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Automotive opportunities in Africa

The African Association of Automotive Manufacturers chairperson Thomas Schaefer (CEO of Volkswagen SA) explains why new African markets are vital for growth.

What are the primary goals of the AAAM?

The AAAM was founded with a strategic view regarding all South African original equipment manufacturers (OEMs), namely, that Africa is super important for our future. We need Africa so that South Africa can thrive. The AAAM is for the industry to say how can we work with Nigeria or Kenya for the good of both countries.

Is the intention to set up full-scale plants of SA OEMs or to create independent
industries?

In Kenya at the moment there is no passenger car manufacturing other than what we have started. There is some truck manufacturing but nothing else, so you have to start slowly. This entails starting with semi-knock-down assembly, then medium knock-down, and finally full-scale construction. It is dependent on the annual volume you produce. Indonesia and other countries in the world have gone through this development phase. To build up a body shop with welding and all the logistics, you can only do that beyond production of 20 000 or 30 000 cars per year.

What is current Volkswagen operation in Kenya?

We are planning on a thousand Polo vehicles per year for now, but at the moment it is a little slow because of the political aspects.

Do you have something in Nigeria?

In Nigeria we have had an operation since 2014; however, it was dormant until recently due to the oil and forex issues. It’s getting invigorated and we have had good meetings with the Nigerian and South African governments. They are serious about curbing used car sales – that is the drag that keeps them off the new car market, the used cars getting dumped.

What other markets is Volkswagen targeting?

We are focusing on the East African market, in countries like Rwanda and Tanzania. Ethiopia is very promising but their massive dam for the Nile is where they are spending all their forex at the moment.

Are all South Africa’s OEMs looking north?

All OEMs operating in South Africa have now received the guardianship of Africa from head office. They are probably continuously looking up north to see opportunities. We are not all looking at the same countries: Ford is looking at Angola and Nissan is looking at Nigeria.

Is the Department of Trade and Industry (dti) encouraging an African focus?

The OEMs’ focus on Africa aligns well with the dti’s review of the Automotive Production and Development Programme (APDP) – the new APDP is about regional trade, and that is the most important aspect for the South Africa OEM industry. If we don’t get the regional trade and regional industry right then it’s going to be difficult in the future. Labour and logistics costs are high but with regional trade we could offset most of it. We are pushing the dti for better incentives to help us to open those markets.

Is Africa the key?

If production stays far below a million cars production per year, we will never be profitable or sustainable, so Africa could be the key? When you look at the number of cars per thousand inhabitants in most African countries there is opportunity in places like Kenya and Nigeria. If you take away the used car drag, there’s no reason why their market could not grow. If Kenya came to a level like South Africa they could achieve a market of five or six hundred thousand.

So you are positive about the future?

Nobody else can do it better than from Africa for Africa. Although it is a South African initiative, it needs to be an African initiative. It must benefit the other countries as well. We are working to refocus the AAAM to make this a significant organisation that will bring the auto industry further in Africa. It takes determination to create an auto industry. If you focus on it, it will come – there is a real opportunity.

Volkswagen Group operations in Kenya
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