Which road should African producers choose in times of electrification?
Converted electric motorbikes on the road in Rwanda. Photo: EfD South Africa
Africa currently has only a little over 1 percent of the global automotive industry, both in terms of market and production. In addition, most of the demand is for imported used cars. With growing populations and economies, the demand for vehicles will likely grow. In a recently published book, EPRU researcher Anthony Black co-authored a chapter which explored the potential for domestic automotive development, the barriers to its growth, how the global shifts towards electric vehicles (EVs) impact African production, and possible local solutions for mobility.
Pre-owned imports limit local demand
Most African consumers buy pre-owned cars imported from Europe. Around 80% of the demand for new vehicles is concentrated to South Africa, Morocco, and Egypt. This is partly because South Africa and Egypt have banned the import of pre-owned vehicles. They also have local producers. The demand for pre-owned vehicles in the rest of Africa comes from the low purchasing power of middle-class Africans; few can afford a vehicle, and pre-owned are most in demand.
The AfCFTA could drive regional integration
The African Continental Free Trade Agreement (AfCFTA) is a potential path towards improving automotive manufacturing. Regional integration in the vehicle production process can lead to continental growth, but this would require clear rules on what qualifies as locally made and an improvement to the free movement of goods between countries. Currently, the AfCFTA has struggled to reach an agreement, given the differing priorities and approaches to protecting their economies amongst African countries. The researchers note that successful regional integration and integration into the global value chain will require concrete country-to-country partnerships built around their productive strengths.
The global shift towards EVs poses a dilemma for Africa
Many Global North countries have called for a full shift away from internal combustion engine (ICE) vehicles towards electric vehicles, EVs, by 2035. Given that most of African automotive production is exported outside of Africa, this ban on ICE vehicles creates a dilemma for African producers. Currently, there isn’t much demand for EVs in Africa as they are generally more expensive than ICE vehicles, often requiring government subsidies and investment in charging stations. With Africa not currently having a demand for EVs, African manufacturers need to decide whether to switch production towards EVs, and exporting, or remain producing ICE vehicles, and supplying continental buyers.
The researchers argue that it is vital to align local and foreign demand to allow a shift in manufacturing to accommodate both markets. One major opportunity is that of EV two-wheelers. There is a demand for two-wheelers in Africa, with countries like Nigeria having large numbers of them. EV two-wheeler production in Africa could be a way to initiate the development of EV infrastructure.
Opportunities for African EVs
Certain African countries have already made policy shifts towards EVs, with Ethiopia banning the import of non-EVs. Other economies have looked at making EVs exempt from customs duties. South Africa has already begun assembling hybrid cars, which helps develop the infrastructure and skills to shift towards full electric production. Another important avenue for EV led growth in Africa is the production of batteries. Africa houses a large portion of the raw materials for batteries but lacks the infrastructure to process them. Many African countries are already developing policy that restricts the export of unprocessed raw materials for battery production, to increase their value added. Over time, improved battery infrastructure could lead to regional expansion, although this would need to be combined with policies that promote EV production.
Mobility solutions as an alternative growth path
“Mobility as a service” (MaaS) is another opportunity. Foreign apps, like Bolt and Uber, are already successful, but African alternatives such as Gozem or Yango have potential. Rwanda Electric Motors is a company that converts ICE motorbikes to EVs, and Kenya’s BuuPass allows the booking of seats on public transport. There is a large potential for MaaS development. While the researchers note that it may not yield the same results as automotive manufacturing, it is an alternative for countries with limited capacity for automotive manufacturing.
Tailored policies and regional integration are key
Africa is in a unique position, with both demand and supply-side potential. With the global transition towards EVs, the wealth of critical minerals, and the lack of large investment in ICE infrastructure create advantages in this transition. It requires policies that are tailored to local contexts and take advantage of new development opportunities. Regional collaboration and the AfCFTA, along with these policies, are essential in creating growth opportunities and ensuring that Africa does not get left behind in this transition.
To read the book, please find it here.
The chapter Africa’s Automobile Sector – Development Opportunities in a Rapidly Changing Industry co-authored by Altenburg, T., Barnes, J., Black, A., & Ndlovu, M. is chapter 13 in the book Global Shifts in the Automotive Sector: Markets, Firms and Technologies in the Age of Geopolitical Disruption by Krzywdzinski, M., Lechowski, G., Humphrey, J., & Pardi, T.
Josh Gray