How Indian vehicle manufacturers are winning in Africa

While it is still relatively small, Africa’s automotive market is growing, supported by rising incomes, improving urban infrastructure and the ability of Asian manufacturers to supply cost-effective vehicles, says a recent Standard Bank report authored by its analysts Simon Freemantle and Jeremy Stevens.

Although the majority of Africa’s new vehicle imports still come from markets such as Germany, Japan and the US, it is Indian vehicle manufacturers that have made the biggest strides in recent years.

Among Africa’s traditional and BRICS trading partners, no country has grown its vehicle exports to Africa faster over the past five years than India. “Since 2008, Indian global vehicle sales have expanded by an impressive 100% – though exports directed to Africa have exceeded this rate, swelling by 160%,” notes the report.

A decade ago India was Africa’s 12th largest source of vehicle imports; by 2012 it had moved to sixth position, ahead of France and the UK.

Indian companies such as Tata Motors and Mahindra & Mahindra have grown their presence in Africa from their bases in South Africa. Tata has become one of the continent’s fastest growing passenger vehicle manufacturers and it also claims to be the third largest player in South Africa’s commercial vehicles market.

Mahindra’s growth has largely been centred on pick-up trucks.

Maruti Suzuki, India’s largest vehicle manufacturer by volume, is also looking to grow its exports to Africa. The continent already absorbs 30% of the company’s car exports.

Passenger cars driving growth

It is passenger cars and motorcycles (as well as parts for both) that account for most of Indian vehicle exports to the continent. In 2012, India was Africa’s fifth-largest source of car imports, behind Germany, Japan, the US and Korea.

Last year, 48% (or US$204m) of India’s total motorcycle exports to the continent went to Nigeria, followed by Angola ($59m) and Uganda ($31m).

“These motorcycles have become indispensible components of urban and rural transport across some of Africa’s fast-growing and still poorly connected (in terms of physical infrastructure) economies,” says the report. “As such, Indian motorcycle exports have increased by 175% to Africa since 2008, with the most pronounced ascent in Egypt (850%), Rwanda (870%); and Sierra Leone and Djibouti (both over 1,000%).”

According to Standard Bank’s research, Indian-based Bajaj Auto – the world’s fourth largest manufacturer of motorcycles and auto rickshaws – exports to 35 African countries. As at June 2012, Africa accounted for over 40% of Bajaj’s total overseas shipments.

India versus China

Overall India’s BRICS partner China still exports more vehicles to Africa. However, while Indian companies are more focused on passenger cars in Africa, China’s strength lies in trucks and motorcycles.

In 2012, China exported $1.4bn worth of trucks to Africa (compared to $310m from India and $445m from Korea). Chinese exports of motorcycles ($1.4bn in 2012) have also been three times larger than Indian exports in this category.

Emerging market experience

The report notes that the growing focus on Africa for Indian vehicle manufacturers is partly to offset lower demand in its domestic market. India’s domestic vehicle market dropped 6.7% to 1.89m units in 2012-2013, after expanding in 2009-2011.

One of the reasons for the success of Indian manufacturers in Africa is due to the fact that conditions in the two regions are relatively similar. “Typical African markets demand durable, cost effective transport solutions, and here new manufacturers groomed in similarly trying emerging economy environments are likely to excel,” says the report.

“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.”