Revamping Africa’s Mobility

There has been a growing talk about Kenya’s efforts to revamp its automobile sector and enhance its standing in the African market with multiple deals signed for foreign investment. On a Tour in Japan, Kenya’s President Ruto signed a deal with Toyota Tsusho Corporation unlocking a $629.7 million investment into automobile assembly. Seen as a deal for investors to scale the assembly and manufacturing of parts and components in the country, the industry could be a critical African manufacturing hub to serve the continent under the African Continental Free Trade Area (AfCFTA) agreement protocols.

Toyota Tsusho President Ichiro Kashitani (L) and Kenya’s President William Ruto during a site visit of Toyota Motomachi Factory in Nagoya, Japan on February 7, 2024. PHOTO | PCS

In its private sector engagement action plan, the AfCFTA in collaboration with the World Economic Forum cited the automotive industry as a target sector to spur investment and growth on the African continent. The action plan visualizes making Africa a manufacturer of between 4 and 5 million vehicles by 2035 from 1.1 million in 2022. This creates a need for at least an additional 20 full-size manufacturing plants in the continent calling for renewed efforts between nations such as Kenya and the AfCFTA to collaborate to realize the dream.

The AfCFTA Role in the Automotive Industry

There is room for the private sector to collaborate with partner states and the AfCFTA to effectively move more value-added activities to the continent and for the continent to become a leader in electric vehicle manufacturing. The industry is expected to grow to $42.06 billion by 2027 with the potential for servicing of this growth by local companies and accessing a market of over 1.3 billion connected in a single AfCFTA-driven market.

Private companies have often found success in the industry through partnerships with African nations indicating that the industry is ready for increased investment underlined by the AfCFTA. With an annual demand of 2.4 million motor cars and 300,000 commercial vehicles, the framework is strategic to support initiatives, such as between Toyota and Kenya to supply the domestic and continental markets. This diversification of manufacturing and production could revamp Africa’s productivity which is growing slowly at 7% with Morocco and South Africa accounting for 80%.

“Undoubtedly, unlocking opportunities for African and global businesses in the automotive industry depends on the provision of a frictionless African trade which the AfCFTA promises.”

The indulgence of the AfCFTA in supporting automotive manufacturing initiatives is thus tied to the advantages of economies of scale in reducing operation costs, increasing efficiencies on component and skill access, and pricing which is necessary for a competitive industry. The dynamism expected from reduced tariffs for manufacturing inputs, such as on Mozambique’s aluminum and Cote d’Ivoire’s rubber will revolutionize the industry. The AfCFTA further holds keys to rules of origin convergence in the continent that can set common thresholds for value addition and the creation of general and co-equal rules for stimulating trade in locally manufactured automobiles.

Kenya is thus setting an example of the significant political will of African nations to develop collaboration for automotive regional value chains to drive investment in the sector. Notably, private sector players such as Toyota in coloration with Kenya, and Volkswagen in collaboration with the AfCFTA are expressing interest in driving investment in the sector within Africa. This underlines the continental strategy and national counterparts as necessary in creating linkages for enhanced trade, investments, and partnerships to drive the industry’s growth.

A Powerful Case for Investors

Undoubtedly, unlocking opportunities for African and global businesses in the automotive industry depends on the provision of a frictionless African trade which the AfCFTA promises. The supranational body, therefore, needs to make a strong case for investors by supporting the harmonization of automotive standards and the eradication of existing intra-trade barriers, non-tariff or otherwise. Moreover, efforts in collaboration with alternative bodies in training program development for public and private sectors and the provision of financing across the value chain are needed. In collaboration with Afreximbank and the African Association of Automotive Manufacturers, for instance, $1 billion has been committed to the automotive industry.

A crucial opportunity is available in grid reliability improvement and the acceleration of the integration of renewable energy to enhance electric vehicle sector investment and manufacturing. Thus, sustainability and the global fight against climate change consequences stand to benefit from the new trade area efforts creating opportunities for investors. The continent is therefore a key region in enhancing sustainable mobility and in harnessing renewable energy to respond to an emerging demand for electric vehicles. The concern would, therefore, depend on the ability of the AfCFTA to accelerate its policy harmonization efforts to aid in the role of e-mobility startups that are emerging across the continent.

A case for AfCFTA to accelerate the free movement of goods, services, labor, and skills for the benefit of the industry is underlined in the wealth of natural resources distributed across the continent. Multiple countries have their key raw materials for modern vehicles including aluminum, copper, platinum, cobalt, bauxite, and lithium among others. It is therefore not lost on sector players on the critical role the AfCFTA can play in enhancing access to these inputs to support manufacturing plants in resource-poor nations. The room for diversification into alternative industries, such as motorcycles and electric two-wheelers as part of the industry with growing demand in the continent further offers unprecedented opportunities for the industry.

Sector Strategy and Implementation

Even as individual nations such as Kenya pursue investors for the automotive sector, the implementation of the automotive strategy developed by the AfCFTA in February 2023 depends on national policy implementation and private-sector collaboration. The AfCFTA secretariat will however be critical in driving industrial partnership agreements with countries and regions to facilitate investment, manufacturing, and intra-African trade.

It is also not lost on the AfCFTA that Africa has an emerging and growing middle class which necessitates solutions to further drive demand for locally produced mobility across various segments. This also provides room for transitioning to used vehicles sourced from those assembled locally while providing access to affordable vehicle asset finance. This will undoubtedly require effective implementation structures, strong in-country public and private sector collaborations, and alignment in AfCFTA’s roles in the automotive value chain. Notably, opportunities for the private sector are opening up in the sector as a result of AfCFTA efforts making a powerful case for investors to move in and help drive and transform the African economies.

Muoki Musila is an Kenyan based economist. These are the writer’s own opinions and do not necessarily reflect the viewpoints of Liberty Sparks. Do you want to publish in this space? Contact our editors at [email protected] for further clarification.