The strategy to capture the African consumer has now moved up the value chain as global automobile brands position themselves in the ultimate middle class consumer good. The potential is huge because large-scale motorisation in Africa has yet to take off.
IHS Automotive predicts that sub-Saharan Africa’s vehicle-ownership rate won’t reach 70 cars per 1,000 people, until 2030. That was a critical turning point reached by China in 2012. Because reaching this point of inflexion for massive automobile sales may take more than a decade, it means that this kind of opportunity is for players that can afford a long term vision. It is therefore no surprise that we are seeing mostly Asian car manufacturers, less embattled by short term thinking shareholders, teaming up with local entrepreneurs who see value in building a presence over time.
A good example of this is China’s Geely (the owner of Swedish car brand Volvo) teaming up with local distributors/assemblers such as Egypt’s GB Auto to position its automobiles in North Africa where the GB group has been operating for some time now.
Another reality is that Chinese automakers have been losing ground to foreign auto brands over the past two years, emerging overseas markets such as Africa have become a much-needed lifeline. The Chinese auto market has become more competitive as foreign brands such as leading global automobile makes gradually increase their share of the Chinese market.
Apart from Geely, other Chinese brands, such as Chery and Changan, switched their focus to the overseas market, most notably Africa. Major Chinese brands have made a splash in the past year. Great Wall Motors reported about 25,000 deliveries to 200 dealerships on the continent.
However, Africa isn’t exactly an untouched automobile market. Multinationals such as Toyota have been doing business on the continent for decades and in most African countries, the auto parts market is controlled by German, Korean and Japanese companies.
Furthermore, African governments are now constraining the influx of foreign vehicles so simply exporting cars to Africa is no longer sustainable so now the viable strategy is to work with local assemblers or by setting up car factories on the continent. In terms of auto markets, Kenya, South Africa and Egypt are more mature than other countries.
For now the main competitive advantage for Chinese brands is the cheap price. They are effectively filling the gap that Korean car manufacturer’s, who have risen in brand value perception, used to occupy. We are also seeing how these Chinese companies are starting to customise products for the African market. Foton, for instance, has equipped bigger engines and larger oil tanks for vehicles sold in the Kenya market because most consumers need trucks for long-distance traveling. Great Wall is also designing products for the continent. It designed a model particularly for South African women because they apparently prefer right-sided, automatic transmission cars. The model has been well-received after it was put into the market in 2011.
The race to capture the hearts, minds and wallets of the African middle class with the ultimate consumer product is on!
The bigger picture: China’s Investment Role in Africa – Beyond resources
More than 2,000 Chinese companies have invested in Africa across multiple sectors including natural resource extraction, finance, infrastructure, power generation, and consumer products such as electronics, textiles, home appliances and automobiles.
Africa is emerging as a major consumer market in its own right. Its more than one billion-strong population has traditionally been under-served by formal retailers and consumer goods companies. With rising purchasing power, Chinese-made goods are finding their way into the African households, either through formal retail channels or via vast informal sales networks. Furthermore, despite infrastructure and logistics challenges, local manufacturing in Africa is becoming more profitable.
The industrial manufacturing component of the Chinese economy is now at a turning point as the cost of production surpasses gains in productivity. This initiates the start of a long-term trend as more and more of China’s low-end labour-intensive manufacturing sector is gradually moved offshore. A large part of this offshoring could find its way to Africa.
Manufacturing as a percentage of the sub-Saharan African economy has held steady at 10% to 14% in recent years. Industrial output in what is now the world’s fastest-growing continent is expanding as quickly as the rest of the economy.
Ethiopia is a case in point. The sovereign wealth-capitalised CADFund is financing a special economic zone industrial park to the value of $2 billion over the next decade to create a light manufacturing zone on the outskirts of Addis Ababa. The focus is footwear and clothing. The eventual outcome of this could be the creation of 200,000 jobs, according to some media reports.
More in-depth research
If you would like to take a deeper dive into the recent research about China’s role in Africa, we have put together a list of resources that you may find insightful:
A paper by China in Africa, An evaluation of Chinese Investment by the Institution for Poblic Policy Analysis (IPPA)
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