Automotive Industry Boom to Fuel Africa’s Paints and Coatings Market

Africa’s paints and coatings market is held by the fast-expanding construction industry but experts believe the automotive sector could hold the key to the long-term growth of the region’s decorative and industrial product volumes.

“Paints and coatings opportunities are currently bigger in construction, but watch the automotive,” said Richard Weissenberg, Business Unit leader Visionary Science-Africa Frost & Sullivan.

Although precise estimation of Africa’s automotive coatings market size could not be readily available, the unveiling of ambitious investments for existing and new vehicle production facilities in Algeria, Kenya, Ethiopia and Nigeria by original equipment manufacturers (OEMs) is likely to fuel substantial demand for various paints and coatings solutions.

Weissenberg told participants at the East Africa Paints & Coatings Congress 2017 that Algeria has made huge strides in growing its automotive industry with vehicles produced by OEMs set to increase from 82,200 in 2017 to 450,000 in 2022.

The main OEMs in Algeria are Faw Motor Company, Scania, IVECO, Cima Motors-Hyundai, Volkswagen, Mercedez Benz SAPPL-MB, Renault Truck and PSA Peugot-Citroen. With the OEMs expansion plans in the North African country, opportunities exist for the supply of solutions such as basecoats especially at the production plants to provide the much needed vehicle colours and exterior aesthetic value.

He said East Africa governments are encouraging local assembly of motor vehicles as the region experiences an upsurge in vehicle ownership despite the second hand imports taking the lion’s share in almost all countries in the region.

“Local vehicle assembly reduces foreign exchange drain and supports government policy goals on import substitution, increase of exports, creation of employment and boosting industrialization,” said Weissenberg.

Regional paints and coatings companies such as Basco Paints, Crown Paints, Sadolin Uganda, Insignia and Goldstar dominate the region’s automotive market with various products such as thinners, primers and fast-dry sythentics.

In Kenya for example, there are several domestic assembly plants, mostly the completely-knocked-down (CKD) such as General Motors East Africa, Associated Vehicle Assemblers, Hero Motocorp, Foton, Hino and Toyota.

In early February 2017, France’s Peugeot announced plans to restart its stalled production in Kenya of its ‘508’ and ‘3008’ models with a target of at least 1,000 units within the first year.

In late 2016 Germany’s Volkswagen inaugurated its new production facility in Thika town, 45 km northwest of the capital Nairobi. The company hopes to make 1000 units annually during its first phase of its production expansion plan.

The OEMs are being attracted to Kenya, East Africa’s biggest manufacturer of paints and coatings, by government incentives including the waiver of the 25 percent import duty previously levied on CKD kits and removal of the 20 percent excise duty on locally assembled vehicles.

An earlier analysis of Kenya’s automotive industry by Oxford Business Group supports Weissenberg’s view. It said: “A number of companies with assembly operations in Kenya such as Japan’s Toyota and U.S.’ General Motors are looking into applying for the incentives, which has so far only been approved for Volkswagen.”

It estimated between 70 percent and 90 percent of Kenya’s current motor vehicle population is made up of second hand imports, which has a positive influence on the growth of the country’s automotive refinish market due to demand for vehicle maintenance and repair services.

“Passenger vehicles are Kenya’s fourth largest imports at $429 million in 2014 while commercial vehicles were ranked seventh with a value of $370 million,” said Weissenberg.

For the manufacturers and suppliers of automotive paints and coatings, Weissenberg predicted increase in demand fueled by the anticipated surge in vehicle numbers on Kenya roads to 5 million by 2030. Vehicle population in Kenya grew at 7.6 percent between 2005 and 2014.

In neighboring Ethiopia, although the automotive market is dominated by second hand vehicle imports, demand for vehicles is rising sharply according to Weissenberg. An estimated 8,000 vehicles were assembled in Ethiopia in 2015 while another 38,000 were imported, which was 50 percent higher than in 2014.

Currently, commercial vehicles form the biggest import item in Ethiopia with a value of $859 million in 2014.

However, Weissenberg said Ethiopia’s persistent foreign exchange problem is the main constraint in growing Semi-Knocked Down (SKD) and CKD assembly.

OEMs active in Ethiopia’s automotive sector are Geely, FAW, BYD, Lifan and Bishoftu Automotive Industry that is run by the Ethiopian military with capacity to assemble, upgrade and localize buses, pick-ups, Suvs, trucks and military vehicles. Germany’s Peugot is constructing a vehicle assembly plant in the landlocked country.

A recent analysis of the Africa automotive industry by consultancy Deloitte said the rise in income levels in many African countries and the emergence of a growing middle class will destin the continent to be “the final frontier for the global automotive industry.”

“Given Africa’s population size and its positive economic outlook, automotive companies will be able to gain a competitive advantage by adopting a medium to long term view towards the continent,” said Deloitte.

Although no exact figures are readily available to show the share of each coating solution in the African market, the ongoing global campaigns for reduced emissions and efficient fuel consumption is likely to push OEMs in the region to embrace powder coatings and shift from solvent borne products that are commonly used in the automotive industry.

Experts and coatings industry analysts say powder coatings are considered environment-friendly and offer high quality finishes compared to the solvent borne products that continue to raise concerns about their high flammability and toxicity levels.

Meanwhile, Weissenberg said decorative paints and coatings currently constitute more than 80 percent of the total market in Kenya and Tanzania. Kenya is experiencing a 7 percent growth in the decorative paints and coatings segment compared to Tanzania’s 6.2 percent.

Nairobi-based Crown Paints continues to dominate the East Africa decorative paints and coatings market with a $38.9 million share according to Weissenberg. Crown Paints, which has depots across East Africa and recently opened a factory in Uganda, supplies East Africa’s automotive industry with metallic paint systems of 2K acrylic systems and fast dry nitro cellulose systems.

Basco Paints and Insignia Ltd with a 19.8 percent and 15.4 percent market share respectively are the other top market players while Sadolin Paints and Goldstar with 12.5 percent and 7.9 percent are next in East Africa market ranking according to Frost & Sullivan. Smaller suppliers in the region have a combined share of 5.4 percent.

“The decorative paints and coatings market in Kenya and Tanzania is set to grow at a CAGR of 6.7 percent by 2020 due to factors such as urbanization,” said Weissenberg.

He said production volumes of the decorative paints and coatings in the two countries is estimated at nearly 60 million litres in 2017 and could reach 91.5 million liters in 2020.

In 2015, Kenya had the highest share of the water-based paints at 69.1 percent compared to 51.3 percent for Tanzania. However, Tanzania had 48.7 percent share of the solvent-based paints market compared to Kenya’s 30.9 percent in the same year.