A TRANSFORMATIVE shift is occurring in the African automotive industry as the African Continental Free Trade Area (AfCFTA) begins to take effect, creating new opportunities for growth and investment across the continent. The automotive sector, valued at $30.44bn in 2021, is expected to expand to $42.06bn by 2027, marking a nearly 40 percent increase in value.
According to a recent report by the World Economic Forum titled AfCFTA: A New Era for Global Business and Investment in Africa, much of this anticipated growth can be supported by local companies operating within the newly established free trade zone. The AfCFTA connects over 1.3 billion people into a single market, representing a significant opportunity for the automotive industry to flourish.
Building a strong automotive sector with AfCFTA
International companies have already found success in Africa’s automotive sector by partnering with local governments and businesses. These partnerships highlight the sector’s potential for new and increased investment, bolstered by the advantages offered by AfCFTA.
Africa’s automotive market is driven by an annual demand for 2.4 million motor vehicles and 300,000 commercial vehicles. This demand is fuelled by rising disposable incomes, the growth of the middle class, and rapid urbanisation across the continent. While this demand has largely been met by imported used vehicles, domestic production has also been on the rise, growing at an average rate of 7 percent annually. Currently, Morocco and South Africa lead the continent in automotive exports, with Algeria also emerging as a significant player.
Unlocking Africa’s economic potential
The AfCFTA opens the door for African and global businesses to capitalise on economies of scale, a crucial factor for competitive automotive manufacturing. By reducing tariffs on essential inputs like aluminum from Mozambique and rubber from Côte d’Ivoire, the entire African automotive industry is set to become more dynamic. Additionally, the AfCFTA’s rules of origin will help establish common standards for value-added levels, which could further stimulate trade if harmonised across regional communities.
African leaders are actively working to enhance the investment environment for the automotive sector. There is strong political will among African governments and private sector players to develop regional automotive value chains, recognising the sector’s historical contribution to industrialisation.
Institutions like Afreximbank and the African Association of Automotive Manufacturers are collaborating to support the industry by harmonising automotive standards, offering training programmes for both the public and private sectors, and providing financing across the value chain. Afreximbank, for instance, has committed $1bn to the industry through direct financing and partnerships.
Sustainable growth and the future of mobility
The AfCFTA also presents a unique opportunity for Africa to lead in sustainable mobility, particularly as global demand for electric vehicles (EVs) increases. Although EVs currently account for less than 1 percent of sales in South Africa, interest is growing across the continent. With some of Africa’s key trading partners set to ban internal combustion engine vehicles as early as 2035, the shift towards electric mobility is gaining momentum. Pilot projects for sustainable vehicles are already underway in Rwanda, Egypt, and South Africa, and e-mobility startups are emerging across Africa.
Africa is rich in natural resources critical to the production of modern vehicles, including copper, platinum, cobalt, bauxite, and lithium—materials essential for achieving net-zero emissions. The continent’s vast market for motorcycles and electric two-wheelers, particularly in West, East, and North Africa, offers further opportunities to leverage AfCFTA preferences for locally produced inputs.
Volkswagen’s success story
Volkswagen, a global automotive leader, has recognised the potential of the AfCFTA to drive local production and meet growing demand in Africa. The company has successfully established local assembly operations in Kenya, Rwanda, and Ghana, along with two wholly-owned subsidiaries in Rwanda and Ghana.
Volkswagen attributes its success in Africa to its collaborative approach with African governments in developing and implementing automotive policies. The company’s experience in countries like South Africa, Morocco, Tunisia, Ghana, Egypt, and Kenya underscores the importance of consistent, enabling industrial policies and access to local markets—key benefits of the AfCFTA.
The trends outlined in the World Economic Forum report, combined with Volkswagen’s successful experience, make a compelling case for new investors to enter the African automotive sector. As the AfCFTA continues to transform trade across the continent, the automotive industry stands to play a pivotal role in driving economic growth and development.
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