Car mechanic in uniform checking car in automobile

It’s time to develop better automotive value chains in Africa

By Dave Coffey, Chief Executive Officer · AAAM[i] – African Association of Automotive Manufacturers

Where is the last frontier for significant automotive development and growth in the world? It’s Africa. The challenge then is, how can local skills and raw materials be better allocated to balance contributions to global supply chains and Africa’s own industries?

With the implementation of progressive auto policies, the new vehicle market in Africa could increase from 1.1 million units (per annum) in 2021, to 5 million by 2035. Such growth could introduce 20 new “Complete Knocked Down” (CKD) plants across Africa, where vehicles are assembled with both imported and locally manufactured components, and creating more and better-quality jobs.

On a continent where automotive motorisation rates are the lowest in the world with only 42 out of every 1 000 people owning cars (compared to the 182/1000 global average), providing affordable and sustainable mobility solutions is a pressing priority.

So, working together to create an ecosystem in Africa where new vehicles are locally manufactured, bought, maintained, and later sold (with assisted finance) is essential.

As not every country has the demand, capacity or skills needed to assemble a vehicle, scale will be key, and countries will need to find their niche in the auto-value chain. For auto to succeed in Africa, the whole ecosystem must be developed to include not only incentives but also affordable vehicle finance; skills development programmes; special economic zones; and incubators for developing component makers and exposing existing manufacturers to Africa’s potential.

The recently introduced African Continental Free Trade Area (AfCFTA) will aid in this endeavour, ensuring that no country that wants to be part of the automotive value chain is left out.  It doesn’t matter what level of industrialisation a particular country has reached, or even whether it can manufacture components. What matters is that the country is prepared to enact progressive automotive policies in its niche that create the right kind of ecosystem for attracting investment in the auto-value chain.

AfCFTA policies are about creating opportunities for inclusion in the value chain, from governments and general populace to Original Equipment Manufacturer (OEMs), component manufactures and investors.

The strength in raw materials

Many of the raw materials, such as manganese, cobalt, and rare earth minerals, required in the production of new energy vehicles are found in Africa. In fact, just last year, in April 2022, Zambia and the Democratic Republic of the Congo signed a ground-breaking bilateral agreement, to manufacture electric vehicle batteries.

With improved oversight of its value chains, Africa’s resources provide us with excellent opportunities for further developing our automotive component manufacturing sector and eventually supplying other countries, such as those in Europe. We are at the start of this journey, but with the right partnerships with existing manufacturers, we will reach our goals.

A recent regional value chain study conducted by Afreximbank and Automotive Investment Holdings (AIH) justifies this confidence. In seeking to identify which countries in the ECOWAS region have sustainable competitive advantages in the manufacture and supply of components to hub assemblers across Africa and abroad, it found many more companies than anticipated that could manufacture automotive components.

So, the base skills required to advance the continent’s automotive component manufacturing sector are clearly already locally available, with many companies across Africa already able to manufacture, repair, and service vehicles and components. However, doing so at-volume and scaling-up supply to Africa and other developed economies, will require more emphasis on upskilling local specialists, such as component manufacturers, vehicle service specialists, more CKD plants, and investing in better continent-wide automotive policies.

Africa’s potential is vast. With the fastest growing middle class in the world and a rapidly urbanising population, by 2034, we are predicted to have the largest working age population in the world. In addition, by the end of the century, Africa will be home to 13 of the 20 largest cities in the world, with Lagos taking first place.

So, investing in our ever-growing population, building skills that were previously outsourced or underrepresented, and reinvesting raw materials into our own products is essential for the future sustainability of this thriving continent.

As stated by the Ex-Minister for Trade and Industry in Ghana, Alan Kyerematen: “The development of the auto industry in Africa will not happen by chance – it requires courageous and deliberate leadership in both the public and private sector”.

[i] The African Association of Automotive Manufacturers (AAAM) is an automotive association focused on the continent of Africa. Our vision is to expand and deepen the automotive industry across the continent by working with African governments to shape and implement policies and ecosystems that will attract investors and unlock the economic potential of the continent. Our members from across Africa are global automotive manufacturers (OEM’s), assemblers, component manufacturers and service providers.