‘final frontier’.

German manufacturers already have a head start in Africa. Take the important South African market, where in 2019 they accounted for more than 90% of all cars produced and more than 33% of all cars sold.

Strongest markets
Until recently, the automotive markets of most African countries were too small, too poor and too unstable to be of interest. So, most of the OEMs’ investment has remained focused on the continent’s two traditionally strongest car markets – both in terms of manufacturing and sales: Morocco, which produced 360,000 vehicles in 2019; and South Africa, which managed just under 350,000 vehicles. (The third-largest producer is Egypt, with less than 20,000 vehicles produced in 2019).

But Germany’s OEMs are now venturing beyond the traditional footholds on either end of the continent. Africa’s sub-Saharan market may be comparatively small today, it “has the potential to become an automotive growth market of the future,” Volkswagen has stated. That’s one reason why the manufacturer now builds cars in South Africa, but also has assembly plants in Kenya, Nigeria, Rwanda and Ghana.

Those sub-Saharan assembly plants could become the start of more fully-fledged automotive industries. In fact, the AAAM already envisions regional auto manufacturing hubs in each of Africa’s four corners: not just north and south (i.e. Morocco and South Africa), but also east and west (perhaps centred on Kenya and Nigeria, respectively; with components supplied from manufacturing hubs in nearby countries). That vision dovetails nicely with the recently-launched African free trade area.

300 million
However, up to 80% of cars on the road are used vehicles imported from more mature markets. Despite the fact that Africa’s middle classes by some accounts now number 300 million, most are still ‘lower middle class’, unable to afford a new car – also considering the absence of vehicle financing tailored to these markets.

To overcome the gap between the price of its products and the budget of local consumers, manufacturers are experimenting with innovative mobility formulas. For example, VW is offering vehicles via ridehailing and carsharing in Kigali (pictured), the capital of Rwanda – using locally assembled Polos, Passats and Teramonts, which it makes available via its Move app.

The manufacturer is reportedly considering a similar offer in Ghana – and it is testing the provision of EVs, counting on Africa’s proven ability to ‘leapfrog’ from the back of the technological queue to the front, as it is doing in terms of micro-mobility, for example.

If the automotive industry is about to boom in Africa, it seems fairly safe to predict that the result will not look like the market in Europe or China, but rather, that it will be… typically African.

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