A new Africa
The roar from the Lion Economies in Africa is becoming ever louder. In the Volvo Group, many people are listening. After several decades characterized by war, weak economic growth and a decline in productivity, developments gathered speed at the beginning of this century.
There are a number of explanations for the upswing in recent years. The conflicts have come to an end in many countries, and the excessive lending of the 1980s and 1990s has now been rectified in a growing number of African states. The external factors include a more accommodating international climate, with different pro-Africa initiatives, and the appearance of new economic superpowers, China and India in particular. The emerging countries are playing a particularly critical role in infrastructure financing that is essential in order to harness Africa’s potential. This has helped to boost the demand for African raw materials.
For a number of African countries, the world’s hunger for oil, gas, metals and precious stones has resulted in a jackpot. After 27 years of war, Angola began its journey from poverty thanks to oil exports. Between 2001 and 2010, the country’s GDP grew by an average of 11.3% a year. This gave Angola a very close victory over China, in the rapid expansion league. In recent years, African countries have experienced varying success in turning their export revenue into investments in the future in the form of infrastructure and more diversified trade and industry. This often involves contracts with foreign companies that are given access to natural resources in return for constructing roads and railways, schools, hospitals or oil refineries.
Not everything is, however, linked to black oil and sparkling diamonds. The internet and mobile telephony have given the African farmer or businessman new opportunities to find information and do business. Industries such as tourism, banking and telecommunications have also expanded more rapidly than those based on raw materials. Taken together, all these factors have created a growing middle class which is consuming and drives growth further.
There is no doubt that double-digit growth figures are good news. However, this growth has taken place from very low levels and it is distributed unequally. From a business angle, there is no point in talking about Africa as a cohesive market.
a powerful position in North Africa,
but it is also represented in many
other African markets.
- If you are going to generalize, you can talk about three areas. North Africa has gas and oil. Provided that the political climate is stable in the future, growth is going to continue in countries such as Algeria and Libya. Unfortunately, Central Africa still has a long way to go. The poverty is still enormous. The largest potential for growth can be found in southern Africa: from Angola down to Namibia, Botswana and South Africa and then up again to Mozambique, Tanzania and Kenya, says Anders Petersson, Manager Transport Industry Analysis at Group Trucks Sales & Marketing EMEA, in response to the difficult question: Can you describe in simple terms how things look in Africa?
He is, however, quick to stress that anyone looking to sell a product in Africa should not simply study the growth figures. It is also necessary to see how things look in reality – which immediately makes the situation more complicated.
If truck sales are to be possible on a large scale, a functioning road network and an industrial infrastructure are essential. Other pieces of the jigsaw include a system for financing, a haulage tradition and trained staff to service the trucks. These prerequisites exist primarily in the northern and southern parts of Africa and this is reflected in the Volvo Group’s delivery figures for 2012. By tradition, Renault Trucks enjoys a strong position in North Africa, in Algeria in particular, but it is also represented in many other African markets. Volvo trucks are also sold in the north, in Morocco, for example, but the brand is largest in South Africa. South Africa is also the most important market for UD Trucks, while Mack enjoys a special position in Nigeria.
Mack enjoys a special position in Nigeria.
In a conference room in Lundby in Gothenburg, Lars-Erik Forsbergh is talking about strategy. At the time of the interview he headed up Group Trucks Sales & Marketing EMEA’s operations in Northern Africa and the Middle East, with responsibility for the Volvo, Mack and UD Trucks brands. Lars-Erik Forsbergh is optimistic about the future. So optimistic, in fact that the vision for his region is described as substantial growth in business. He stresses that the distribution network is going to be totally decisive.
- We can never be larger than our local importer. We have to be perfectly synchronized and have the same vision. Having a good product is not enough. Our service network must expand so that we can keep our promises. One method involves delivering modular workshops in kits. All the importer needs to do is cast a concrete foundation. After a couple of weeks, everything is in place. We also have another product in the shape of a turn-key permanent workshop which is delivered by a Turkish company, says Lars-Erik Forsbergh.
Africa is a continent that generates creativity. One example is Mack's importer in Nigeria's largest city, Lagos, who is putting together truck deals by gathering hauliers, developers and financiers around the same conference table – a local form of total transport solution.
Nigeria can also serve as an illustration of the two faces of Africa. Outside Lagos, work is in progress on creating Eko Atlantic – an artificial peninsula on which a city district as large as Manhattan will rise from the sea. Three years from now, it is estimated that 25 million people will be living and working in the region. There are already more than 50 cities in Africa with populations of over one million and the urbanization process is continuing.
Jan Vandooren, Director Middle East, Africa and CIS at Volvo Buses, picks up a glossy brochure to illustrate developments.
- We delivered two Bus Rapid Transport systems prior to the Football World Cup in South Africa. This system is without question the transport solution for the mega-cities that are developing in Africa. The cost of a BRT system corresponds to just 5% of the investment in a traditional rail-bound system and it can be operational within a year after a decision is made.
At the same time, the majority of people in Africa currently live in the countryside, where the infrastructure is frequently inferior or non-existent. For Jan Vandooren, this poses a challenge.
In many parts of Africa, buses with engines at the front are still the order of the day. They have more ground clearance and can therefore be driven on roads of poorer quality. In some circumstances, they may also be easier and less expensive to service and purchase. Jan Vandooren can see similarities with the Indian market. There is also a market in Africa for buses with a European specification, but they would be best suited to long-distance transport along the transport corridors that are currently being constructed in parts of the continent.
The sale of trucks and buses is linked to the development of an improved road network and functioning towns and cities and Johan Haglund, Vice President EMEA Hub South at Volvo CE, feels that this offers huge business potential. At the same time, the real-life situation differs to some degree.
The focal point for Volvo CE in Africa is
the mining industry. This is where they are
largest and it is a profitable segment.
There is no customer in this industry that
dares to risk having machines that are
out of action.
- The focal point for Volvo CE in Africa is the mining industry. This is where we are largest and where we are making the most money. There is no customer in this industry that dares to risk having machines that are out of action. If you purchase our machines, you can keep a mine operating. Chinese companies are capturing a large number of projects, but they, too, are purchasing their critical equipment from western companies. At the same time, Chinese excavators have recently started appearing.
In spite of the competition, Johan Haglund has some winning cards up his sleeve.
- After all, we own a majority of Shandong Lingong (SDLG). We are Chinese, so to speak. Historically, Chinese companies have enjoyed a strong position within wheel loaders. What we have done now is to establish a network of SDLG dealers. We also have know-how relating to distribution in Africa, which our Chinese competitors lack. Taken together, this should be a good argument for us to sell SDLG in China, to Chinese companies that are operating in Africa.
Like Jan Vandooren, Johan Haglund is eager to stress the need for products that are suitable for the African market. Products of high quality but with fewer integrated features to enhance driver comfort, for example, for which customers in Africa are not prepared to pay.
When Africa is discussed with people in different parts of the Volvo Group, Volvo CE is always mentioned with respect. They have a long history in Africa, are well positioned and close to their customers in geographical terms. This is something of which Hannes Norrgren, Director Marketing & Sales at Volvo Penta with responsibility for Africa, is keen to take even greater advantage.
- Partnership with Volvo CE is important and it is often a good match into the bargain. However, our only chance of quickly increasing our coverage is through distributors that have the critical mass to re-invest in their operations, he says.
Engines for diesel-powered gensets
constitute Volvo Penta’s largest business
sector in Africa. Industry is expanding
more rapidly than the infrastructure for
Engines for gensets constitute Volvo Penta’s largest business sector in Africa. The manufacturing industry is expanding more rapidly than the infrastructure for electricity distribution.
- A few years ago, our sales of engines for locally manufactured gensets in South Africa rose from 50 to 2,000 in the space of one year when the country found itself in an energy crisis. We are now relatively stable at approximately 500 engines a year. There are no alternatives to the diesel engine when it comes to efficiency and flexibility.
In overall terms, he describes Africa as a pure aftersales market. It is a question of offering service and parts in order to increase the number of engines in imported machines, because very few machines are actually built in Africa. Hannes Norrgren therefore faces the same dilemma as so many others: the potential in Africa is huge, but we are still not in a position to take advantage of it.
A joint road ahead
Representatives from the different business units in the Volvo Group meet regularly at different levels to chart their common way forward in Africa. Coordination is key.
- We already have a strong position in Africa, but, if we adopt an even more coordinated approach, we can obtain both improved market coverage and more effective distribution, as Peter Karlsten, head of Group Trucks Sales & Marketing EMEA and a member of the Group’s executive management team, puts it.
Currently, the truck operations are working together with a large number of importers in Africa. However, there are only six in which two brands share the same importer.
- So there is enormous potential to offer the same importer much more business with more brands aimed at different customer segments. This gives the importer the opportunity to invest more in his business relationship with us, in the form of an improved service network, for example. Local conditions naturally influence the best way of working, says Peter Karlsten and he goes on to underline the fact that the Group is currently reviewing the whole of its strategy for all its truck brands. This is going to clarify how the different brands and products are going to target different customer segments. This could also include introducing trucks from our joint venture with Eicher Motors in India in the African market.