There are many ways to grow the vehicle manufacturing industry in Africa. Devising solid policies and plans is one way to ensure growth, but cooperation is another key factor that will drive vehicle manufacturing on the continent. The African automotive market needs to be restructured around cooperation between all stakeholders in South Africa and other African countries.
“Automotive manufacturing occurs in economies where specific policy programmes have been developed. There is, therefore, an opportunity for South Africa to work with African partner economies to develop an efficient African manufacturing and intra-sectoral trading system,” says the chairperson of UBU Investment Holdings Alec Erwin.
Such cooperation exists between manufacturing industries in Europe, where stakeholders all work together towards the same goal. In Africa, international cooperation will also help to improve the different economies of the various countries and regions. The southern and eastern African region could significantly benefit when countries such as South Africa, Ghana, Kenya and Ethiopia cooperate with one another.
Second-hand vehicle imports present challenges
The new vehicle market in sub-Saharan Africa is fiercely challenged by the second-hand Asian import sector. In 2016, around 1.6-million vehicles were sold in sub-Saharan Africa. Of these, about 664 000 were new vehicles manufactured in Africa and 838 000 were pre-owned imports. The rest were new vehicles imported from Europe and American markets.
These cheap Asian imports are an attractive alternative for citizens living in countries with low levels of income, weak currencies and an absence of vehicle financing options. Low-cost imports from India and Japan dominate the markets in countries such as Zimbabwe, where residents have to buy cars in a lump-sum of cash due to the lack of bank loan options.
Cooperation agreements need to be long-term
According to Erwin, automotive manufacturing agreements between countries need to focus on the long-term production of vehicles, rather than short-term sales. “The [cooperation] programmes work on encouraging long production runs of certain vehicles and allowing for rebates on other models for the original equipment manufacturer (OEM) that does the longer production runs in the economy,” he explains.
The worldwide automotive industry is like a large trading system of vehicles and their components. The cooperation of international governments depends on their individual policies and intergovernmental trade agreements. These agreements need to strengthen long-term trade relations between African economies.
“In Africa, there is a favourable conjunction of events that needs to be seized as a strategic opportunity. Firstly, economies, such as Nigeria, Ghana, Kenya and Ethiopia, are seeking to implement automotive programmes. Secondly, South Africa, working with its global OEM partners, is of the view that an African automotive partnership of some form is in the best interest of African economies,” explains Erwin.
At the moment, there are only two significant vehicle manufacturing industries in Africa; South Africa with around 600 000 vehicle made per year and Morocco, with about half of that. There are some light operations in countries like Nigeria, Egypt and Ghana, but South Africa certainly holds the bulk of Africa’s new vehicle sector.
If these countries can align their goals and work together, then the African vehicle manufacturing industry will grow and become more globally competitive. The core needs already exist for a strong automotive sector to expand on the continent.
Formex Industries is a metal forming and assembly company that supplies a variety of complex products to the local automotive industry and export market. The company is based in the Nelson Mandela Bay metropole, South Africa’s foremost region for automotive manufacturing and export.
Formex specialises in producing components for the catalytic converter industry, as well as metal components and assemblies for the various vehicles. Formex aims to become one of the foremost suppliers for the South African automotive industry by 2035, aligning itself with the South African Automotive Masterplan (SAAM) which takes effect in 2020.
Formex is a Level 2 B-BBEE supplier with over 80% black ownership, of which more than 40% are black women. The company is owned by Deneb Investments Limited – a subsidiary of Hosken Consolidated Investments Limited (HCI) – one of South Africa’s biggest true B-BBEE companies listed on the Johannesburg Stock Exchange (JSE).