Growing road networks and Africa’s changing auto market

Growing road networks and Africa’s changing auto market

Rapid urbanisation, better road networks and an expanding middle class are three critical drivers of Africa’s growing and changing auto industry. As incomes increase, more and more Africans are opting to buy new cars, whereas in the past used cars were the most popular option because of the affordability issue. Consequently foreign auto companies from the US to China are establishing assembly plants in strategic locations such as Lagos and Nairobi to be able to supply competitively priced vehicles. Increasing consumer demands require freight vehicles and so it is not just passenger vehicles that are experiencing a boom.

Moving in the right direction

A key player in the growth of the auto industry is the continent’s road network. While the existing challenges are many, marked development has taken place.

This past decade has seen much progress in terms of various nations establishing the necessary institutions to monitor, manage and maintain trunk road networks. According to the African Development Bank (AfDB),

“Many African countries have made progress toward developing sound institutions for the funding and building of road infrastructure. Such reforms have been numerous and significant in the years since 2000 and […] there is a remarkable degree of consensus regarding their direction. Many countries have gone about implementing road funds, drawing upon road user charges that provide an independent source of revenue for politically challenged maintenance activities. A growing number of countries have also established technically oriented road agencies to undertake road works at arm’s length from the line ministry.”

Challenges to growing the auto industry

Areas that still require work include the expansion of urban road networks, which are coming under strain under the fast rate of urbanisation and urban sprawl. Municipal revenue is often insufficient for the job of improving and maintaining or rehabilitating the requisite roads. “Countries with high fuel levies and road agencies seem to do significantly better at preserving road quality than those without,” reports the AfDB.

Rural areas also continue to exist in relative isolation, as they lack reliable, perennial roads. According to the AfDB, only 30 percent of the African road network is paved, which makes many roads seasonal, slow-going and potentially damaging to cars. It also limits the types of vehicles that can travel on them. Without reliable connections agriculture remains at subsistence level and vehicle sales in many countries and regions are unable to extend much beyond urban centres.

All that said, companies like Mobius Motors, which is embracing Africa’s unique infrastructure situation by producing hardy, off-road style vehicles, stand to make good profits.

Speaking in some detail about the challenges that face the auto industry, KPMG economist Lullu Krugel says,

“Most African countries rank in the bottom half of the Global Competitiveness Index with regards to the quality and availability of transport infrastructure. In terms of trading across borders, Africa also does not fare particularly well, with Sub-Saharan Africa being the most expensive region in the world with regards to the US dollar cost of importing and exporting a container of goods.

A further challenge is the lack of a coherent regional approach to managing and harnessing partnership agreements and reducing inter-Africa trade barriers, which could improve the competitiveness of the countries within Africa and drive FDI. On the back of the need for combined and coherent strategies, it is crucial that there is a greater degree of cooperation between the private sector and government.”

Yet in spite of these very real and complex challenges, we see that international vehicle companies including Renault, Tata, Toyota, Foton, GM, Scania and Hyundai are keenly expanding their African operations or investing in the continent for the first time, eager to gain an early foothold in a continent chock-full of notably emerging markets and largely untapped possibilities.

David Okwara

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