African auto sector motors ahead: Global car manufacturers are investing in Africa and local brands are making progress, but what are the real prospects for the industry across the continent?

Author:Raji, Rafiq

In late June 2018, German carmaker Volkswagen opened a $20m factory in Kigali, Rwanda. Parts for the cars will be sourced from South Africa and moved across a supply chain that passes through Kenya, both of which already host V W plants, a good model for intra-African trade.

VW also has a plant in Nigeria. What is unique about the venture is that some of the locally built cars that will be rolling out of its factory gates are not intended for sale. They will be used for a car-sharing service by VW. Global auto companies clearly realise that countries where car ownership is low for income-related reasons could still be serviced by forward integrating into transportation.

Besides, even in rich economies, ride-sharing services have been reducing the need to own a car outright. Ride-sharing services are certainly more affordable either way.

Various models to make experiencing the delight of a good car a wallet-friendly endeavour are being explored. In early June, for instance, Mercedes-Benz announced a car-subscription service in two American cities. This was only about two months after its rival BMW launched a similar service. Fiat Chrysler Automobiles has also announced plans to launch a subscription service in 2019.

There is another reason global auto companies are looking for new markets: tariffs on European Union auto exports by the protectionist American president, Donald Trump. America imports of $300bn worth of European cars and parts could halve. So if successful, the Rwandan experiment could be replicated in other African countries and everywhere else in due course.

New investments

Also in June, Mercedes-Benz announced an investment of almost $1bn in its East London plant in South Africa. And India's Mahindra & Mahindra opened an assembly plant in South Africa in late May. PSA Peugeot Citroen has also revealed it will set up a car assembly plant in Nigeria in the first quarter of 2019. Considering its previous venture in the country failed and perhaps only managed to last as long as it did because of a government decree that all cars used by officials must be those produced locally, it is a little surprising the French automobile firm is giving it another go. But it is not doing so blindly.

Aliko Dangote, Africa's richest man and Nigeria's most successful entrepreneur, is a partner in the new venture.

There are other foreign car manufacturers aiming for Nigeria. In July, for example, executives from Volkswagen, Nissan, Bosch, BMW, and...

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