PSA Makes Europe Player in Ethiopian Auto Industry

French automaker PSA Group turns to Ethiopia to launch assembly of Peugeot 2008, 301 and 208 models.

PSA opened the new $1.2 million assembly plant in partnership with Mesfin Industrial Engineering, a local business that built the factory in Tigray in the northern region of the East African country. It is expected initially to assemble 1,200 vehicles yearly for sale to Ethiopia’s growing car market and to neighboring countries Djibouti and Somalia.

“This is merely the initial phase of operations,” says Jean-Christophe Quémard, PSA executive vice president-Middle East and Africa.

“On the basis of the size of Ethiopia’s car market we look to be producing about 30,000 Peugeot vehicles per year,” says MIE General Manager Habte Hadish.

MIE is the first company to assemble a major European vehicle brand in Ethiopia; most local competitors are Chinese automakers Geely, FAW, BYD and Lifan.

“MIE has the exclusive right to assemble Peugeot cars in Ethiopia, which are being assembled in the same facility used to assemble other brands of sedan cars,” Hadish says. “The investment (in) the partnership with Peugeot is related to specific assembly tools.”

MIE entered Ethiopia’s vehicle market in 2011 when it began assembling German MAN trucks for sale locally. It currently assembles three automobile brands for Geely, as well as Sonalika tractors in collaboration with International Tractors of India.

An emerging middle class in Ethiopia, Africa’s second-most populous nation with 94.1 million people, is fueling demand for foreign cars such as the Peugeot brand, which is making the country an attractive investment destination for automakers and assemblers.

However, despite its potential as an emerging automotive market, Ethiopia’s car production and ownership is still low; the country has only 84,000 registered vehicles.

According to the International Organization of Motor Vehicle Manufacturers, vehicle ownership on the African continent was estimated at 44 per 1,000 people in 2014, compared with 808 in the U.S.

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But growth is coming. The International Monetary Fund sees Ethiopia as Africa’s fastest-growing economy and estimated economic growth of 8.7% for the Horn of Africa country during the last fiscal year.

Despite the growth figures, Ethiopia’s fledgling car-manufacturing industry faces challenges. Massive government spending on infrastructure projects such as Africa’s largest hydropower dam has depleted foreign-currency reserves, making imports of car-assembly kits problematic.

Also, imported cars dominate the Ethiopian market. While the country produces about 2,000 cars per year, the number of foreign cars imported in 2015 increased 50% year-on-year to more than 38,000, according to the Ethiopian Revenues and Customs Authority.

To stimulate the domestic auto industry, Ethiopia’s government plans to ban imports of older used cars. 

Boosting exports of manufactured goods and building competitive industries that focus on domestic demand, such as the auto industry, have become priorities for Ethiopia’s economy, says Arkebe Oqubay, a special advisor to Prime Minister Hailemariam Desalegn on developing its manufacturing industry.

“In the short term, assembly works will have benefits in terms of job creation and save foreign exchange,” Oqubay tells WardsAuto.

“Developing a robust automotive industry will require policy instruments that encourage value addition, absorption of automotive technology, saving foreign-exchange earnings and shifting to exports, and encouraging cleaner technology.”

A strategy to increase production and sales in Africa and the Middle East is expected to help offset flagging demand for Peugeot cars in emerging markets such as China and Latin America. A recent slump in demand and increased competitiveness in those car markets have depressed PSA revenues. Sales of Peugeot vehicles in China fell 17.9% during first-quarter 2016.

The new assembly base in Ethiopia also opens a new frontier for Peugeot and other foreign automakers seeking growth opportunities in new markets. The new plant’s target markets include Somalia, with 10.9 million people and an improving security situation; and Djibouti which, despite a population of only 873,000, is relatively prosperous in the region with per-capita gross domestic product of $1,570, according to World Bank data.

“Despite the volatile environment, we are confident in our performance and the achievement of our goals,” says Jean-Baptiste De Chatillon, PSA’s chief financial officer.