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Home Features Market Analysis: The 'ins and outs' of Africa

Market Analysis: The ‘ins and outs’ of Africa

In the first of a triple-header collaboration T&FME and Glasgow Consulting Group look at the African market

Africa has more than a billion people, 17% of the world’s population, but accounts for only 1% of cars sold worldwide. After the European car industry moved much of its production into Eastern Europe, some believe the next step is Africa, both for production and a growing consumer market. However, due to Due to limited disposable income and the high cost of new vehicles, second-hand vehicles dominate the continent’s automotive retail sector. These are mainly imported.

In 2020 (the latest complete set of sales data), the market was dominated by one brand Toyota. The car-maker enjoys a 43% share of new car sales but the continent is a happy hunting ground for its other Japanese competitors, even if they are some-way behind. Indeed, the next ranking auto-company is Nissan at 13%, just narrowly ahead of its Tokyo-headquartered counterpart Isuzu at 12%. So popular are the Japanese brands that you have to get past Mitsubishi’s 7% to get to a non-Japan-based manufacturer with Ford (6%) placed at the fifth in the ranking of new car sales.

A large geographical area and a diverse set of cultures and economies makes the African car market difficult to assess but there are clear trends that can be applied to much of the continent. It remains a market where challenges and opportunities are in plentiful supply, even if high import duties continue to hinder the imports of new vehicles.

This is a market where the used car market is consequently a major force in sales. The high tariff placed on new car imports has seen aging second-hand vehicles appreciate in value but there are further constraints. The price of importing new cars is exasperated by poor availability of vehicle finance in a territory where household budgets are under pressure and unemployment is high. With government priorities often elsewhere and currencies in flux, the regulatory landscape and scattershot approaches to funding makes both the import and opportunities for local assembly challenging for manufacturers and the automotive channel alike.

“In most African countries, the market for vehicle manufacturing is non-existent but poses an opportunity for new investment as the sector is dominated by retail of grey inputs including pre-owned vehicles,” explains Glasgow Consulting Group’s director Vishal Pandey.

He adds that 85-90% of passenger vehicles are imported into Africa to cater for the used passenger vehicles market. Annually, approximately 800,000 used passenger vehicles are imported by the leading importers in sub-Saharan Africa from Japan, EU and the United States. Germany holds over 50% of EU passenger vehicles exports to Africa. West African countries import 70% of overall used passenger vehicles into Africa.

“In the majority of African countries, car buyers would rather buy a five- to six-year-old imported car than buy a new car at a price premium of 15-20%,” says Pandey.

Similar to other markets, such as the GCC, Africa was expected to rise after 2019 but due to Covid the market fell further by 28%. However, Pandey says that indications going forward are positive.

10 November 2020, Berger, Lagos-Nigeria: Commercial berger road in Lagos Nigeria

Disposable income is on the rise, with the automotive industry contributing as an employer to hundreds of thousands of workers in a nascent automotive assembly and manufacturing network based largely in South Africa, Egypt, Morocco, and Algeria. With further government initiatives expected to attract expand local assembly further and a growing economy the automotive industry is anticipated to grow, says Pandey.

The GDP is predominantly driven by the economies of South Africa, Egypt, Nigeria, Morocco and Algeria. The fact that many of them are also integrated into the global automotive industry is no coincidence.

Vehicle and component production is largest contributor in a South African manufacturing economy. Pandey notes that market has struggled since the onset of Covid with weak business and consumer confidence and financial pressure on consumers leading to a decline of passenger car sales. Egypt in contrast has seen a surge a new vehicle sales with around half of them assembled locally.

“The Egyptian passenger car industry’s growth is driven by accelerated population growth, vehicle sales and government action on emissions,” he remarks.

Nigeria in many ways typifies the wider Africa market beyond the Egyptian border.

“The country majorly depends on imports of car due to insufficient production,” explains Pandey on a market dominated by Japanese brands. “Demand for spare parts is driven by growing number of used cars in Nigeria.”

Elsewhere, Morocco witnessed a slump in growth due to lower footfalls in the showrooms due to Covid 19. However, the Moroccan car industry directly employs over 200,000 people, and it could even be expanding its manufacturing footprint.

“Foreign direct investment is continually increasing due to government support through various initiatives – such as tax exemptions for the first five years, VAT exemptions, and land purchase subsidies,” notes Pandey.

North Africa neighbour Algeria’s automotive industry is recovering due to the government strategy to build up local production and ban the importing of vehicles but, Pandey explains, its passenger vehicle market also faces a decline due to COVID-19 restrictions and by the fall of oil price and exports.

Since the imports of used vehicle share is high, the age of the continent’s vehicle fleet is higher than in other places. Couple with the generally poor road conditions and adulterated fuel, the demand of service is high.

This has led to the continuing rise in demand for replacement parts in the aftermarket. Consequently, African demand for auto parts and accessories is growing due demand led by countries such as Kenya, Ethiopia, Tanzania, and Uganda. Authorised dealers constitute approximately 20 to 30% of the aftermarket sale of parts while the independent aftermarket distributors and retailers account for the lions share. Used engines are in great demand in many African countries which have a big market for reconditioned automobiles. Automotive batteries, tyres, spare parts, ball bearings, water pumps and a host of electronic goods are of substantial requirements in most African countries.

The African automotive aftermarket is dominated by salvage parts, grey parts and cheap imports from China, as the market is highly price conscious and look for cheap bargains. The unstructured nature of the African market helps ensure the share of non-genuine parts is the biggest challenge to the automotive aftermarket in this region. However, the highly attractive trade agreements such as EFTA, EU FTA, ECOWAS, Egypt-UAE/Agadir Agreement/ PAFTA and preferential import duties as low as 0-2.5%, that countries have amongst other African countries, and with the United States, Mexico, EU and MEAST have indeed played a central role in development of the local value-chain.

Overall, the aftermarket represents a major opportunity for the those able to supply from or via Middle East hubs, according to Pandey.

“The presence of significant used vehicle imports is a key contributing factor to the component potential in Africa,” he continues. “Demand in Africa for auto parts and accessories is growing at 5.7% CAGR and will be worth USD 4.7 billion by 2026,” explains Pandey. “There are nearly 657,000 vehicles on the continent’s roads today, creating huge demand for parts and accessories. Africa is therefore becoming significant market for global manufactures of accessories and engine components such as bearings, brake pads, spark plugs and filters.”

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Stephen Whitehttps://truckandfleetme.com/
Stephen White was formerly editor of Big Project ME.
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