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Changing Gear
Chinese automakers are working hard to meet the challenges of the growing African market
By Li Xiaoyu | NO.29 JULY 19, 2018

A technician works on a car manufactured by Chinese brand JAC in Egypt (XINHUA)

With 29 million vehicles manufactured just last year, and 3.2-percent year-on-year growth, China remains the world's largest car manufacturer. For the past five years, Chinese automakers have been picking up speed, demonstrated by the fact that local brands now account for 60 percent of all the sales of sports utility vehicles in the country. Overall, homegrown automakers now sell nearly 50 percent of all vehicles in China according to statistics released by the China Association of Automobile Manufacturers (CAAM). But as the Chinese automobile industry struggles with an increasingly saturated market at home, car makers have begun to look abroad for new opportunities.

A growing number of Chinese brands have set their sights on the African automobile market. From Great Wall Motors to Chery and Geely, there is a long list of Chinese manufacturers which have already launched assembly lines on the continent. The most recent announcement, from BYD Auto, is one of the most significant. The Chinese new-energy vehicle giant launched an ambitious project in Moroco to manufacture electric cars last December. An industrial facility will be established on a 50-hectare area near Tangier in northern Morocco and will produce batteries, electric cars, buses and heavy goods vehicles, as well as electric monorail wagons.

These developments were recently confirmed by international market research company Nielsen. Its global consumption survey on car brands showed that more than 40 percent of consumers in Mexico, Chile and Egypt would consider buying Chinese cars in the next two years. Africa is, therefore, poised to become one of the most promising markets for Chinese automakers, said Zhang Zhenhua, Vice President of the automotive division for Nielsen Greater China, during the Eighth China Auto Forum held in Beijing in May.

A promised land

Major Chinese automakers are rushing to Africa because the continent has a number of advantages over other more competitive markets, said Zhang Zhiyong, an independent auto industry analyst.

"In Africa, the automotive industry is still in its infancy. The foothold of leading automobile multinationals in the region is not as secure as in the Chinese market, which has already reached maturity. Investing on the continent is, therefore, a reasonable choice for Chinese car manufacturers," he said.

Lower intensity competition goes hand in hand with a potentially huge market. According to analysis by the French Institute for Demographic Studies published in September 2017, Africa's population, which stood at 1.2 billion in 2017, will likely reach 2.5 billion by 2050, while the United Nations Children's Fund forecasts that by the end of the 2030s the size of Africa's urban population will exceed that of its rural residents.

These demographic trends and the continent's economic growth fuel the hope that a middle class of consumers will emerge, says Zhao Ren, an independent investment advisor on the African market. The statistics support this idea: according to a report from consulting firm IHS Markit, the volume of car sales in Africa is expected to double by 2027.

Political support is also picking up pace. The Egyptian Government, in addition to other measures, has subsidized gasoline consumption and continuously reduced road transport tariffs and customs duties on imported cars and auto parts. For its part, the South African Government, which sees the automotive industry as a pillar of the country's economic growth, has been pursuing policies that favor the development of the domestic auto market. One of the key measures is to ban the import of second-hand vehicles that fail to meet basic safety and environmental standards.

Another major opportunity was presented by the signing of an agreement in March expected to pave the way for the creation of the African Continental Free Trade Area. Tariffs on intra-African trade will be gradually phased out in order to facilitate business for African companies on the continent, according to the African Union. Previously, due to its dissuasive customs barriers, Africa remained an overly fragmented market unable to put forward a global strategy. The establishment of a free trade area means this problematic situation is coming to an end.

Every opportunity presents a challenge. African customers often complain about the lack of after-sales service of Chinese brands, although analyst Zhang Zhiyong believes this is quite normal.

"These are the prevailing challenges in the Chinese electric car market: when the market is small, the after-sales service network is not as developed as expected," he said. He suggested that as the market matures, Chinese auto manufacturers should gradually establish new after-sales service networks or strengthen existing ones to improve customer satisfaction.

Sasuka minibuses manufactured by BAIC South Africa await delivery (XINHUA)

Not without caveats

Other challenges emerge from competition with traditionally predominant brands, mostly France and Japan. To cope with this, Chinese manufacturers often try to leverage their price advantage. Zhang Zhenhua pointed out that compared to similar models produced by well-established multinationals, Chinese-branded cars tend to perform better in terms of appearance, interior design and configuration, all with a lower price tag.

A good market adaptation strategy therefore has a role to play. Chinese company Beiqi Foton Motor has discovered that different markets have different needs. For instance, when it comes to buses, Chinese passengers are more concerned with comfort and air conditioning, while in South Africa consumers prioritize capacity. Given this difference, Beiqi replaced the air conditioning systems in its buses with installed luggage racks to improve baggage capacity. This modification was well received by its African consumers.

Another trump card is the development of electric vehicles, which meet the needs of many countries in terms of environmental protection. In this respect, BYD has set a good example. The firm has invested heavily in Morocco as part of the government's initiative to build industrial ecosystems in the automotive and aeronautics sectors, which has been welcomed with open arms by the local authorities. As Moulay Hafid Elalamy, the Moroccan Minister of Industry, Investment, Trade and Digital Economy, said, "This project enables Morocco to develop new forms of transport combining efficiency and respect for the environment, putting the country's dynamic work force at the core of the global market."

Copyedited by Laurence Coulton

Comments to zhouxiaoyan@bjreview.com

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