ADDIS ABABA, Ethiopia – In the latest sign Ethiopia has a growing auto industry, China’s Lifan says it plans to double its assembly capacity in the African country.

The auto maker will launch a new plant next year with an annual capacity of 1,500-2,000 vehicles. Lifan, one of China’s largest private manufacturers of motorcycles and passenger cars, already operates an assembly operation here with the same level of capacity.

"Demand for Lifan cars is growing a lot in Ethiopia," Roger Tian, deputy general manager of Lifan in Ethiopia, tells WardsAuto. Sales have grown an annual average of 30% for the past three years, he says, and the auto maker anticipates they could climb 40% to 50% in 2013.

Lifan, which says it accounts for 70% of car-assembly in Ethiopia, sold 1,200 units in the last financial year ended in March, according to Tian. The auto maker launched its X60 cross/utility vehicle here in May and plans to introduce its Lifan 530, 320 and new 620 models next year.

Tian says Lifan is benefiting from the affordability of its cars. The 520, for instance, is priced at 288,000 birr ($15,900), affordable for the small but growing middle class among the country’s 84 million people.

The Chinese auto maker, which sells cars in a number of emerging markets including Russia and Chile, began operations in Ethiopia in 2007 in a partnership with Holland Car, the first company to assemble vehicles in the country. The two auto makers have operated independently since 2009.

Ethiopia remains a relatively small market for automobiles, but thanks to growth in the gross domestic product of about 7% in recent years and an increasingly open economy, consumer demand is on the upswing.

The country imported 1,940 cars in the last financial year, up from 1,008 in fiscal 2009-2010, according to the Federal Transport Authority, which says 10,404 vehicles of all types were imported during fiscal 2011-2112. However, it notes an estimated 1,500 additional vehicles likely were smuggled in.

Due to growing demand for personal transportation and an increasing focus on manufacturing to sustain economic growth, the Ethiopian government says it wants the country to become an important car-building hub in the coming years.

There are nine companies assembling vehicles in Ethiopia, with cars accounting for 80% of production, according to the Metals Industry Development Institute, the government body responsible for the development of the automotive manufacturing industry here.

Workneh Delelegn, director general of MIDI, says plans are in place to see full car production in Ethiopia within the next three years. The target is in line with the country's 5-year Growth and Transformation Plan for 2011-2015 that calls for 85% local content in locally produced cars by 2015.

Delelegn says MIDI it is looking to support local companies such as Mesfin Industrial Engineering, which assembles vehicles for China’s Geely and plans to move into full manufacturing in the next few years.

The goal is to encourage consumers to buy more vehicles built in the country, he says. "The focus is on import substitution. We need to change the mindset in Ethiopia into buying locally assembled cars."

The cost of buying cars assembled in Ethiopia is lower than many imports, subject to tariffs up to 200%. Even some second-hand cars are more expensive than those produced in the country.

"At the moment, we are looking to ensure Ethiopia has the capability to manufacture the parts needed for full car production," says Delelegn. "In time, we hope to manufacture engines as well."

In addition to encouraging development of local companies, the country is actively encouraging further investment by overseas auto makers. "While there are more European manufacturers in Asia at the moment, we think the environment is beginning to change towards Africa," he says.

Africa's low-cost labor is a key attraction, but Delelegn says Ethiopia offers several key advantages for foreign investors. "Ethiopia is a large country, with the second-highest population in Africa. As well as having abundant low-cost labor, it is relatively peaceful and secure."

Currently, 80% to 90% of Lifan's parts are imported from China, but Tian says the auto maker would like to use local engines, seats and other components. "The volume of parts available in Ethiopia will grow."

Ethiopia also is looking toward exporting cars to neighboring countries such as Kenya and Uganda in coming years, Delelegn says, and as the industry grows it will focus on producing eco-friendly cars.

Besides passenger vehicles, he says Ethiopia also assembles pickup trucks with engine capacities of up to 2.8L, as well as buses, tractors and trailers. A growing volume of parts are being manufactured in Ethiopia for all these vehicle types.