Working Paper 282 - Africa’s Automotive Industry Potential and Challenges

The low level of industrialisation is a major problem in Africa. Many analysts have argued that lack of structural change during the phase of economic expansion since 2000 will impede future growth prospects due to the ongoing reliance on commodities. This in turn has serious consequences for the ability to expand employment. This paper outlines the limitations of industrial development in Africa in recent decades and briefly explores the various industrialisation options. It then goes on to use the example of the automotive industry to examine both the possibilities and pitfalls facing the development of this important sector. The automotive industry is a relatively sophisticated industry, but with sub-Saharan Africa’s rapidly expanding market and automotive trade deficit of $16.3 billion, it is important that ways are found to efficiently attract investment especially into parts of the sector, which are more appropriate for lower-income countries. A number of larger countries such as Nigeria and Kenya are now embarking on plans to develop domestic automotive production. Some of these plans run the risk of encouraging low-volume, inefficient production which provides little value added or employment. What is required is the broadening of the market through regional integration to allow for large-scale, productive investment. These issues are explored using Kenya as a case study.