India turns to Africa to fuel its auto industry

By Jevans Nyabiage

Indian automakers are slowly tightening their grip on new car exports to Africa as they square off with China, Korea and Japan for opportunities in the continent.

Multinationals from emerging economies are hungry to go global, and in the past decade have been racing to the continent to fuel their growth.

While Africa still sources the bulk of its new vehicles from traditional markets in Europe and America, India has been making pronounced strides in the sector.

South Africa-based research analyst Simon Freemantle says while nascent, the market for new vehicles in Africa is expanding fast. 

“Supportive domestic factors are being bolstered by a post-2008 chase for new markets and the increasing role played by nimble, cost-effective, Asian auto manufacturers,” Freemantle says in the latest Africa Macro note he authored with economist Jeremy Stevens.

Profound rate

Last year, roughly 1.8 million vehicles were sold in Africa, with Japanese manufacturer Toyota accounting for 237,000 units (13 per cent), followed by General Motors (United States) with 180,000 units (10 per cent).

Standard Bank analysts say that with the exception of China, all of the world’s major vehicle exporting economies have seen exports to Africa lift at a more profound rate than exports to the rest of the world.

For instance, France has seen a contraction in global vehicle exports of 22 per cent, but an 11 per cent lift in exports to Africa.

Of particular interest, however, is the growth of Indian vehicle exports to Africa. Since 2003, Indian vehicle exports to Africa have swelled by over 1,000 per cent (and by 160 per cent since 2008). This is by far the fastest rate for this product group among Africa’s traditional trading partners.  

“Whereas in 2003, India was Africa’s 12th largest source of total vehicle imports, by 2012, it had shifted to sixth — ahead of both France, which was third in 2003, and the UK, ranked sixth in 2003,” Freemantle says, adding that passenger car exports are driving this growth.

Last year, of India’s $3 billion (Sh261.3 billion) income in vehicle exports to Africa, 46 per cent consisted of passenger cars and 14 per cent of motorcycles.

Since 2003, Indian car exports to Africa have grown by a staggering 2,400 per cent.

Last year, India exported almost three times more cars to Africa than China, half as many as Korea. Indian car exports have also grown at a significantly faster pace since 2008 (155 per cent) than China’s (65 per cent) and Korea’s (55 per cent).

The big differentiator among these Asian tigers is that while India has focused on the passenger car market in Africa, China’s advantage rested on transport equipment.

In 2012 China exported $1.4 billion (Sh121.9 billion) worth of trucks to Africa, compared to $310 million (Sh27.1 billion) from India and $445 million (Sh38.8 billion) from Korea.

China has also been dominant with exports of motorcycles, an increasingly critical element of public transport throughout fast-growing African urban areas. Its exports in 2012 of $1.4 billion were almost three times larger than Indian exports of $430 million (Sh37.5 billion).

Across some of Africa’s fast-growing and still poorly connected — in terms of physical infrastructure — economies, motorcycles have become indispensable components of urban and rural transport.

“Though Africa remains a nominally peripheral vehicle market, the growth fundamentals — with long-term dynamics — provide incentive to vehicle manufacturers,” Freemantle adds.

“For India, the need to secure new African markets has also been driven by a softening of domestic demand. Having expanded in 2009-2011, India’s domestic vehicle market dipped by 6.7 per cent to 1.89 million units in 2012-2013.”

Largest share

South Africa absorbed the largest share of Indian car exports to Africa in 2012, importing 41 per cent of total car exports to the continent, followed by Algeria and Egypt.

Total Indian car exports to Africa have increased by 160 per cent since 2008, compared to a 90 per cent lift in exports to the world.

During this time, exports to South Africa expanded by 560 per cent, to Angola by 550 per cent, to Libya by over 2,500 per cent, and to Nigeria by 240 per cent.

Last year, Nigeria imported the largest number of Indian motorcycles of any African country, accounting for 48 per cent of total Indian motorcycle exports to the continent. Angola was second and Uganda third.

As such, Indian motorcycle exports have increased by 175 per cent to Africa since 2008, with the most pronounced climb in Egypt (850 per cent), Rwanda (870 per cent), Sierra Leone and Djibouti (both over 1,000 per cent).

Freemantle says India’s strength in Africa has consistently been the ability of its home-grown multinational corporations to leverage domestic success and adaptability to similarly challenging emerging African economies.

This is true for the automotive industry, with market leaders such as Tata Motors, and Mahindra & Mahindra driving market expansion initiatives across Africa.

Tata has recently become one of Africa’s fastest-growing passenger vehicle manufacturers. From its base in South Africa — where it has invested about $700 million (Sh60.97 billion) since 1994, and claims to be the third-largest player in the country’s commercial vehicles market — it exports a range of vehicles to markets in the Southern African Development Community (SADC). 

It also recently announced it would set up an assembly plant in Kenya. 

Mahindra & Mahindra, also with a base in South Africa, has grown significantly and exports regionally to Zimbabwe, Zambia, Botswana, Swaziland and Namibia.

Mahindra’s growth has largely been in the pick-up truck (“bakkie”) market —150 of which are sold monthly in South Africa.

In March this year, Mahindra Global announced that it was ready to commence vehicle assembly operations in South Africa.

India’s Bajaj Auto is the world’s fourth-largest manufacturer of two- and three-wheeler bikes, and boasts a presence in Kenya, Tanzania, Egypt, Guinea, Nigeria, Angola, Namibia, Sudan, Ethiopia and Uganda.

selling brand

As at June 2012, Africa accounted for over 40 per cent of Bajaj’s total overseas shipments, with the Bajaj Boxer being the largest-selling single motorcycle brand in Africa.

India’s leading vehicle manufacturer by volume Maruti Suzuki has recently placed greater emphasis on exports to Africa as a means to offset weak demand in Europe and other previously core traditional markets.

It makes about 1.5 million cars per year. Africa absorbs 30 per cent of the company’s car exports.

Last year, exports to the continent swelled by over 50 per cent to over 30,000 units, the bulk of which were absorbed by Angola, Egypt and Algeria.

In December 2012, the company announced that it was considering establishing its first overseas assembly plant in a key African market to lower costs and elevate sales.

Hero MotoCorp, previously Hero Honda before the termination of the joint venture with the Japanese auto firm, is the world’s largest two-wheeler manufacturer.

To establish a wider global footprint, the firm in December announced the commencement of exports of its motorcycles to key markets in Africa including South Africa and Kenya — where it has established an assembly plant to manufacture its 100cc Dawn motorcycle.

Export profile

TVS Motor Company, the third-largest two-wheeler manufacturer in India, is also looking to increase its export profile in key African markets.

In July this year, the company announced plans to launch two new motorcycle models in Kenya, both of which are specifically tuned to local usability and durability requirements.

The company has also formally commissioned an assembly line in the Kenyan town of Nakuru.

TVS has more than 75 dealers, 300 service points and 2,500 trained mechanics in Kenya alone.

The Standard Bank report says that beyond these players, though, much of the growth in vehicle exports from India to Africa is a result of the presence of foreign auto multinationals with assembly and production plants in India.

And while these firms focused initially on accessing India’s domestic market, increasingly, their operations are gearing for emerging market export.

Hyundai Motors India, for instance, is India’s largest car exporter, with almost two-thirds of its shipments directed to markets in Africa, Latin America and the Middle East. In all, Hyundai exports to 120 countries, with exports accounting for 40 per cent of its output.

Others include Ford India,, Nissan India and Toyota Kirloskar Motors, which last year shipped over 2,000 units of its Etios model from India to South Africa.