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Automobile manufacturing seen as Africa’s next big deal

The Automotive industry has the potential to become major growth driver in Africa in the next ten years, with the continents demography skewed to support expansion and growth.

With a GDP of about $1.66 trillion and a potential vehicle market of about 1.84 million units per annum, Africa is the new destination for automobile manufacturers with an interest to divest from Europe and America and be the choice for a growing number of first-time buyers, says Sanjay Rupani, industry expert.

He noted that despite of the impact of the COVID-19 pandemic, the African automotive market was valued at $28.45 billion in 2020, and it is expected to reach $ 39.87 billion by 2026. This is a significant annual growth rate of 5.55 percent.

Over the past 10 years, the demand for new vehicles across the region has increased year on year until a decline in 2018. In 2019, owing to a slowdown in most African economies, the sales of vehicles decreased by 4 percnt to 1.17 million units, as compared to 1.22 million units purchased in the previous year.

Of this lot, personal cars accounted for about 73.81 percent of the whole lot, while commercial vehicles accounted for about 26.18 percent. As it stands, the automotive industry in the region is dominated by leading manufacturers such as Volkswagen, Toyota, Nissan, Hyundai, and Suzuki.

The recent move by multinational vehicle manufacturers to set up production plants on the continent i.e. Angola, Ethiopia, Ghana, Kenya, Namibia, Nigeria, Rwanda, South Africa is a clear indicator that there is potential to boost manufacturing for the automotive market in this region.

According to him, the biggest barrier to the promise of swelling automobile production and sales in Africa is the influx of cheap, imported second-hand cars from the US, Europe and Japan. The growth in Africa is still relatively slow when compared with new vehicle sales in developing markets like China, India and Brazil over the last decade.

This is coupled with the increased competition from the used vehicle market is a weak domestic demand capacity. This has been further compounded by constrained household earnings, rising inflation, absence of structured financing for the young working population, high unemployment and very high-interest rates.

Rupani however noted that Africa is still the Future having witnessed a steady increase in consumer spending which has been rising at an annual rate of 10 per cent over the last few years. This will grow with the explosive growth of a young, empowered and globally employable population. As it stands, the majority of that population is potential first-time buyers.

For example, Nigeria will be the future jewel in Africa’s auto crown with almost half a billion citizens by 2030. At the moment, the country has a population ratio of just 44 vehicles per 1,000 inhabitants according to recent estimates by the Deloitte report. This is far below the global average of 180 vehicles per 1,000 inhabitants.

Analysts predict that by 2030, over half a billion Africans will have joined the middle class. “If the growth in vehicle sales keeps pace with growing consumer spending, annual sales of passenger cars in Sub-Saharan Africa will surpass 10 million units by 2030,” says South African consultancy B&M Analysts.

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