Investment growth in Africa’s automotive market

• Rolls-Royce Power Systems business unit is opening its headquarters for East Africa in Kenya. It is seeking opportunities to make engines for trains, marine, mining vehicles, agricultural vehicles, and drilling for oil and gas.
• Isuzu East Africa has launched a $3.5M Ultra-Modern Paint Plant. This is an extraordinary achievement in Africa’s automotive market.
• Africa’s automotive market is expected to grow by 40 per cent to reach $42.06B by 2027.
• Africa’s automotive market size is expected to grow from 1,325.89 thousand units in 2023 to 1,777.69 thousand units by 2028.

Rolls-Royce Power Systems business unit is opening its headquarters for East Africa in Kenya. The company focuses on the development of sustainable, climate-neutral solutions for drive, propulsion and power generation, via their mtu brand of solutions.

Rolls-Royce Power Systems makes train engines

It manufacturers engines for trains, marine, mining vehicles, agricultural vehicles, drilling for oil and gas, the ‘starter’ engines for large hydroelectric turbines and geothermal turbine energy production. The company also provides decentralised electricity generation and storage.

The East African HQ is part of an expansion strategy, radiating from their base in South Africa (Cape Town and Johannesburg), where they have had a base for almost 50 years.

With a combined population of more than 174 million and an economic growth rate of 6.5 per cent, Kenya, Tanzania, and Uganda markets present a compelling business case. This is according to John Kelly, the company’s President for the Middle East, Turkiye and Africa.

“Our presence in Africa is critical to understand better and meet the needs of the African market, therefore optimizing our package of solutions,” Kelly noted on the sidelines of the recent energy conference in Nairobi.

Rolls-Royce Power Systems market share doubled in the past three years in Africa’s biggest economy, Nigeria. The company hopes setting up a shop in Kenya will be equally fruitful. Talks are ongoing with the Kenya Railways Corp regarding powering locomotives.

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Isuzu East Africa’s Ultra-Modern Paint Plant

Isuzu East Africa has launched a $3.5M Ultra-Modern Paint Plant. This is an extraordinary achievement in Africa’s automotive market. The event was also graced by the Trade Principal Secretary Alfred K’Ombudo, Isuzu East Africa Managing Director Rita Kavashe, Isuzu East Africa Chairman Hiroshi Hisatomi and Deputy Chief of Mission Counsellor in the Embassy of Japan Kitagawa Yasuhisha, among others.

While launching the plant, President William Ruto noted that Kenya now ranks among the leading vehicle manufacturers joining Morocco, Egypt and South Africa. Moreover, he added that the National Automotive Policy had created a conducive climate for companies in Kenya, taming instability in the sector through pertinently regulating tax laws. The plant, which utilizes the Electro-Deposition (ED) method, utilizes electric current to ensure a uniform distribution of paint across the entire surface of a vehicle, creating a smooth finish.

Meeting the automobile demand

The plant increases Isuzu EA’s production capacity by over 60 per cent, from 11,000 to 18,000 vehicles annually. Consequently, this will help meet the surge in demand for automobiles, positioning the company as an integral player in the African Continental Free Trade Area (AfCFTA). Isuzu East Africa has invested Kshs 3 billion over the last five years in facility upgrades and expansion, which include a Water Leak Test Booth and Dynamic Test Center.

President Ruto underscored that the government aims to boost the manufacturing sector, contributing 20 per cent to Kenya’s GDP by 2030. He lauded Isuzu EA’s efforts in making Kenya a significant investment destination, bolstering the country towards becoming a hub for Africa’s automotive market competitiveness under AfCFTA. The President urged investors to advance their investment in Kenya by moving into the tier-one component of manufacturing. The Kshs 500 million plants are expected to deepen the firm’s manufacturing, improve local production and make it globally competitive.

The Isuzu EA MD underlined the significance of the government’s vehicle leasing program, the ‘Buy Kenya Build Kenya initiative,’ and the revised assembly regulations, which have almost doubled vehicle production in Kenya. Consequently, this has scaled the industry from 7,000 units to 12,000 per annum in 4 years while creating 10,000 jobs across the Isuzu EA value chain.

“However, the full implementation of KS1515 Standard will be a game changer for Africa’s automotive market, doubling production of commercial vehicles from 12,000 per annum to 24,000 in two years, creating an additional 10,000 jobs. The Plant will also be available to other auto manufacturers, including motorcycle and three-wheeler assemblers,” highlighted the MD Rita Kavashe.

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Economic Contribution from Africa’s automotive market 

Africa’s automotive market size is expected to grow from 1,325.89 thousand units in 2023 to 1,777.69 thousand units by 2028, at a CAGR of 6.04 per cent, during the forecast period between 2023 and 2028. According to a recent report by the Globe Newswire, the market is expected to reach the pre-Covid demand rates from customer industries only in the second half of 2023. This is because the African automotive market was severely affected by the Covid -19 pandemic.

Manufacturing manufacturers such as Toyota Motor Corporation, Isuzu Motors Volkswagen AG, Hyundai Motor Company, Ford Motor Company, Groupe Renault and Daimler AG dominate Africa’s automotive market. Manufacturers focus on various growth strategies to maintain a competitive edge in the market, such as expansions, partnerships, product launches, and production capabilities.

How AfCFTA will boost Africa’s Auto Industry

According to a World Economic Forum (WER) report, the continent’s auto industry was valued at $30.44 billion in 2021 and is expected to grow by 40% to reach $42.06 billion by 2027. The report titled ‘AfCFTA: A New Era for Global Business and Investment in Africa’ further indicates that Africa’s automotive sector is ripe for new and increased investments strengthened by the AfCFTA, as international companies have registered growth by partnering with African countries.

AfCFTA is set to catalyze local production of Automotives and meet local demand. In the bargain, the pact provides a powerful case for new investors to move into the automotive sector and thus help drive and transform economies across the continent. Morocco and South Africa are leading the way as major players in the automotive sector, making up 80% of African exports, with Algeria also experiencing rapid growth.

Over the past several years, domestic production has been growing by an average of 7% annually. Due to rapid urbanization, strong middle-class growth and continent-wide increase in disposable income, there is an average annual domestic demand for 2.4 million motor cars and 300,000 commercial vehicles. The AfCFTA unlocks numerous opportunities for African and global businesses in the automotive industry to harness, building upon strong foundations in a new era of borderless African trade.

Under the trade pact, African automotive manufacturers will benefit from all the advantages of economies of scale, such as reduced tariffs across the continent for inputs such as rubber from Cote d’Ivoire and aluminium from Mozambique.

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Review of Africa’s Auto Industry

Morocco, South Africa, Egypt, Algeria, Nigeria, Ghana and Kenya dominate the African auto industry. Given the sector’s massive contribution to industrialization, African governments and private sector players have actively developed regional value chains. Besides, they have been especially keen to bolster the sector’s investment climate for foreigners. For instance, Afreximbank has committed $1B to the industry through direct financing and partnerships. Together with the African Association of Automotive Manufacturers, they support the industry and provide financing to players across the value chains.

Morocco

In Morocco, automobiles have been the country’s top export over the past eight years in terms of volume. For instance, in the first half of 2022, car exports totalled $5.4 billion, up from $4.18 billion during the same period in 2021. The automotive sector’s contribution to Morocco’s GDP is 24 per cent in 2023, meaning it will comprise nearly a quarter of its economic activity and income. Due to these developments, Morocco now ranks first in Africa in the automotive industry, surpassing Egypt and South Africa.

The country’s proximity to the European, African, and Mediterranean consumer markets has given the country a competitive advantage. It’s less expensive to export cars to customers and import raw materials. The North African country is especially appealing to Spanish companies due to this geostrategic position as the gateway to Africa for Spain, situated across the Strait of Gibraltar and the rest of Europe. For instance, Renault Morocco’s production increased from 15,000 vehicles to 350,000 in 15 years. Moreover, bilateral trade agreements with numerous nations such as Europe, the US, UAE and Turkey have also aided the country.

Egypt

Egypt ranks among the top investment destinations when it comes to automobiles. Last month, the country’s General Authority for Investment and Free Zones (GAFI) announced that in partnership with Japan, the country seeks to localize the automobile industry. Earlier in the year, three international automotive companies announced plans to invest up to $145 million in Egypt over the next three years. With an ambitious target of an average annual production of about 60,000 to 70,000 vehicles, Nissan, General Motors, and Stellantis will pump their investment into the Egyptian Auto market, per the three framework agreements signed with the Egyptian Supreme Council for Automotive Industry.

South Africa

The South African passenger cars market is the largest in the region. According to the National Association of Automobile Manufacturers of South Africa (NAAMSA), the total passenger car sales stood at 32,392 units in September 2022, up from 29,537 units in September 2021, registering a Y-o-Y growth of around 21.3 per cent.

Nigeria

Furthermore, Nigeria remains among the industry leaders. The country recorded more than $1 billion worth of investments in the automotive industry in 2023. Moreover, experts in neighbouring Ghana predict the automotive industry to reach $ 10.64 billion by 2027, valued at $ 4.6 billion in 2021. In light of this, the country seeks to be an automotive hub for the sub-region and has established the Ghana Automotive Industry Development Center. In Algeria, by the close of 2022, the country’s motor vehicle production stood at 2,773.000 Units.

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 Sustainable Mobility (E-Mobility) in Africa

The fight against climate change has led to the rise of sustainable mobility. Thus, countries must harness renewable energy and increase the demand for Electric Vehicles (EVs). Some of Africa’s main trading partners have banned internal combustion engine vehicle sales by 2035. Already, there are pilot projects for sustainable vehicles in Rwanda, South Africa and Egypt. Furthermore, E-mobility startups have emerged across the continent.

Africa boasts key raw materials for modern vehicles that require new technologies to reach net zero. They include copper, cobalt, bauxite and lithium. In addition, there is also a huge market for electric motorcycles in Africa, especially in West, East and North Africa. This widens opportunities for utilising domestically produced inputs in new markets by leveraging AfCFTA preferences.