Automobile

 

INVEST IN AFRICA’S AUTO SECTOR

The rapid growth of the middle class in many African countries has pushed demand for automobiles to an all-time high. The opportunities that exists for automobile industry is vast and until now, remain untapped. The entire value chain for the automobile industry presents opportunities for investment. Being a relatively untapped industry, it presents huge opportunities for early investors to reap high benefits. A possible scenario will be for Original Equipment Manufacturers (OEMs) to strike partnership deals with local manufacturers for assembly. This will be a smart move giving to the fact that most African countries are deliberately taking policy steps to develop the industry in their respective countries.

The automotive manufacturing industry is a key component of modern manufacturing in an economy. However, it is not located in all economies and is not often associated with African economies – that is fast changing.

Automotive production does and has taken place in Africa. The industry is nearly 100 years old in South Africa. In the 1980s and 1990s, Nigeria achieved significant production and production occurs in Egypt and more recently Morocco. Smaller production activities take place in Kenya and some decades ago in Zimbabwe. 

The rapid growth of the middle class in many African countries has pushed demand for automobiles to an all-time high. The opportunities that exists for automobile industry is vast and until now, remain untapped. The entire value chain for the automobile industry presents opportunities for investment. Being a relatively untapped industry, it is expected to grow in a step-by-step model. A possible scenario will be for Original Equipment Manufacturers (OEMs) to strike partnership deals with local manufacturers for assembly. This will be a smart move giving to the fact that most African countries are deliberately taking policy steps to develop the industry in their respective countries; 

Nigeria is on course to becoming the hub of Africa’s automotive industry. With over 182 million people and a fast growing middle class, Nigeria is definitely the right choice for investors in the automotive sector.

The Nigerian auto industry has for years been largely import driven, however, in the early 80’s, the Federal Government set up state-owned plants across the country via agreements with European Original Equipment Manufacturers (OEM): Peugeot Nigeria Limited (PAN), Styer Nigeria Limited and National Truck Manufacturers (NTM) in Northern Nigeria; Volkswagen of Nigeria Limited (VON) and Leyland Nigeria Limited in the South, Anambra Motor Manufacturing Company (ANAMMCO) in the East.

In order to harness the potential of the automotive sector, the Nigerian government in 2013 announced a new national automotive policy, the National Automotive Industry Development Plan (NAIDP), which seeks to dissuade vehicle importation and inspire local production. The National Automotive Design and Development Council (NADDC) seek to ensure the timely implementation of the provisions of the policy as part of its mandate to revitalize the auto industry.

Nigeria imports about 400,000 vehicles (100,000 new and 300,000 used) annually, valued at about US$3.45 billion. The automotive industry currently generates around 2,600 jobs but has the potential to create about 70,000 direct jobs and 210,000 indirect jobs.

INVESTMENT OPPORTUNITIES

The auto industry presents a U$3.45 billion opportunity in import substitution. With over 182 million people of whom over 40 million are in the growing middle class, Nigeria represents a major potential opportunity for investments in the auto sector.

Nigeria’s potential new annual new-car market could be circa one million. However, it currently sits at about 56,000 in a market dominated by used cars. The current administration is making strong efforts to discourage importation and has revived 14 assembly plants for local production.

Investment Incentives

  • Pioneer Status (tax holiday) granted for 3 years and renewed for the next two years

  • 100 percent repatriation of profit net of taxes

  • Capital allowance not restricted. Granted in full -100%

  • Investment Promotion and Protection Agreement: The IPPA helps to guarantee the safety of investment of the contracting parties in the event of war, revolution, expropriation or nationalization.

Ghana’s automobile industry has been a driver of growth of the country as it is one of the most visible sectors to receive foreign investment. Some of the popular car brands in use are Toyota, Mercedes Benz, Mitsubishi, KIA, Nissan, Hyundai Volkswagen, and Renault among others. Ghana is a multicultural and ethnically diverse West African nation and is the 9th largest African economy. Its demand for automobiles and automobile spare parts is mostly driven by a sharp increase in its middle class as is the case with most African countries.

Local automobile manufacturers are springing up in Ghana with many still needing better deals with automobile OEMS.

40 years after it closed its original plant in the country, Volkswagen’s new vehicle production facility in Kenya began production February 2017.

The new factory receives part assembled Polos and Vivos from Volkswagen South Africa’s (VWSA) Uitenhage assembly plant in the Eastern Cape for final assembly. It will handle 1,000 cars this year, increasing over time to 5,000 units.

Ethiopia already produces about 8,000 vehicles a year using imported kits in very small plants.

BMW, Ford and Toyota have all increased their operations in South Africa over the past few years. South Africa exported 173,000 vehicles to Europe in 2016, up from 116,000 in the previous year, and forecasts show that production will rise by 48% to 900,000 units a year by 2020.

Other companies, such as Toyota, Nissan and Mitsubishi already have similar facilities in Kenya, mainly producing buses and trucks rather than cars. Total production stands at about 10,000 units a year, according to the Kenya Vehicle Manufacturers Association (KVMA).

Volkswagen also plans to launch a ride-hailing service, along the same lines as Uber, in Rwanda, possibly using an electric version of the Golf.

Morocco has followed a similar pattern to South Africa, offering incentives for foreign companies and developing Tanger Med as an export port for the sector. As a result, output increased from 100,000 vehicles in 2012 to 348,000 in 2016.

With an increased demand and production of automobiles naturally comes increased demands for auto parts:

AUTO PARTS INDUSTRY

The African auto parts market for passenger vehicles is emerging as one of the most important re-export markets, growing more than 11 per cent year-on-year, and estimated to be worth US$7.68 billion in 2013 and based on the double-digit growth of demand in key Sub-Saharan countries, the value of the Africa’s auto parts market is likely to double by 2020.

Countries such as Nigeria, Kenya, Uganda, Ghana, have witnessed double digit growth in demand of parts in the past five years. Focusing on the tremendous opportunities of doing business in the fast-emerging African market, there are currently more than 21.6 million cars on the continent’s roads which make up for nearly 70 per cent of spare parts consumption. This provides viable investment opportunities for OEMs to take advantage of the emerging African markets.

 


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