The African Continental Free Trade Agreement will grant over 1.3 billion people access to a single market.
The automobile industry on the continent will benefit from this trend as 54 countries quickly come together to form a single, tariff-free market.
According to a recent World Economic Forum study titled “AfCFTA: A New Era for Global Business and Investment in Africa,” the sector will have grown by $12 billion by 2027.
The African automotive industry is going through a major upheaval as a result of the opening of trade inside the African Continental Free Trade Area (AfCFTA).
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By 2027, the continent’s automotive market, which was anticipated to be valued $30.44 billion in 2021, is anticipated to have grown by more than 40% to $42.06 billion.
AfCFTA: A New Era for Global Business and Investment in Africa, a recent World Economic Forum study, suggests that a sizable portion of this increase may be covered by regional businesses operating inside the recently established free trade area.
More than 1.3 billion individuals will be linked into a single market by the AfCFTA. This will be extremely advantageous for the auto industry.
Creating an effective automotive sector through AfCFTA
Building on a thriving automotive industry with the aid of the AfCFTA International companies have found success in the sector by working with African countries, demonstrating that the sector is ready for new and increased investment backed by the AfCFTA.
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Throughout the continent, there is an average yearly demand for 2.4 million cars and 300,000 commercial vehicles. This local demand, which is increasing as a result of the continent-wide rise in disposable income, the robust growth of the middle class, and the quick urbanization, is being filled in large part by old automobiles imported from elsewhere.
However, domestic production has also grown by 7% yearly on average over the previous five years. Currently, South Africa and Morocco, which together account for 80% of all exports from Africa, are in charge of the continent’s vehicle sector. Algeria is developing swiftly as well.
African-sized economies
The AfCFTA creates a lot of opportunities for African and foreign firms in the automobile sector to seize, building on strong foundations in a new era of frictionless African commerce.
African automakers will benefit from the advantages of economies of scale, which are essential for the competitive manufacturing of automobiles. The entire African sector will become more active if tariffs on products like rubber from Cote d’Ivoire or aluminium from Mozambique are reduced. If regional communities eventually harmonise the value-added standard thresholds that the AfCFTA’s rules of origin will help develop, this will promote commerce.
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The continent’s leadership is actively attempting to enhance the business environment, particularly for the auto industry. African governments and private sector participants have a strong political ambition to create regional value chains in the automotive industry because of the sector’s historical contribution to industrialization.
The African Association of Automotive Manufacturers and Afreximbank, for instance, are collaborating to support the industry by assisting in the harmonisation of automotive standards, creating a targeted training programme for the public and private sectors, and providing financing to industry players across the value chain. Afreximbank has committed $1 billion to the industry through direct financing and partnerships.
The new trade region will also help the worldwide fight against climate change and sustainability. As demand for motor vehicles and electric cars rises, Africa may play a significant role in encouraging sustainable mobility by utilising renewable energy.
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Volkswagen’s success serves as a case study.
Volkswagen, a significant investor already in the continent, is aware of the AfCFTA’s potential to increase local auto production and meet local demand. The business has so far successfully created local assembly operations in Kenya, Rwanda, and Ghana in addition to two wholly-owned subsidiaries in each of those countries.
The government assistance gained in creating and implementing automotive policies in South Africa, Morocco, Tunisia, Ghana, Egypt, and Kenya, as well as other African countries, is credited by the corporation as the reason for their success in Africa thus far. Volkswagen is aware that raising domestic production necessitates a variety of investment levels and depends on stable, enabling industrial policies with access to regional markets, which it views as a key advantage of the AfCFTA. Strong grounds for new investors to invest in the auto sector, which will then spur and reshape economies across the continent, are provided by Volkswagen’s track record of success, the potential afforded by the AfCFTA, and the important market characteristics that have been examined here.
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