Carmakers, suppliers see great potential for growth in North Africa
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Automakers and suppliers are finding big opportunities in North Africa, where new-car sales are forecast to rise more than 40 percent by 2016 and where low labor costs make producing vehicles and components cheaper than in western Europe and even parts of eastern Europe.
Auto companies are also being drawn to North Africa because of its close proximity to Europe, which makes shipping vehicles and components easy.
These factors take on even greater importance as companies look to cushion themselves against troubles in Europe, where new-car sales are forecast to fall to a 19-year low this year.
Vehicle sales in North Africa are expected to increase to 930,000 in 2016 compared with the 660,000 units sold last year in the region, which comprises Algeria, Egypt, Morocco and Tunisia.
Renault in front
With two production plants in the region, Renault has taken the early sales lead in Morocco, Algeria and Tunisia where it has a combined 30 percent market share followed by PSA/Peugeot-Citroen's 25 percent share and Hyundai-Kia rounding out the top three with a share of 5 percent to 10 percent, according to consultancy IHS Automotive. Volkswagen has not yet achieved a significant presence in the region, said IHS analyst Walt Madeira, however, industry sources say Europe's largest carmaker is expected to establish production in North Africa in the near term.
Renault solidified its lead in North Africa when the French automaker and alliance partner Nissan earlier this year inaugurated their new factory in Tangiers, where it builds the Lodgy low-cost minivan for the Renault and Dacia brands for sale in Europe and other markets.
By next year, Renault says the 1 billion euro ($1.3 billion) plant will have an annual capacity of 400,000 units. Renault's other Moroccan plant, which was established in Casablanca in 1959, made 16,051 Kangoos, 26,583 Sanderos and 14,185 Logans last year.
The big presence has benefited Renault and Dacia as the brands had a market share of 37.6 percent in Morocco in the first half of this year, according to Renault. The automaker also plans to open a factory in Algeria and add local production of a passenger car at one of its plants in the region but has not yet given specific details yet. "We have a big footprint in North Africa and it is clearly one of our main markets for both Renault and Dacia," said Arnaud Deboeuf, who is Renault's entry-range program director.
Renault product director Thomas Lane said the carmaker's North African footprint is ideal because it serves both the local markets as well as Europe. "North Africa and Africa in general will be major growth markets during the next couple of decades – you want to be there," Lane said.
1 million potential
Madeira said North Africa is poised to become one of the world's fastest-growing car markets in the next decade. "Unit sales should begin to approach 1 million eventually," he said. He warned, however, that reaching that potential is contingent on steady economic growth and the establishment of a larger middle class. "Only job growth will enable the population to buy big-ticket items," Madeira said. "At the moment, a lot of cheap used-car imports trickle down there. But in the future, people will eventually want the newer and safer vehicles if they can afford them."
A main reason the region is attractive to automakers and suppliers is labor costs that are significantly lower than in Europe. In 2011, auto workers in Morocco earned an average of 250 euros a month, compared with 730 euros a month in Romania, where Dacia is based, IHS research shows.
Labor costs can change: in 2001, the average monthly wage for auto workers in Romania was 250 euros. That has risen because of the success of Dacia, which consistently has been adding models and production at its plant in Pitesti since 2005.
Taking advantage of low-cost labor is a double-edged sword for Renault. While it helps the company's bottom line, it has left the automaker vulnerable to censure. The French government, which has a 15 percent stake in Renault, has publicly criticized the automaker for choosing Morocco to make the Lodgy, which will mainly be sold in Europe.
Supplier hot spot
European suppliers have not faced the same backlash from their home governments for picking North Africa as a production hub. More than 200 partsmakers make components in the region with more than 120 in Morocco alone, Madeira said. The region is used mainly for low-margin parts, such as wiring systems, that are too costly to make in Europe. Most of those parts end up back in Europe.
"The majority of low-end components produced in the region find their way to French or Spanish car production," Madeira said. "Suppliers can ship their parts to more than 20 plants in Spain and France in a few days by road. It is very quick to get those components to the plants."
Partsmakers are also expected to benefit from the forecast increase in local demand for new cars. "North Africa is a win-win situation for suppliers," Madeira said.
Unsafe?
Following the recent ousting of unpopular governments in Egypt, Tunisia and Libya, there have been concerns that the region is not politically stable enough to sustain local production and distribution. Madeira, however, points out that Morocco and Algeria, which is the largest market in the region, are not high-risk locations. "Egypt and Libya are the countries where the potential for civil unrest is the greatest," Madeira said. "Tunisia and Morocco and Algeria are relatively stable and we don't foresee any complications."
Said Bernard Descamps, director of international development for French suppliers association FIEV: "Not only is Morocco a very secure location for foreign companies, the government is also very welcoming for automakers and suppliers by offering tax advantages and infrastructure improvements."
Morocco's government has upgraded the country's seaports, highways and railway systems and has created two tax-free zones for the auto industry in Tangiers and Kenitra.
2016 930,000
2015 880,000
2014 843,000
2013 810,000
2012 759,000
2011 660,000
*North Africa includes Algeria, Egypt, Morocco and Tunisia
Source: IHS Automotive
You can reach Bruce Gain at brucegain@gmail.com.
