German auto industry doubles Africa | Business | Economic and financial news from a German point of view | DW

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In August of last year – just as the global auto industry was starting to spot green shoots of recovery after worst coronavirus carnage – German automaker Volkswagen unveiled its first vehicle assembled in Ghana, an SUV Tiguan, in the presence of Ghanaian President Nana. Addo Dankwa Akufo-Addo.

The event marked the official opening of VW’s first vehicle assembly plant in the West African country and the fifth in sub-Saharan Africa; the other sites are in South Africa, Kenya, Nigeria and Rwanda.

“Although the African automobile market is relatively small today, the sub-Saharan region has the potential to become an automobile growth market of the future, Volkswagen said in a statement.

Africa has been touted as the last frontier for the global auto industry, which is keen for the continent’s rapidly growing middle class to buy its vehicles amid rapid urbanization as demand weakens in European and US markets. traditional.

There are currently 45 vehicles per thousand inhabitants in Africa against a world average of 203, with more than one billion inhabitants of the continent, or 17% of the world population, representing just over 1% of the cars sold in the world.

German-African automotive partnership

The German Automobile Industry Association (VDA) has partnered with AAAM, the Association of African Automobile Manufacturers, in the hope of improving these statistics.

“Every big market started out small and that’s why it’s important to adapt to market conditions early on, to be present at an early stage, VDA’s Kurt-Christian Scheel told DW. “Africa is a continent with very good growth prospects, with still very little exploited potential.”

China offers a promising precedent. When VW entered the Chinese market in the 1980s, very few people owned cars in the Asian country. Today, China accounts for nearly 40% of VW’s global sales.

The VDA expects the cooperation, which is part of the German government’s efforts to help industrialize Africa and create sustainable jobs, to improve German companies’ access to “sometimes difficult markets.”

German auto majors such as VW, Mercedes-Benz owner Daimler and BMW are some of the largest auto makers in Africa. They accounted for over 90% of total passenger cars produced and over a third of cars sold in the main South African market in 2019.

While many German cars produced in Africa were destined for European markets, companies are now stepping up their presence to meet still untapped demand from Africa, which has seen consumer spending increase at an annual rate of 10% over the course of in recent years. .

The AAAM expects new vehicle sales in Africa to reach 3 million by 2035, up from 1.1 million in 2019.

“Today, if we have just lowered all tariff barriers, we have not created demand. So, perhaps Morocco and South Africa will benefit because they have industrialized. but we have to develop Africa, create an ecosystem that creates demand and therefore will support industrialization, ”AAAM’s Dave Coffey told DW.

The German auto industry is betting on a rapidly growing local labor pool to supply its African facilities. The continent’s working-age population is expected to increase by 450 million people, or nearly 70%, by 2035, according to the World Bank.

Challenges galore in Africa

Global auto majors like VW and Toyota have recognized Africa’s potential for years, but the continent’s small and fragmented markets and political uncertainty have discouraged them from making huge investments in production and assembly. local.

Poor fuel quality, lack of vehicle finance programs and a huge demand for imported used cars have also played a role. New car ownership remains scarce in Africa, where in most countries 8 out of 10 vehicles are used cars.

Some governments like Ghana have imposed restrictions on used cars and offer tax incentives to global car makers to encourage them to set up local factories. But experts say raising rates on used cars wouldn’t make new cars more affordable, especially in the absence of auto loans, let alone cheap loans.

Robert Kappel, an Africa expert at the University of Leipzig, says a large part of Africa’s 300 million middle class can be classified as the lower middle class, which cannot afford new cars. , especially those produced by German car manufacturers.

“If you consider that a Volkswagen Jetta costs € 25,000 ($ 31,000), that’s beyond the means of the average middle-class income,” he told DW. “The middle class is growing and will continue to grow in the long term. But the markets will not grow exponentially.”

Auto makers have so far directed much of their investment to South Africa and Morocco, Africa’s largest auto manufacturing hubs by far. While both countries mainly manufacture cars for overseas markets, they also have large domestic markets, which are well worth the effort.

Elsewhere in Nigeria, Kenya, Rwanda and Ghana, global automakers are investing in assembly plants – often described as screwdriver factories due to the low value added of manufacturing that takes place there – instead of full production units.

AAAM sees investments in these countries as the first steps towards building regional automotive manufacturing hubs – one in South, West, East and North Africa, powered by components from other African countries. such as Côte d’Ivoire, Uganda, Angola and Senegal. The recently launched African Free Trade Area could further strengthen this vision.

Volkswagen looks to the future

With its cars beyond the reach of most Africans, VW is testing carpooling and carsharing services in Kigali, the capital of Rwanda. Customers can hire a car or have a driver pick them up through VW’s Move app. The company uses cars – Polo, Passat and Teramont – assembled at its $ 20 million factory in Kigali and plans to sell them on the second-hand market after a year or two of service.

The Move application has approximately 40,000 users. VW plans to deploy a similar service in Ghana.

“The question is whether a car for a household is still the solution of the future or whether it is not also about new forms of mobility,” Christoph Kannengiesser of the German Association of African Businesses told DW. . So, it’s not so much about whether a person can afford a car, but whether a person can afford automobile mobility, he said.

VW has also partnered with German electrical equipment company Siemens to test electric cars imported into Rwanda as part of its ridesharing service with the intention of ultimately making the entire fleet electric. The automaker hopes that Africans’ now established penchant for advanced technologies would make them comfortable with electric vehicles.

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