Game-changing Automotive Policy Developments in Africa, 2016

Automotive Investment Policy Review for Africa and its Impetus to OEMs

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Game-changing Automotive Policy Developments in Africa
Automotive Investment Policy Review for Africa and its Impetus to OEMs

As Africa speeds up its efforts to industrialise, the automotive sector has attracted attention from a number of governments on the continent. With over 1 billion inhabitants and a growing consumer base, the potential upside for automakers is extensive. If new vehicle sales on the African continent grow to 7 units per 1,000 inhabitants, a feat in itself, total new vehicle sales will reach approximately 7.7 million units annually, making it the 4th largest new car regional market after China, the United States, and Europe and larger than Japan, which was at 4.3 million units in 2016.

In response, various governments have released policies specific to the automotive sector to industrialise their respective sectors. These policies follow international best practices and incentivise export-driven assembly and manufacturing through financial and non-financial means. South Africa has been the major African participant, with production investments and output expanding strongly since the 1990s. Following suit, Morocco, Kenya, and, most recently, Nigeria have attracted investments from various automakers.

Nigeria’s automotive sector has expanded the fastest since the release of the NAIDP in 2013. The number of manufactures now exceeds 5, but due to market constraints, production output has dwindled. Morocco’s sector has focused on investments from Renault, with output growing annually. Peugeot plans to commence operations in 2019—this investment is likely to have a significant impact on the wider sector and turn Morocco into a highly competitive production location. Kenya has struggled to kick-start its automotive sector; the country lacks a sector-specific policy, while inadequate regulations and management have had a negative effect on production and competitiveness.

Apart from these sector-specific concerns, most African automotive sectors face a number of challenges restraining growth. Challenges include the import of used cars, small local markets, exchange rate, and labour volatility, along with the inability of policies to be fully implemented. New entrants such as Ethiopia and Algeria are furthermore placing a strain on the sectors in Kenya and other markets as manufacturers seek improved competitiveness. Africa’s automotive sector needs to be assessed holistically to prevent country-specific ambitions from spoiling the industry’s growth potential.

This research service provides details on tax incentives, export and import credits, and all other means of incentivising the automotive industry offered by the South Africa, Kenyan, Moroccan and Nigerian governments. It is the first time that Africa’s major automotive policies are summarised in one document, allowing comparisons and analysis.

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