How Excess Importation threatens Africa’s Auto Manufacturing Market

Africa’s auto manufacturing market’s expansion is being hampered by its reliance on excess importation of used vehicles. This is expected to increase in the next 15 years for Sub-Saharan Africa (SSA), meaning that other continents will continue to meet Africa’s car demand for the foreseeable future.

Used vehicle trade has varying consequences on manufacturers of new vehicles. Frequent importation of used-cars results in fewer sales and lower pricing for new vehicles in low-income countries, whereas the effects in high-income countries may be minor.

In 2016, secondhand automobiles accounted for about 96 percent of all vehicles imported into Kenya, and 80 percent of all sales in Ethiopia and Nigeria. Furthermore, three-quarters of automobiles in SSA are used, with the area importing more used (764,880 units) than new (734,084 units) vehicles in 2017.

Nigeria as a case study

In Nigeria, President Muhammadu Buhari administration has paid no attention to Nigeria’s National Automotive Industry Development Plan (NAIDP), which has been under review for two years.

According to reports, the NAIDP Bill, also known as Auto Policy, is crucial to developing the automobile industry, which is currently underperforming.

The NAIDP is the Federal Government’s most daring attempt to resurrect local car assembly in over three decades. The policy, implemented in 2014, aims to promote domestic vehicle manufacturing while phasing out the importation of used vehicles. Other program goals include job creation, value chain stimulation, economic diversification, and the availability of inexpensive automobiles for the typical Nigerian. It also aims to increase foreign direct investment.

Concerned about the bad execution of some policies, particularly the NAIDP, stakeholders believe that the Federal Government’s inactivity on the automotive policy is stifling the sector’s potential.

Africa’s auto manufacturing potentials

While Africa’s automotive sector is still immature, the industry’s potential must be recognized, and growth is evident across the automotive value chain, including car sales, after-sales, vehicle assembly, and manufacturing.

In South Africa, for example, the formation of the SSA Automotive Pact presented new opportunities in the market. The Auto Pact is the brainchild of a coalition of industrialists and economists who saw the possibility that vehicle manufacturing could be a catalyst for the industrialization of South Africa, as it was for Germany. 

While South Africa is the continent’s main market for vehicle production, developments since 2015 show that Ethiopia, Nigeria, and Kenya are preparing their economies to capitalize on the promise of a stronger automotive sector. This is timely given the burgeoning middle class and modernization of the agricultural and mining sectors.

The formation of the Auto Pact has highlighted the importance of concentrating on markets that can support large-scale production. According to trade economists, a minimum of 300,000 automobiles of a model must be produced to make a complete knock-down (CKD) operation possible. As a result, it’s critical to comprehend how local demand might be boosted in a long-term approach.

With advancements in electric and driverless vehicles and changes in mobility, the automobile industry is on the verge of metamorphosis. The study emphasized the need for Africa to focus on development that fosters innovation and pushes adoptions that will be sustainable for the sector’s growth and development as it develops its automotive industry.

READ MORE: Africa’s Most Commercially Viable Cities