Regional integration, regional value chains and the automotive industry in Sub-Saharan Africa

 

To date, regional automotive value chains have not developed to any significant extent in Africa. Growing demand for vehicles across the continent, closer economic integration and the desire on the part of some larger African countries to establish an automotive industry have improved  prospects.  But major obstacles remain: the political geography of the subcontinent and the tendency of the industry to cluster in a few locations indicate that many smaller countries are likely to miss out on attracting investments. This should not matter if they are attracting investment in other sectors.  It does however imply that it is unlikely that the automotive industry will drive regional integration independently of a broader integration process which sees the development of regional value chains across a multitude of sectors helping to bind the continent into a larger common market.

 

The objective of this paper is to examine the dynamic interplay between regional integration and the development of regional value chains (RVCs) through the lens of the automotive industry. Closer regional integration can provide the foundation for RVCs and RVCs in turn promote regional integration in a variety of ways including the establishment of backward, forward and horizontal linkages between firms across borders (Black et al., 2021). These linkages can also provide political pressure for further integration. But from a national policy perspective, for political momentum to be maintained, it is important that all participants perceive themselves to be gaining from the process. The paper considers the links between regional integration and the automotive industry by briefly assessing international experience. The current state of the automotive industry in sub-Saharan Africa, both from a market and production perspective, is also outlined, as well as the prospects for regional automotive value chains in SubSaharan Africa (SSA). Ultimately, the paper aims at sparking a policy discussion on possibilities for SSA auto industries to grow and overcome individual market limitations and the current fragmentation.

 

The paper analyses the current prospects for regional integration across Sub Saharan Africa through the lenses of the automotive industry, building on international experiences like Mercosur in Latin America and ASEAN in Asia. In order to assess the potential of SSA markets, the paper reviews data on vehicle sales, import, export of all growing African industries, together with auto policies in place and ongoing regional initiatives like ECOWAS, SADC, and the launch of the African Association of Automotive Manufacturers (AAAM).

 

This paper seeks to examine the links between regional integration, RVCs and the development of the automotive industry in SSA. Regional integration is a developmental project of extreme importance for Africa. It will encourage regional trade and industrialisation and lead to the development of regional value chains. The development of regional value chains could in turn add momentum to further integration and expand the importance of the region within global value chains. This has the potential to crowd in further multinational investment and encourage rapid industrialisation, as has been observed for the ASEAN automotive industry. While there is broad agreement that regional integration is essential for Africa to develop a significant automotive industry, more attention needs to be paid to how the benefits can be widely shared. Most countries, especially the smaller economies, are not likely to attract automotive investment. This should not matter if they are attracting investment in other sectors. One implication is that it is unlikely that the automotive industry will drive regional integration independently of a broader integration process which sees the development of regional value chains across a multitude of sectors helping to bind the continent into a larger common market. This will require improved infrastructure and the removal of remaining tariff and non-tariff barriers. In respect of the automotive industry it also means that any form of regional market and associated production model will need to be carefully crafted through a coordinated set of mutually beneficial regional and national policies. However, regional integration gives rise to complex economic and political dimensions. It will bring major gains, but they will not necessarily be widely shared. In Southern Africa there are already concerns about South Africa’s ongoing dominance of regional trade. In East Africa, industrial development is likely to be focused on Kenya where there is already a significant base. Policy makers will need to consider these aspects and devise remedies to ensure such tendencies are mitigated.