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Autos for Africa? Possibilities and Pitfalls for an Automotive Industry in Africa

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Autos for Africa? Possibilities and Pitfalls for an Automotive Industry in Africa Autos for Africa? Possibilities and Pitfalls for an Automotive Industry in Africa Thomas McLennan UniversitySupervisor: Professor of Cape Anthony BlackTown Dissertation Presented in Partial Fulfilment of the Degree of MASTER OF COMMERCE in the School of Economics UNIVERSITY OF CAPE TOWN January 2016 1 The copyright of this thesis vests in the author. No quotation from it or information derived from it is to be published without full acknowledgement of the source. The thesis is to be used for private study or non- commercial research purposes only. Published by the University of Cape Town (UCT) in terms of the non-exclusive license granted to UCT by the author. University of Cape Town Abstract Sub-Saharan Africa (SSA) has grown very rapidly over the last decade. Demand for light vehicles has rapidly increased in this period, albeit from a very low base. Growing demand is almost entirely supplied by the import of used vehicles from the developed world. This has led to an enormous automotive trade deficit in the region where, apart from South Africa, there is almost no domestic production. The dissertation establishes the trends and scale of automotive demand in SSA and then considers the question of whether and how the region can begin to meet this booming demand by developing its own industry. Despite limited industrialisation levels and relatively small domestic markets, some larger countries, such as Nigeria and Kenya, are putting policies in place to encourage domestic production. However, if countries follow individual national strategies it is unlikely that any will have sufficient market scale or investment levels to become sustainable automotive producers. A regional automotive strategy needs to be adopted in SSA in order to attract large scale productive investment. 2 Acknowledgments I would like to express my gratitude to my supervisor Professor Anthony Black for introducing me to the topic and the field, sharing his wisdom with me through his powerful comments and insights and, most especially, for going out of his way to assist me as I struggled with an overwhelming year. I would like to thank those I interviewed for this work who shared their time to assist me, Alec Erwin, Justin Barnes, Craig Parker and Michael Lester. Finally, I would like to thank my wife for putting up with me working through the night and not doing nearly enough to arrange our wedding, all the while keeping my ideas on track in our discussions of my work. I am forever grateful for your endless support. 3 Contents: Research Questions ............................................................................................................................... 7 Methodology .......................................................................................................................................... 8 Estimating Future Middle Class Population Numbers .................................................................... 8 Calculating Current SSA Market Size .............................................................................................. 9 Chapter 1: Introduction ..................................................................................................................... 11 Chapter 2: Linking the Automotive Sector to Growth .................................................................... 13 Industrialisation and Growth .......................................................................................................... 13 What is the State’s role? .................................................................................................................. 14 Structural Change and SSA ............................................................................................................ 15 Automotive Industries and Industrialisation .................................................................................. 16 Requirements to Develop an Automotive Industry ......................................................................... 17 Process of Establishing an Automotive Industry in a Developing Country................................... 19 Considerations for supporting an automotive industry .................................................................. 21 Forecasting Domestic Demand ..................................................................................................... 21 Cost of Protection ......................................................................................................................... 22 Chapter 3: Sub-Saharan African Automotive Space ....................................................................... 24 Demographics................................................................................................................................... 24 Changes in SSA for 2000-2013 ...................................................................................................... 24 Projections into the Future ........................................................................................................... 24 The Current Automotive Market in SSA ......................................................................................... 27 Historical Trends in Vehicle Supply ............................................................................................... 28 Establishing a Market Estimate ..................................................................................................... 31 Light Vehicle Market Estimate for SSA ................................................................................... 32 Motorcycle Imports into SSA ................................................................................................... 35 New Light Vehicle Market Estimate SSA ................................................................................ 37 Current Production in SSA .............................................................................................................. 41 Established National Industries and Clusters ................................................................................ 41 Emerging Industries and Clusters ................................................................................................. 43 Chapter 4: African Aspirations ......................................................................................................... 53 Automotive Strategies in SSA .......................................................................................................... 53 Nigeria ........................................................................................................................................... 53 Ethiopia ......................................................................................................................................... 57 South African Response ................................................................................................................... 58 Chapter 5: Is SSA a viable automotive space? ................................................................................. 61 Sufficient Market ............................................................................................................................. 61 4 Regionalisation Prospects ................................................................................................................ 61 Manufacturing Capabilities ............................................................................................................. 63 Suggested Policy ............................................................................................................................... 64 Protection Requirement ............................................................................................................... 65 Encouraging a Commitment to CKD ............................................................................................. 65 Special Economic Zone .................................................................................................................. 67 Regional Integration ...................................................................................................................... 67 The Motorcycle Alternative .......................................................................................................... 68 Chapter 6: Conclusion ........................................................................................................................ 69 Appendix A: List of Persons Interviewed ......................................................................................... 71 Appendix B: Data Challenges of UN Comtrade ............................................................................... 72 Appendix C: Passenger vehicle and LCV HS Codes ....................................................................... 73 Appendix D: Countries Classified by Area According to AfDB ..................................................... 74 Appendix E: China Chongqing Big Science and Technology Development Group CKD Assembly Process ................................................................................................................................ 75 Appendix F: Popular Accounts of African ‘Henry Fords’ .............................................................. 76 Appendix G: Membership of key African Regional Economic Communities ............................... 79 References ...........................................................................................................................................
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