Renault Wants To Bring Mobility To Africa
“If you build it they will come” has been a theme in many stories, some fiction and some business case studies. In Africa, it is more complicated than that. Renault has been looking at Africa and its car markets.
Africa has more than a billion people, yet just over a million new cars are sold every year. Of these, around 80% are sold in just four countries: Morocco, Algeria, Tunisia and South Africa. Sub-Saharan Africa, apart from South Africa, makes up 40 countries and sells only 100 000 new vehicles. Why is that?
Firstly, there are 54 countries, depending on how you count. Africans speak between 1250 and 3000 languages. These countries occupy 30-million square kilometres, about 8 000km top to bottom and 7 400 side to side. The climate varies somewhat.
So if you build what, what will come? If you build roads, will cars come? If you build cars, will roads come? Africa already has roads and cars, but the numbers and the quality of each differ widely across the continent.
Three factors hampering sales
There are three factors, according to Charles Dovonout, Renault’s Regional Strategic Product Manager, that inhibit growth in new car sales.
Weak economic development in Sub-Saharan Africa means people can’t afford new cars, even though urbanisation has created huge demand. There is very little local production, but imported vehicles are subject to huge import duties – such as 100% in Ethiopia.
South Africa has more banks than you can shake a stick at, but financial institutions are rare in the rest of the region. In addition, interest rates can be 20 – 30%. Finance is difficult to get and very expensive if you can get it.
The third factor creates the perfect storm: lax regulation around the importation of used vehicles. Because of the two points above, drivers turn to cheap second-hand cars, discards from other markets. In Nigeria, for example, 15-year old imports are often found.
How do you fix this?
The only thing most Africans have in common is the African Union, with 55 states including Mauritius and Seychelles. This Union has asked its members to promote the car industry by restricting used vehicle imports. Kenya, for example, has imposed a maximum age of 8 years for vehicles on its roads, reducing this to 3 years by next year.
But you cannot restrict a necessity without replacing it. Africa will have to build its own cars. To this end, the AU will use the African Continental Free Trade Area (ACFTA) to promote free trade between countries. This will include automobiles.
The plan is that car companies will be able to set-up easily, which will create jobs and economic development. Jobs and development will create more wealth, so it will be easier to sell cars in the newly-opened markets. Especially if import duties are abolished, as planned in ACFTA. The more cars built and sold in Africa, the faster all aspects of the industry will grow. More people, many more, will have access to new cars.
Groupe Renault is ideally placed to join this march at its beginning. It is already the biggest auto company on the continent and accounts for 18% of sales. Its massive factories in Tangiers and Oran in North Africa provide the ideal springboard to grow further south.
Last year the company formed a partnership with Nigerian group Coscharis to produce the ever-popular Renault Duster and other models. It will be selling the Duster and Kwid into this key market. Renault fully expects similar operations to spread further into the region, but there are hurdles to overcome, such as infrastructure and, of course, finance.
Smartphones have allowed typically African innovation in the financial sector in this poorly-banked region. Mobile finance now serves 350 million Africans, mostly with microfinance. But if you build it, they will come. Soon more Africans will have access to a new Renault, and their cellphones should provide the means to finance it.
