China's Auto Industry Gaining Ground in Africa

Investment drives closer ties with the region

China is actively expanding its influence in Africa where, according to China's Ministry of Commerce, there are now over 1,600 China-invested ventures in the fields of agriculture, mining, basic infrastructure, and various manufacturing industries. Among these, the auto industry is where China has been playing an increasingly significant role in reshaping the market landscape in Africa.

Although China has the world's largest auto industry, demand has come almost exclusively from the home market as Chinese makers face tough competition beyond their borders.

Over the past decade or so, however, China's automakers have been building up strong foundations in Africa through exports and production expansions, with the result that they have the largest market share in several major countries. Some industry observers have commented that Africa provides a good opportunity for Chinese automakers, which have struggled to pass strict safety tests in the United States and in Europe. They also note that China's automakers have won the trust of African consumers with special designs and related services.

For instance, Foton Automobile started operations in Algeria four or five years ago and now has 50% of the light-duty truck market. In preparation for doing business in this northern African market, Foton Automobile researched the country intensively to ensure that its trucks would fit both the geographical conditions and the preferences of local consumers. Based on its findings, Foton Automobile decided to first to supply the market with light-duty trucks. The bet has paid off well for the automaker.

Great Wall Auto Company, which considers Africa its most important overseas market, has been making shipments to the continent since 1999. The company developed its aftersales service network to over 20 countries in Africa, aiming to have a maintenance and repair shop within 300 kilometers of its customers. “In Africa, a transportation vehicle may be in use for a couple of decades and that makes aftersales services especially important to African consumers,” commented the company.

IAC Motors introduced its small-sized cars in North Africa through the French dealer GBH Group in the middle of the last decade and now has over 15%t of the market share in the region. In Morocco, Chinese auto brands are especially popular, where they constitute nearly 50% of the small car market. It has been reported that the automobile is the second most popular product shipped from China to Morocco where the fragrance of Chinese tea prevails everywhere and Chinese automobiles can be found on every street corner in the country.

Morocco, which faces the Mediterranean Sea, was once a colony of France and Spain. Before Chinese automakers entered the country's auto market less than 10 years ago, it had been dominated by European and Japanese automakers. “China's automakers have expanded their market share with the advantage of around 20% lower prices for similar quality as Japanese or European cars,” commented Madiva, a local car dealer, which has earned substantial profits as a dealer of imported cars from China.

China's automobiles are not only in Morocco. They can be seen everywhere in other North African countries such as Algeria, Tunisia, Libya, and Mauritania. Algeria is the second largest automobile market in the region, second only to Egypt. Chinese automakers, such as Great Wall Motors, IAC Motor, Jiangling Motors Group, Foton Automobile, and Haifei Motor, have all become popular auto brands in these countries.

The success of China's automakers in Africa has forced international competitors to reassess their future operations in the region. French Renault, for instance, among the initial European automakers to set up production lines in Morocco, in 2009 had a 23.5% market share, equivalent to 56,000 units of cars, and has continued to expand its local operations with a plan to build a new auto plant with an annual production of 75,000 units of cars, scheduled to start mass production in 2012. German Volkswagen (VW) made a similar announcement in January that it will build a new auto plant in the country.

Though Africa is commonly regarded as an area of great automobile market potential since it accounts for 14% of the world's population, its annual auto sales are only 1.3 million units, around 2.2% of the global market.

　　

South Africa
South Africa is both the largest and the most competitive auto market in Africa. The country has recently experienced an auto sales boom driven by automakers exploring business opportunities in the country.

According to the National Association of Automobile Manufacturers in South Africa, the country's auto sales amounted to 228,951 units during the first five months of 2010, up 45.72% from the year earlier.

South Africa doesn't have its own national auto brands. All cars sold in the country are foreign brands either produced by foreign ventures located in South Africa or shipped from abroad. BMW, one of the first companies to start developing the country's auto industry, has been a popular brand in the upper echelons of that market. BMW now runs a complete production line in the country, with all parts and materials purchased from local suppliers.

Major factors contributing to the auto sales boom in this country are the geographical conditions that make it very difficult for residents to travel without their own transportation vehicles, even in the country's capital city Johannesburg.

In recognizing this problem, the country's government offers incentives to encourage car purchases. For instance, in Johannesburg the government provides a subsidy of around 35,000 rands for a new or secondhand car purchase.

　　

FAW Group
The FAW Group, the most active Chinese automaker in Africa, last April announced an ambitious investment plan to advance its market position in Africa.

The plan is the largest of its kind by Chinese automaker, amounting to about US$100 million, of which US$45 million will be funded by the government-run China-Africa Development Fund. The plan aims to support the government's policy of strengthening economic cooperation between China and African countries. Official statistics show that China is now the second largest trading partner of Africa. Besides trading, China hopes to strengthen its economic ties with African countries through investment or other kinds of industrial cooperation.

The FAW group's investment plan will be implemented mostly in South Africa where it has recently signed a contract with Imperial, the largest local car dealer, to promote sales of the group's cars either produced by local manufacturing concerns or shipped from China.

In North Africa, FAW Group has established a strong sales network, especially in Algeria and Morocco. It opened its first African production line in Tanzania in 1992, and followed up with subsidiaries in 17 other countries, including Algeria, Angola, Kenya, and South Africa. In 2010, the group shipped 25,000 cars to Africa, accounting for 32.6% of its annual exports.