Right now, all roads in the global automotive industry lead to Africa. Between now and 2030, the sector is set to enjoy a compound annual growth rate of 6% on the continent – twice the global figure, according to consultancy firm Mordor Intelligence.

This boom, driven by strong urbanisation and the emergence of a middle class, makes Africa not just the next market to conquer, but potentially the next international vehicle manufacturing hub.

While the second-hand sector still accounts for the majority of African consumer sales, purchases of new vehicles continue to rise – by 14% for passenger cars between 2022 and 2023, according to the Africa Automotive Data Network, a South African company specialising in automotive sector data.

Similarly, with 1 million units produced per year (1.2% of the global sector) in terms of manufacturing, the continent is a small player with room to grow. While 95% of locally produced vehicles currently come from South Africa and Morocco, other countries are expected to step up to the plate.

Favourable legislation

For these future industry champions, the trajectories of these two countries offer valuable lessons. As far as South Africa is concerned, the main reason for its success is as basic as it is inescapable: vehicles there are driven on the right-hand side of the road, as is the case in 10 East African countries. Furthermore, as the most mature of these markets, it’s a natural choice for carmakers.

The authorities have also introduced very favourable legislation since the mid-1990s: tax exemptions, local assembly allowances for manufacturers of more than 10,000 units a year, repayment of 12.5% of added value in the form of import duty exemptions, and a 20% subsidy for investment in certain assets.

There are more than 500 subcontractors and equipment manufacturers based in three main clusters: Eastern Cape (Volkswagen, Mercedes-Benz and Isuzu), Gauteng (Ford, Nissan and BMW) and KwaZulu Natal (Toyota). As a result, 40% of vehicles are made from locally manufactured components. In 2022, Ford announced the relocation of production of diesel engines for its Ranger pick-ups to the country.

The same incentives apply at the other end of the continent. Morocco, with its smaller market, has two competitive advantages: political stability ensured by a system of power centralised around King Mohammed VI, and its geographical and commercial proximity to Europe.

The vastness and modernity of Tangier Med, the fourth largest container port in the world, means that Renault, Stellantis and others can store their thousands of vehicles bound for Africa, Europe and the Middle East. Stellantis is currently investing €300m ($325.7m) to double production at its Kenitra plant to 400,000 units a year, proof of the “sustained pace of development in the Africa and Middle East region”, which Carlos Tavares, the group’s CEO, pointed to in November 2022.

Continental potential

“South Africa and Morocco are reaping the benefits of an offensive strategy that combines export incentives, and a protectionist policy with strict restrictions on imports of second-hand vehicles,” says Johan de Jager, director of operations at AIH Group, a consultancy specialising in the automotive industry. For him, “Africa is the next frontier to conquer” – an area where global players need to be present, and not just through assembly plants.

Now other African countries are seeking to replicate this success, observing that in South Africa the automotive industry employs 3% of the workforce and earns 4.9% of the country’s gross domestic product.

Tunisia has been active in the subcontracting sector for several years, for example with the Coficab group, a world leader in cabling. Meanwhile, think tank ODI predicts Nigeria could become a hub for vehicle manufacturing. Its researchers have listed 50 automotive components (winches, tyres, bearings, etc) in which Africa’s most populous country has a comparative advantage.

With the disappearance of combustion engines in Europe and uncertainty over the positioning of Chinese cars in general, there is room for national brands with a strong identity offering economical petrol models

De Jager has identified 10 promising companies across the continent, including Ethiopian battery manufacturer Tadkob, gaskets specialist Supreme Gaskets in Zimbabwe, and brake and exhaust systems manufacturer Harlequin in Ghana.

The African Automobile Manufacturers Association (AAAM) is looking to India as an example. The country has a population and GDP roughly equivalent to those of the African continent, but produces four times as many vehicles.

“Our vision is to produce on the continent and for the continent,” says Victoria Backhaus-Jerling, project manager at AAAM-VDA, the organisation that brings together the African association and the German Association of the Automotive Industry in South Africa. “To achieve this, we need better integration of value chains. The most important thing is to put in place a balanced political framework along the lines of the South African example.”

In this way, Africa could increase its production to 3.5 million vehicles a year.

Mineral treasures

To achieve this ambitious goal, the AAAM is banking heavily on the African Continental Free Trade Area (AfCFTA), which it sees as a “game changer”. In October last year, the association launched a task force to consider harmonised customs tariffs on components and a strategy to halve the number of used vehicles that are imported. The African Export-Import Bank (AfreximBank) has also pledged $1bn to help the market develop.

Furthermore, the African continent has natural resources on its side – its subsoil is teeming with strategically important metals. “Adding value to minerals is a major source of added value,” says Backhaus-Jerling. “That’s where you can create a lot of jobs and have a positive impact on the economy.” Lithium from Mali, copper from Zambia, aluminium and rubber from Cameroon… even countries that might seem far removed from the automotive value chain can hope to join it if the AfCFTA delivers on its promises.

As the world’s leading player in the industry, China has clearly understood the importance of positioning itself on the African continent, and not just by investing in the mining sector. City cars, SUVs and 4×4s from China have become commonplace on African roads. The first Chinese car plant in Africa is due to open soon, and talks are reportedly at an advanced stage with Egypt, which has the infrastructure, the market and the trade partnership with the European Union to attract Asian investors.

All this growth in the sector is allowing national manufacturers to emerge in Africa too – with Kantanka in Ghana, Mobius in Kenya, Neo Motors in Morocco and Wallyscar in Tunisia, there is no shortage of players. As Zied Guiga, vice-president of Wallyscar, says: “With the disappearance of combustion engines in Europe and uncertainty over the positioning of Chinese cars in general, there is room for national brands with a strong identity offering economical petrol models.”