The African automobile market is huge and growing bigger every year.
The trade in new and used cars, motorcycles, buses and trucks is now a multi-billion dollar business on the continent.
Nigeria alone spends up to $5 billion dollars every year importing vehicles (especially second-hand) from the USA, Canada, Europe and Asia.
Far bigger than this trade is the industry that supports this market – vehicle accessories, spare parts, lubricants and repairs/maintenance services.
Smart entrepreneurs, big and small businesses are making a fortune from the growing demand for vehicles and complementary goods and services.
Let’s explore Africa’s interesting automobile market and discover the lucrative business opportunities you can exploit…
Why is the number of vehicles in Africa increasing?
Here are a couple of reasons why the number of vehicles is growing so rapidly on the African continent…
#1 – Growing population and rapid urbanization
As the size of a population grows and more people migrate to the cities, the demand for a suitable and reliable means of transporting people and goods is bound to increase.
Because road is the dominant means of transportation in Africa, this demand is heavily focused on cars, buses, motorcycles and trucks.
According to a recent research by McKinsey & Co.,
Africa is now home to more than one billion people and nearly 40 percent of its population lives in urban areas and cities. Over the next 40 years, Africa’s population is predicted to be the fastest growing in the world and will more than double to 2.3 billion by 2050.
This outcome is likely to grow the demand for vehicles in Africa by up to 300 percent.
At the moment, more than 50 African cities have a population above one million. At an urbanization rate of 40 percent, Africa is now more urbanized than India (30 percent) and nearly as urbanized as China (45 percent).
By 2030, more than 600 million more Africans will become city people and up to 65 cities will have a population above one million.
#2 – Fast growing economies and rising income levels
Africa is home to six of the top ten fastest growing economies in the world (over the last five years).
According to a recent study by Accenture (PDF),
African countries received $72 billion in foreign direct investment in 2008, which is five times the amount received in 2000. This economic growth is creating jobs, businesses and wealth.
As a result, more people, businesses and governments can now afford, and are purchasing, vehicles to satisfy personal and public transportation needs.
While the global economy is predicted to grow by 2 to 3 percent between 2011 and 2020, Africa is expected to grow by nearly 6 percent, making it one of the world’s fastest-growing regions. This positive trend will usher nearly 300 million Africans into the middle class and will lead to huge spending on vehicles.
Cheap imports of second hand (used) vehicles
Because there is very little car production going on in Africa, and the big importers focus on wealthy buyers who can afford brand new and expensive cars, a huge market exists for inexpensive used cars in Africa.
As a result, a huge proportion (more than 70 percent) of the vehicles purchased by Africans is second-hand or used. Japanese and Korean vehicle models dominate the market although there is now a rising wave of American used cars and cheaper brand new models from China trying to take over the African market.
Although the number of brand new vehicles sold every year in Africa is on the rise, used vehicles have become very popular to a significant majority of Africans (low and middle income earners) who can choose from a wide variety of recent models at very cheap and affordable prices. (photo credit: congressexchange.com)
Despite these cheap imports, vehicle ownership remains relatively low and there is still a lot of room and opportunities for growth.
For example, Africa’s most populous country and second largest economy (Nigeria) has fewer than 50 passenger cars per 1,000 people, compared to nearly 200 (per 1,000) in South Africa (2007 figures).
Currently, up to 45 percent of Nigerian middle-class households do not own a car but will be able to afford one (even if second-hand) over the coming decade.
#3 – Consumer tastes and trends
Foreign imported cars have become established as a status symbol in many parts of Africa and this fast spreading trend will prove very difficult to reverse.
At the top of this trend is a small but very wealthy segment of the African population responsible for the rising demand for high-end expensive luxury cars.
Although South Africa has, for many years, provided the continent’s highest demand for luxury cars, the growing number of millionaires in Nigeria is attracting many of the world’s leading luxury car makers too.
For example, Porsche, one of the world’s best-known luxury car manufacturers is opening showrooms in Lagos and Abuja from which it hopes to sell nearly 300 units a year. Its estimates show that Nigeria’s growing class of millionaires can easily afford the $120,000 average price of a Porsche.
Opportunities entrepreneurs can exploit in the African automobile market
In this section, we shall explore the different opportunities in the African automobile market and how entrepreneurs and small business owners can take advantage of them.
The interesting thing about the African auto market is that opportunities are open to both big and small players, no matter the amount of capital you intend to start out with.
Let’s take a look at the available opportunities in this market…
#1 – Sell second-hand and used vehicles
While there is a huge opportunity to sell and make money from brand new cars, the capital required is significant. As a result, we shall only be considering the opportunities around used vehicles and how to make money from them.
To understand and appreciate the scale and flow of the international trade in used cars, it’s important that we look at their sources and how they eventually end up in Africa.
As you know, all automobile makers (like Toyota, Honda, Ford etc) introduce newer vehicle models every year and lots of people want to own these latest products.
On the average every year, more than 40 million brand new cars are sold across developed and high income economies like the USA, Canada, Europe, Japan and South Korea.
It’s a usual practice for most people to trade in their used cars for these brand new ones and pay the difference in price. Many of these traded-in cars have been used for about 1 to 4 years (or even older) and their condition and mileage depends on how much it was used by the previous owner.
In addition to these traded-in cars, more used cars find their way to the market through finance companies, banks, fleets, rental car companies and the insurance industry.
Every year, car dealerships across the developed world receive millions of these used vehicles and can only do two things with them – resell to people who cannot afford brand new cars (like many Africans), or sell to the scrap yards that will convert them to raw steel to be used by manufacturers to make new cars.
More than 90 percent of these used cars are put back on the market and resold by dealerships. In 2012, up to 45 million used cars were sold in the USA alone and many of these ended up in Africa.
In fact, some of the vehicles sold on the second-hand market are damaged or accident vehicles purchased from insurance companies and police auctions at giveaway prices. Most of them are then refurbished/reconditioned and put back on the used vehicles market for resale.
So, how do these used cars end up in Africa? Well, many smart entrepreneurs visit these dealerships to buy off these used cars and then ship them over to Africa for sale on the local market.
Because of their cheap costs, the profit on each sale can be huge. However, the amount of money you can make could be affected by import tariffs, local sale prices and foreign exchange rates.
Nowadays, the internet has made it possible for anyone in the world to buy used vehicles and have them shipped to their location.
However, some of these websites may not offer export processing services to your country. You may have to sign up with a registered broker who can buy vehicles on your behalf and ship them over to you. (photo credit: afroautos.com)
You must NEVER forget to consider the total cost of getting the vehicle to your location; this often means the difference between making a profit or suffering a huge loss. To be assured that any vehicles you purchase do not have any hidden problems and will not require any costly repairs, it’s always a good idea to use services like AutoCheck or CarFax to check the vehicle’s history.
The Vehicle History Report will often reveal if the vehicle has been in any accidents or whether it was totaled and salvaged. You will need to pay a small fee to use this service, but it’s always worth it!
The Kelley Blue Book is another great resource for vehicle reviews, best price estimates and general advice.
#2 – Sell spare parts and accessories
Due to the growing numbers of vehicles imported to Africa, the vehicle spare parts and accessories market has become a multi-billion dollar market on its own.
Entrepreneurs can choose from a wide range of products to deal in. Ball bearings, body panels, mechanical parts, lubricants, tyres and several other items used on vehicles sell huge volumes in Africa every year.
Although vehicle manufacturers produce brand new spare parts for the market, the second-hand (used) spare parts market has proven to be the bigger and most popular in Africa.
Most of the second-hand spare parts are sourced from damaged cars sold by insurance companies and police auctions in developed countries at very cheap prices.
Most people prefer to buy these used parts because they are cheap, perceived as genuine and are often in good condition.
Used engines are one of the most valuable items of spare parts due to their high demand in many African countries which have a big market for re-conditioned automobiles. (photo credit: michelvaillant.com)
The United Arab Emirates (UAE) has become a major destination for spare parts dealers across the world. An increasing number of African businessmen now purchase second-hand auto spare parts outlets in Dubai and Sharjah because the prices in these locations are some of the cheapest in the world.
To succeed in the spare parts business, entrepreneurs must understand the needs in their local markets and determine the types of spare parts/accessories that are in demand and what vehicle models are popular with consumers.
Will you focus on cars/SUV parts or larger vehicles like buses and trucks?
Will you specialize in any particular brands?
Most people end up with spare parts they cannot sell because nobody wants to buy them (like parts for an unpopular car model). Some others do not consider that the competition in their location is too stiff and the market is flooded with similar (or even better) products.
#3 – Own and/or operate an auto repair/maintenance workshop
The African auto service/repair industry is easily worth millions of dollars every year.
As you already know, vehicles are machines and are very likely to break down or develop mechanical or electrical faults every once in a while.
Every day in Africa, thousands of vehicles are brought to auto repair workshops for a wide range of services including: fixes/repairs, servicing, maintenance, upgrades and modifications.
There are thousands of auto repair workshops (sometimes called vehicle service centres or garages) scattered around major cities and towns in Africa. These ‘vehicle doctor’ businesses exist to satisfy the lucrative market and growing demand for cars, buses and trucks which always have to be in good working condition to serve the transportation needs they were purchased for.
The demand for auto services has grown very rapidly due to the rise in the volume of vehicles that have found their way to African roads. A huge proportion of vehicles on the continent are often used cars which are more likely to break down and need regular repairs and servicing unlike the relatively new ones.
The needs of this market cover a very wide range of services from simple oil changes and tyre/wheel alignment to engine tuning and other complex stuff.
If you like cars and looking under the hood (bonnet) is something that interests you, there’s a very good chance you will do well in Africa’s multi-million dollar auto service industry.
Although there are high-end fully equipped auto workshops that cater to the premium end of this market, they are usually very expensive and most people cannot afford them.
Although there is an abundance of individual (roadside) auto mechanics and poorly-run auto service centres, poor technical knowledge/skills and dishonest practices have created problems for vehicle owners and opportunities for smart entrepreneurs.
Entrepreneurs who can provide reliable and honest auto services at affordable and reasonable prices are bound to be very successful in this market.
However, you must know that starting an auto service workshop often requires significant capital investment for tools and equipment, and other stuff needed to set up the workshop. (photo credits: riseandgrind.com; colourbox.com)
#4 – Harvest and sell junk metal from dead vehicles
If you’ve read our Waste to Wealth article, you already know that smart entrepreneurs can convert waste items like scrap metal into money.
There are carcasses of abandoned vehicles rotting away in open sight in many parts of Africa.
In developed countries, there is a systematic practice of recycling waste metal from used vehicles to be reused by car manufacturers or other industries/factories that need iron/steel as raw materials to make new products.
You could harvest these abandoned scrap cars and sell the metals to metal processors/junk yards.
Different types of scrap metal can fetch varying prices. Alloys are usually more lucrative due to their much higher demand in manufacturing.
Although steel is more common and makes up a significant portion of all scrap metal, alloys like brass can fetch upward of $1 to 2 per kilogram.
Brass has varied applications in locks, valves, gears, ammunition and many other products where very low friction is required. Brass is also used extensively in musical instruments because it is durable and shines brightly when polished. (photo credit: forum-auto.com)
Copper is also another lucrative scrap metal and is considered to be one of the world’s most-wanted metals. Any yard dealing in metal recycling will accept it, and it can return up to $5 or more per kilogram, depending on its condition. You can scrap any copper-containing product, including motors, wiring and bare copper.
Ready to take on the African automobile market?
All indications show that the number of vehicles in Africa will continue to grow in the coming years. People, businesses and governments will buy more vehicles which will need spare parts and proper maintenance/repair to remain in operation.
And when these vehicles can be used no more, they can be harvested for valuable scrap. Every point in the life of a vehicle in Africa presents an opportunity for smart entrepreneurs to make money.
If you find that the business ideas we have shared in this article interests you, you should start working on a business plan and take action as soon as possible.
You could also choose from many other amazing business ideas in the Business ideas section of this website.
We would love to hear from you about your successes, challenges, advice and questions. Do not forget to leave a comment in the section below and share this opportunity with your friends.
To your success!