Africa gears up for free trade in auto industry

R17.3bn fund set up to support development in continent’s automotive sector under AfCFTA

● Automotive manufacturers and officials are optimistic that the legal instruments needed for free trade in Africa will be agreed by the middle of next year.

African Continental Free Trade Area (AfCFTA) secretary-general Wamkele Mene said that for the foreseeable future the focus would be on vehicles with internal combustion engines, even as Europe moves to phase them out completely by 2035.

“There is a $1bn (about R17.3bn) fund [mobilised through Afreximbank] to support industrial development in the automotive sector, and we have had very good interest from Rwanda, Gabon, Togo, Nigeria and Kenya,” Mene said.

Their interest is in the manufacturing of components rather than vehicle assembly.

“In South Africa, for every single job on the assembly line, four jobs are created in the components sector,” Mene said.

“That can be replicated throughout the entire continent for those countries that are interested in the auto sector.”

For this reason it is important to resolve the local content rules of origin. In some countries this is 30%, he said, while in South Africa it is 40%. “We have to resolve this question of what will be Africa’s local content for trade under the AfCFTA.”

The automotive and clothing and textiles industries are the only sectors still outstanding, as negotiations on rules of origin are 88.3% complete.

Mene said the AfCFTA could also open opportunities for the electric-vehicle value chain. Lithium, used in lithium-ion batteries for electric vehicles, is found in a number of African countries.

“Zimbabwe is the fifth-largest producer of lithium in the world,” he said. “Between Zimbabwe, the DRC and Zambia, the global electric-vehicle market could be entirely reliant on these countries in the same way that some countries, the so-called East Asian Tigers, were controlling the global market for microchips.”

Neale Hill, president of Ford Motor Company Africa, echoed Mene’s optimism that negotiations on the rules of origin could be finalised by July next year.

“We’ve had ranges of opinion for different markets across the continent,” he said. “Different countries are looking for different things. Some say 10% as rules of origin is sufficient, while others want 50%-60%.”

Hill said that although a number of countries wanted to emulate South Africa’s automotive industry, “it has taken us a number of years to progressively build up”, and it would take time to develop component industries and manufacturing bases in those countries.

He said he was excited about the opportunities for the automotive industry under the AfCFTA. “The level of trade within the African continent is abysmally small. The [automotive] market potentially has the opportunity to unlock that.”

Andreas Brand, CEO of Mercedes-Benz South Africa, said the company exports 90% of production at its East London plant.

“Currently, we produce our C-Class model in left- and right-hand drive, inclusive of hybrid and internal combustion engine vehicles, which we export to over 80 markets globally. We are well aware of the transformation to electric, and are confident that we have a world-class and award-winning manufacturing plant that would be able to manufacture what would be demanded by the local and export markets,” he said.

Local demand could be boosted by an amendment to the Automotive Investment Scheme (AIS) regulations to stimulate demand through a focus on price parity, access to charging facilities and developing an ecosystem of electric mobility.

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Africa produces fewer than 1-million units a year; India has the same population and produces 5-million units Wamkele Mene

AfCFTA secretary-general

of its business in South Africa, but to create a local market for new cars on the continent governments needed to restrict the import of used cars to a certain age.

In return, manufacturers would have to focus on introducing affordable new cars to the market. “We won’t go there with huge cars like the Tuareg, otherwise we won’t do business. You can also not fully ban used cars, but use a step-by-step approach.”

Mene said the AfCFTA has provided for funding to help countries phase out used cars. In the East African Community and ECOWAS this is already under way.

“But you can’t just phase them out. You have to introduce vehicle-financing schemes that are affordable, so there is a range of things to take into account from a demand point of view,” he said.

On the supply side, Africa has some catching up to do on automotive manufacturing.

“We produce fewer than 1-million units a year, and Africa makes up 17% of the global population,” Mene said. India has the same population but produces 5-million units. “There is scope for growth,” he said. The African Association of Automotive Manufacturers was embracing AfCFTA and assisting with formulating policy.

“That deficit of 4-million vehicles between India and the continent is an opportunity for further investment in the auto sector, and for using it for innovation,” Mene said.

A report by the International Trade Centre, titled “Made in Africa” and released on the sidelines of the AU’s industrialisation summit in Niamey last month, said more effort is needed to realise Africa’s full potential for automotive value chain development and integration.

One of its recommendations is that rules of origin should be defined in a way that would “encourage investment in local manufacturing (for example through high localcontent requirements) while also supporting preferential trade”.

That would hinge on the clarity of the rules. “Rules of origin should leave little room for interpretation for both businesses and certifying and controlling agencies,” the report says.

Business capacity to comply with documentation requirements around origin certification should also be built, it adds.