Saturday, January 22

Africa cannot remain a dump for used vehicles – Erwin

Africa cannot continue to be the receptacle for abandoned used vehicles from Europe, the United States and Japan.

That’s the warning from former South African finance, trade and industry minister Alec Erwin, who spoke during a discussion at an automotive forum at the Intra-Africa Trade Fair (IATF) in Durban last week.

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“If we do that, it is actually unsustainable because it is causing increasing problems in the balance of payments. Second, it is causing significant environmental damage, and third, it is restricting our industrialization.

“So we have to move forward on this,” he said.

Erwin is now a director of Ubu Investment Holdings. The IATF Automotive Forum discussion was titled ‘The Vision of the Automotive Pact and Economic Benefits for Africa: Key Issues for Effective National and Continental Automotive Policies and Consideration around the AfCFTA [African Continental Free Trade Agreement] in the design of these policies ”.

His comments follow Commerce, Industry and Competition Minister Ebrahim Patel asserting in a different session at the fair that between 20 and 25 new vehicle assembly plants could be established on the African continent if he could convert the four million Used vehicles estimated to be imported into Africa each year in demand for new vehicles.

Read: Potential for Africa to have up to 25 new vehicle assembly plants

Erwin emphasized that with the exclusion of the original auto industry in Europe and the US, all subsequent developments in the auto industry were the result of very conscious government intervention and policy.

The sector is an ‘international system’

He said that the very nature of the industry imposes certain requirements on automotive policy, including that the industry is inherently a system of international production and trade.

“Not even China or the United States are trying to produce all of their models. It is more efficient to exchange both the components and the built units, ”he said.

Erwin added that developing an automotive policy for South Africa and Africa is a journey, but also a great opportunity.

He said there are some technical issues about how auto policy fits into the AfCFTA, but African governments are advocating for a specific agreement that will sit in parallel with the agreement and be “included.”

He said that currently this work has gone well and Ghana was the first country in more recent times to implement a more comprehensive program.

Read: Continental Free Trade Agreement Will Unlock Auto Opportunities In Africa

“The result of that was three new investments. That is quite an achievement. In Two Years, Develop A Policy And You Get Three Major Original Equipment Manufacturers (OEMs) [original equipment manufacturers] investment in your SKD [semi knocked down] plants to start with because they are sure there is a program there, ”he said.

Volkswagen, Toyota, Isuzu, Hyundai and Nissan have already invested in vehicle assembly operations in Ghana.

Erwin said that Kenya has introduced a program, but needs to complete it to make it really attractive, while Nigeria adopted a fairly comprehensive program, but then unfortunately did not implement it effectively, particularly on the customs side.

This resulted in Nigeria taking the “first step” and staying there and not progressing to having larger auto plants.

Erwin said that a comprehensive auto policy is underway in Egypt and a policy for Ethiopia is also being worked on.

Market potential

Mbongeni Ndlovu, head of African trade and industrialization at the Toyota Wessels Institute for Manufacturing Studies and consultant to B&M Analysts, said that one of the critical factors for a country that wants to develop an auto industry is that it has access to an auto industry. and regional market.

Ndlovu said that top-tier competitors from Turkey, Thailand and Mexico produce more than one million vehicles a year, nearly double the 550,000 vehicles produced annually in South Africa, while the next tier includes Brazil and India, which have a market size of more than two million and up to four million vehicles a year.

Ndlovu said this speaks to the market in terms of the proportion of the population that can afford a vehicle.

“Importantly, we do not believe that Africa is at a disadvantage at all because of this particular characteristic,” he said.

Ndlovu said they did an exercise in which they looked at India, a leading comparator with Africa, and took a benchmark of $ 10,000 per capita per year to determine income in sub-Saharan Africa and Africa relative to India.

He said they found that India had 32 million people earning more than $ 10,000 per person per year in contrast to Sub-Saharan Africa, which had about 34 million people in this category.

If this is expanded to include North Africa, about 66 million people in Africa earn more than $ 10,000 per person a year, he said.

“This speaks to the fact that there is currently a demand in sub-Saharan Africa. When you make projections in terms of urbanization and population growth that we are going to experience in the coming decades, it speaks to the proposition that we do have a market, ”he said.

Ndlovu believes that there is a “sweet spot” for an automotive policy for South Africa that can be extended to the African continent.

This is based on the fact that South Africa and Africa have significant market depth in terms of market size and dynamic capacity, which implies the production capacities, infrastructure and the availability of resources and skills to meet the demands of the industry.

Four steps

Ndlovu said there are four steps to creating a value proposition for developing an auto industry:

  • Attracting the OEM.

  • Securing that OEM investment through the development of infrastructure, skills, and the delivery mechanisms to support that investment.

  • Deepen that investment by attracting competing OEMs within that market.

  • Develop the capabilities of Tier 2 and Tier 3 components and, in some cases, even leverage resources to adapt to that industry.

It’s been done before …

Faizel Ismail, former South African ambassador to the World Trade Organization (WTO) and now director of the Nelson Mandela School of Public Governance at the University of Cape Town, said Africa is embarking on a great journey with the AfCFTA, but others have traveled a similar journey, such as the European Union (EU), which returned from impossible situations after World War II.

“You would never believe … that these countries could work together, but they did and are and have managed to build a regional economic bloc, so why not Africa?” he said.

Ismail said that the AfCFTA is an extraordinary game changer because the idea of ​​regional integration and a united Africa has been a dream of pan-African thinkers even before the independence of the continent’s countries.

However, he emphasized that the AfCFTA will only be successful if it contributes to the development of regional cross-border infrastructure in Africa.

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