North Africa - a new car making frontier?

With Europe and the US in political and cross-border trading turmoil, with Brexit looming and the Trump administration’s threats of tariffs on imports, OEMs are turning to North Africa as a carmaking location says Simon Duval Smith

North Africa, or the Mahgreb region, is usually taken to encompass Algeria, Morocco, Tunisia, Libya and Mauritania but in the realm of automotive plant investment I will also consider activities in Egypt.

As trade barriers arise around the world, and new car sales decline in China, the US and Europe, some of the globe’s largest car makers have been busy building plants and sales organisations in North Africa, taking advantage of the new-found wealth in the region and also gearing up to export from the region.

Volkswagen, Renault-Nissan, PSA, Mercedes-Benz, Hyundai and Toyota have invested billions in Africa generally, and in North Africa in particular.

These initiatives will have considerable impacts on OEMs’ global supply chains and the logistics sector has been quick to respond, due in part to the regions proximity to Italy with shipping companies such as Grimaldi, and the historical connection to French carmakers and logistics companies such as GEFCO, with their background as partners of PSA and other European OEMs.

A growing market with some investment hiccups

According to OPEC forecasts, the Middle East and Africa are expected to have 90 million vehicles on the road by 2040, up from 59 million today and this growth is particularly strong in North Africa; Morocco has already overtaken South Africa as the continent’s automotive hub and is soon expected to produce more cars a year than Italy and as well as becoming a centre for vehicle production, Morocco is also becoming a major supplier of components for European plants. Ford’s high-tech plant in Valencia, Spain sources interiors, seat kits, wiring harnesses and other production parts from the Kingdom.

2017 saw some decline in Foreign Direct Investment (FDI) flows to Africa, falling to $42 billion in 2017, a 21% decline from 2016, according to the United Nation Conference on Trade and Development (UNCTAD) World Investment Report 2018. This decline was influenced by weak oil prices and harmful ongoing macroeconomic effects from the commodity bust saw investment flows contract in major host African economies.

UNCTAD Director, Division on Investment and Enterprise, James Zhan says that, “The beginnings of a commodity price recovery, as well as advances in interregional cooperation through the signing of the African Continental Free Trade Area agreement, could encourage stronger FDI flows to Africa in 2018 and 2019, provided the global policy environment remains supportive.” By comparison, the picture in North Africa is much more positive, FDI flows to the region were down 4% to $13 billion. Investment in Egypt was down, but the country continued to be the largest recipient in Africa. FDI in Morocco was up 23% to $2.7 billion, mainly as a result of sizeable investments in the automotive sector. Indeed, Morocco is soon expected to produce more cars per year than Italy.

Vehicle makers’ investments in the region are expanding partly because several African nations have begun shunning vehicle imports to attract production capacity, actions that have not been lost on European carmakers.

As an example, since 2017, Algeria has required nearly all new cars sold in the country to be produced there and this has helped encourage Volkswagen to locate there.

Consumers today in North Africa are more brand-conscious and technologically savvy and will no longer be satisfied with older-generation vehicles imported from Eastern Europe. As with China and India, carmakers will have to offer similarly-specified new generation models to the region to maintain their market shares. At present, Algeria’s automotive industry relies heavily on imports from Europe and China, importing approximately 75,000 cars annually although this figure is rapidly coming down as home-built models come to the market.

Forecasts from OPEC suggest that car ownership in the Middle-East and Africa will nearly triple to 66 million by 2035, compared to 23 million in 2010, making it among the fastest growing markets in the world over the next few decades.

Volkswagen - growing with a voluntary joint venture

Volkswagen opened an assembly plant in Relizane, Algeria (280 kilometres south west of Algiers) in August 2017. Projected at the time to build up to 200 Volkswagen Golfs, Caddys, SEAT Ibizas, and ŠKODA Octavias daily, the German OEM celebrated the production of the 10,000th Caddy at the end of October 2018, at the same time announcing that Relizane would join Hannover, Pacheco (Argentina) and Quito (Ecuador) as production sites for its Amarok pickup truck.

The region was not an obvious choice for the traditionally conservative carmaker, with its mass youth unemployment which has fueled emigration, crime and Islamist extremism, but the OEM sees these problems as challenges that burgeoning economic opportunity could alleviate, as Erdem Kizildere, an executive at Volkswagen’s SEAT brand and head of the company’s Algerian plant says: “Of course, there are risks but what we see is the potential of the region. It is a very young market that is growing more industrial every day.”

Speaking about Africa in general, where Volkswagen is among the most active investors, having also opened factories in Kenya and Rwanda, Thomas Schäfer, Head of the Volkswagen Sub-Saharan Region, said as he signed deals with Ghana and Nigeria in August to build assembly plants in those countries in exchange for government assurances to protect investment: “The situation on the continent is stabilising, the last hurdles blocking development of a local auto industry are being cleared. This is a huge opportunity for us.”

While unlike its operations in China, where incoming carmakers and suppliers are required to establish joint ventures with domestic partners, Volkswagen did not have to enter into a JV, it has joined forces with local company SOVAC S.P.A. on the Relizane project. SOVAC is the majority shareholder, and also acts as the managing director of SOVAC Production S.P.A. The Volkswagen Group holds a minority stake in the joint venture. After the signing of the contract in November 2016, the plant was up and running in May 2017 as a multi-brand factory with four assembly lines. The short construction period was particularly thanks to the close cooperation between the brands of the Volkswagen Group and SOVAC, whose parent company has been the official representative of Volkswagen in Algeria for the past ten years and is also home there to some 90 dealers of the Group's brands.

Renault - well situated but vulnerable

In early 2017, the Renault Group celebrated the export of its 1 millionth vehicle made in its Moroccan plants of Tangier and Casablanca, just five years after completing its greenfield factory in Tangier, where the Sandero, Lodgy, Dokker and Logan MCV models are made and from where almost all (95%) production is exported via Tangier Port to 73 destinations, primarily Turkey and Europe, but also to other African countries.

Renault’s operations in Morocco have provided a major boost to its automotive industry, as more than 40% of the parts are sourced locally. Renault aims to further expand its production capacity in Morocco and is also considering setting up an engine production plant to serve the two car production plants.

Situated as it is at Morocco’s northernmost point on the Gibraltar Strait, one of the busiest shipping routes in the world, the plant’s output is a perfect candidate for export.

The plant’s storage areas can hold more than 8,500 vehicles is is situated very close to a dedicated rail link to the port. Some 250 vehicles are loaded onto each of four to six trains per day. More than 10% of total cars sold by Renault in their global market are made in Morocco. The carmaker benefits from being part of a ‘free zone’ where vehicles can be exported to Europe without import duty but a rise of nationalist-protectionist policies in Europe could mean Morocco, Algeria and other North African countries might not be such attractive export-manufacturing locations for foreign carmakers.

Nissan - seeking new supply lines for a new plant

The Japanese carmaker, part of the Alliance with Renault, has also chosen to take a local partner, Groupe Hasnaoui. Together they will invest a total of $160 million in a new Nissan vehicle plant in Algeria to meet growing customer demand in the country and across Africa.

The plant will have the capacity to build 63,500 passenger cars and light commercial vehicles annually, and will produce several models.

Nissan aims to double its presence in the Africa, Middle East and India region over the course of the company's Nissan M.O.V.E. to 2022 midterm plan. The move into the market follows Nissan's announcement last year that it will start making cars in Pakistan.

The Nissan car plant is expected to create at least 1,800 jobs in Algeria and support many more in the supply chain. Nissan teams from Japan will work with suppliers in the country to develop the local component industry through technical support, training and skills exchange.

"Nissan will bring new models and innovative technology to meet the growing expectations of customers in Algeria," says Peyman Kargar, senior vice president and chairman of the Africa, Middle East and India region for Nissan. "Working with Groupe Hasnaoui, we already have a strong heritage of excellent products and service in the country. Using our Japanese engineering expertise, we will build a manufacturing hub and work to develop the supplier industry."

Nissan Chairman, AMI Region, Peyman Kargar (centre) signs agreement with Co-Presidents of Groupe Hasnaoui - Feriel Hasnaoui (left) and Sefiane Hasnaoui (right) to establish JV for local production in Algeria. Witnessed by Japanese Ambassador to Algeria, Kazuya Ogawa (background)

Groupe Hasnaoui, founded in 1964 by Abdallah Hasnaoui, is a major player in the Algerian economy with interests in industry, distribution and services. The company is committed to creating value in the Algerian economy and is headed by its two co-presidents, Feriel Hasnaoui and Sefiane Hasnaoui. As with SOVAC for Volkswagen, Groupe Hasnaoui is Nissan's distributor in Algeria, the two companies have been partners for 25 years.

"With an industrial strategy based on employment and localisation - the only guarantees of our country's economic development - and a real creation of sustainable value for our national economy this investment will give us the status of wealth creation and generate industrial expertise," said Sefiane Hasnaoui, President of Groupe Hasnaoui.

The new plant in Algeria will increase Nissan's total potential capacity in Africa to about 200,000 vehicles. The number includes existing factories in South Africa, Egypt and Nigeria.

Nissan Algeria – a subsidiary of Groupe Hasnaoui – will also expand its existing national network of 35 outlets in line with an anticipated increase in sales volume that will place Nissan within the top tier of auto brands in Algeria by 2021.

PSA builds largest plant in Africa and courts suppliers

The French OEM is building the largest car factory in Africa and says it hopes that the plant will serve as a catalyst for the development of Morocco’s automotive sector by attracting investments by car parts makers, widening the supply chain in the Kingdom.

Set in Kenitra, Morocco, the facility will cost $632 million near Kenitra. Works have already started to build the plant, which is expected to start production this year, with an initial annual production capacity of 90,000 vehicles which is expected to rise to 200,000 as sales pick up. Most of the output will be exported to African markets. The PSA plant is attracting supplier to the region, including Linamar, which has announced plans to build an engine comonent plant nearby. The Canadian supplier will be joined by Delphi who will supply electrical distribution systems from a new factory and also will set up a research and development centre in the region.

This supplier activity in Morocco is partly spurred on by the government's aim of creating 90,000 jobs in the automotive sector by 2020 in addition to the 100,000 that already exist. The government also aims to encourage an increase in the proportion of locally produced components in exported cars from 40% to 65% by the end of the decade.

As demand from both local and export markets grows, the industry is likely to witness higher investment growth in the near future. Further, OEMs that enter the Moroccan markets are also able to benefit from the pool of skilled labour and network of more than 40 Tier 1 suppliers.

Lear, Leoni, Yazaki, Faurecia, Sumitomo, and Hirschmann Automotive are other key investors in the region in recent years.

Mercedes-Benz - following the money back to Egypt

The German OEM announced in January 2019 that it plans a new plant in Egypt in cooperation with a local business partner. This follows an aborted decision in 2014 to shift production from Egypt to Algeria, following other carmakers in in 2015 in taking advantage of benefits and facilities provided by the Algerian government to foreign OEMs. “Egypt is an attractive and competitive location for production and supporting logistics. With the planned local assembly we are confident to be able to expand our market position. Furthermore, with our broad-based product portfolio, our electric initiative as well as our expertise in respect of modern mobility concepts, we are ready to support the Egyptian authorities in related projects”, says Markus Schäfer, Member of the Divisional Board of Mercedes-Benz Cars, Production and Supply Chain.

As with Volkswagen and Nissan, the passenger car assembly plant would be built by a local business partner. There have been talks on important state infrastructure projects with the Egyptian government. With regard to the new capital in Egypt and the planned new “smart cities”, Daimler has offered its expertise in modern mobility concepts, electro-mobility and electric cars as well as autonomous driving. Parent company Daimler has long been a committed and successful industrial partner in Egypt. With its own import and sales organisation, a central spare parts warehouse and numerous authorised retailers and workshops in Cairo, Giza, Alexandria and Hurghada, Mercedes-Benz has created more than 1,000 direct and indirect jobs in Egypt.

GEFCO’s logistics expertise in the region

Major players in North Africa include GEFCO who, through their background with PSA, have established a considerable foothold in the region. GEFCO boasts more than 20 years of experience in North Africa, and in vehicle logistics it offers four compounds with 40 experts available to help OEMs streamline their supply chains. It occupies the leading position in Ro-Ro transport in the region, with 10,000 trailers and is the number one operator of the France to Tunisia route.

The customs area is sometimes problematic in Africa generally, and GEFCO has four agencies with a further 20 experts and has considerable expertise in local administrative procedures and regulations. In warehousing, the group offers two warehouses of 18,000 sqm and two bonded areas.

Grimaldi Group - investing in rolling cargo solutions

Since the mid-1970s, the Grimaldi Group has been the largest carrier of vehicles between Europe and West Africa. On these routes the Group operates 22 modern Multipurpose Ro/Ro Car Carriers, each of them able to accommodate about 2,500 lane metres of rolling cargo, up to 2,500 cars and 850 containers on the weather deck. Ships are fitted with their own deck cranes to handle containers, project and oversized cargo. With a departure every two days from Northern Europe, the Group offers a set of four different services – Northern Express, Central Express, Southern Express and Eurocargo Express – which directly serve a total of over 20 ports in the region. In support of its shipping services, the Group has built a network of offices throughout West Africa, with landside logistics and car storage facilities operating in the main port areas. The Grimaldi Group's regional transhipment hub is Dakar (Senegal) while a $60 million investment has been completed in Lagos (Nigeria) to build what is Africa's most modern Ro/Ro terminal. Operational since mid-2006 and called Port & Terminal Multiservices Ltd (PTML), the terminal provides the highest international standards for vehicle handling, storage and logistics. The second phase of development has been completed. PMTL currently features two berths for deep-sea vessels, more than 210,000 square metres of yard, and supporting off-dock storage areas of 100,000 square metres water connected to main terminal, state-of-the-art facilities and equipment.

The Group offers similarly comprehensive services to and from North America, to North and West Africa. Since 2006, it has been offering the only direct Ro/Ro-container service between the US and West Africa. The service provides customers with three sailings per month, supported by the ACL marketing network in North America and the Grimaldi Group's unparalleled coverage of West Africa.

The workhorses of this trade are the Grande-class Ro/Ro-Container vessels, each having a capacity of up to 800 TEU of containers, 2,000 linear metres of rolling freight and up to 2,000 cars. The service makes direct calls at Jacksonville, Savannah, Baltimore, New York and Boston in the US, and Dakar, Tema, Lome, Cotonou and Lagos in West Africa, connecting with the Group's extensive range of African ports via transhipment in Dakar.

Grimaldi's direct service is backed up by a four-times-a-week feedering service covering every major North American port from Halifax to Houston. This second service combines ACL's four transatlantic services with Grimaldi Lines' five North Europe-West African services via Antwerp and Hamburg. Grimaldi also offers a South America/West Africa direct Ro/Ro-Container maritime service, allowing all West African destinations scheduled by any of the Group's mainstream services or feeders can be reached via transhipment in Dakar (Senegal) for freight loaded on any of the vessels serving the South America/Northern Europe trade. 

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