"50 Years of Growth, Innovation and Leadership". June, 2014

Authored for Automechanika Dubai 2014

Automotive Africa – Mega Trends An Industry Paper highlighting the key trends impacting the future growth

of African continent and its Automotive Industry

2

www.frost.com

INTRODUCTION – AFRICAN CONTINENT OVERVIEW

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Top 10 Fast Forward Facts for Africa: Did You Know That....

1. By 2020, about 43% of the people living on the African continent will live in urban areas.

2. Africa as a region will account for 15% of the world’s urban population by 2020.

3. The African middle class population will be approximately 360.0 million by 2020.

4. 220 million Africans are only able to meet basic needs now, but will become consumers by

2017.

5. The combined spending power from the continent’s top 18 cities by 2020 will be $1.3 trillion

6. Regional Trade Integration in Africa will bring about $216.00 billion in trade value from Intra-Trade.

7. Mobile penetration in Africa will reach 90% by 2020 with internet penetration also exceeding 60% rate by 2020.

8. Mobile Transactions to account for 75% of all banking transactions by 2020.

9. e-Government Initiatives will receive $9.60 billion in investments from the African Governments over the next decade.

10.Renewable energy capacity of Africa will reach 12,000 MW by 2017. Source: Frost & Sullivan analysis.

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Urbanisation

Regional Integration

Renewable Energy

Innovating to Zero

Connecting the Unconnected

New Business Models Future Infrastructure

Responsible Revolution

Top Mega Trends in Africa

Source: Frost & Sullivan analysis. Photo Credits: Dreamstime.

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Three Main Trends in Urbanisation: Development of Mega Cities, Mega Regions, Mega Corridors

MEGA REGIONS Cities combining with

suburbs to form regions (Population over 15.0

million)

EXAMPLE: Lagos and

Kinshasa

MEGA CORRIDORS

The corridors connecting two major cities or Mega Regions (60 km or more

apart, and with a combined population of

25.0 million or more)

EXAMPLE: North-South

Corridor

MEGA CITY City with a minimum

population of 8.0 million and a GDP of $250.00

billion in 2025 (14 Mega Cities in 2013 and 25 Mega

Cities in 2025)

EXAMPLE: Cairo

Source: Frost & Sullivan analysis. Photo Credits: Dreamstime.

Mega Cities, Regions, Corridors - Global

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412,989 486,525 569,116 660,589 761,292 986,239 1,230,914

1,757,314 1,958,245 2,168,798 2,383,268 2,598,357

3,014,491 3,382,364

533,295 543,276

552,486 560,560

567,403

577,552

582,264

468,756 502,342

533,147 560,910

585,489

624,263

647,683

288,802 306,918

324,279 340,490

355,498

381,940

404,248

25,167 26,764

28,405 30,106

31,815

35,140

38,404

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2010 2015 2020 2025 2030 2040 2050

Popu

latio

n (‘0

00)

Oceania Northern America Latin America and the Caribbean Europe Asia Africa

Global Urban Population by Region, 2010-2050

By 2020 Africa Will Account for 15% of the World’s Urban Occupants; Africa’s Resources Will Remain the Primary Driver of Urbanisation

By 2020 Africa will possess the second largest number of

urbanised individuals

Source: UN Department of Economic & Social Affairs, Frost & Sullivan analysis.

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Lagos

Luanda

Johannesburg/Pretoria

Cairo

Dar es Salaam

Alexandria

Nairobi Accra

Abidjan

Kinshasa

Addis Ababa

Main Developed Corridors

Corridors will Unlock Economic Potential of Landlocked Countries Leading to Better Inter-Dependence Among Cities and Regional Growth

Cape Town

Durban Source: UN-Habitat, 2010; Frost & Sullivan analysis.

The Greater Ibadan Lagos Accra (GILA) Corridor

• Combined population >18.0 million

• Contributes combined GDP of $127,592,000.

The North Delta Region • Combined population of 77.0

million • Three emerging corridors:

Cairo-Suez Cairo-Alexandria Cairo-Ismailia.

900 km Kampala-Nairobi-Mombasa urban corridor

1,000 km Abidjan-Ouagadougou Corridor

North-South Corridor • Facilitate inter-regional trade

from Cape to Cairo. • Free trade area comprising

533.0 million people. • Combined GDP of $833.00

billion or 58% of Africa’s GDP.

Trans-Cunene Corridor • Will link the Democratic Republic of

Congo (DRC) with South Africa through Angola and Namibia.

Ouagadougou

Ibadan

Future Corridor Development

Mega Corridors, Africa, 2050

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Asia

Europe

Latin America

North America

Africa

Markets with 80% Broadband Penetration are More Than Twice as Innovative as Countries with 40% Penetration

Oceania 90%

41%

123% 140%

91%

120%

56%

110%

82%

112%

27%

4%

90%

56%

85%

7%

65%

11%

57%

83% Mobile Penetration 2009

Source: 2010 telecommunications statistics from ITU, 2020 projections from Frost & Sullivan analysis.

90%

110%

100%

68%

9%

50%

100%

82%

100%

70%

8%

60%

21%

75%

95%

70%

Mobile, Broadband, and Internet Penetration per Region, Global, 2010 and 2020

Mobile Penetration 2020

Broadband Penetration 2009

Broadband Penetration 2020

Internet Penetration 2020

Internet Penetration 2009

Currently, 77% of the World’s Population Holds a Mobile Subscription

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Annual Growth Rate of 9% till 2020 will allow Africa to reach Mobile Penetration Rate Close to Market Saturation

80 - 100% 60 - 80% 40 - 60% 20 - 40% <20%

Mobile Telephone Penetration Rates: 2011 Mobile Telephone Penetration Rates: 2020

Mobile Phone Subscriptions • In 2010, African mobile

penetration is just less than 50% • That said, several countries

have reached saturation • By 2020 we expect 90% mobile

penetration rate

550.0 million 1,170.0 million

$80.00 billion investment in networks

Low cost mobile phones

Value-added Services

Source: Frost & Sullivan analysis.

Growth Opportunities Mobile subscribers 2011 Mobile subscribers 2020

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Transport Route Integration Across the African Continent will increase Inter-Continental Trade and Drive Economic Growth

Numerous projects are aimed at improving Africa’s transport infrastructure

Uganda Roads Value

($ Million) Current road projects 548.8

Future road projects 2, 952.0

Kenya Roads Value

($ Million) Current road projects 807.0

Future road projects 313.0

Kenya Ports Value

($ Million) Current rail projects 332.0

Southern Sudan Roads

Value ($ Million)

Current rail projects 225.0

Transport projects in Africa will drive down the current

high cost of transport, which is

hindering growth and is among the highest globally…

11c

8c

6c

5c

5c France

China

Southern Africa

East Africa

West Africa

4c USA

Transport Costs (US cents per km)

Solid red line - existing transport routes, dotted lines - planned transport routes

Source: World Bank; Frost & Sullivan analysis.

African Transport Infrastructure Development

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Africa’s Largest Economies and Engines of Growth to 2020

South Africa GDP: $620 billion ($357.2 billion in 2010)

Egypt GDP: $448.9 billion ($218.84billion in 2010)

Nigeria GDP: $510.5 billion ($206.6 billion in 2010)

Algeria GDP: $310 billion ($158.9 billion in

2010)

Morocco GDP $175 billion ($91.7 billion in 2010)

Angola GDP: $201 billion (86 billion in 2010)

Sudan GDP: $162.3 in billion ($65.9 billion in 2010)

Kenya GDP: $81.0 billion (32.4 billion in 2010)

Ghana GDP: $47.5 billion ($18.0 billion in 2010)

Source: Frost & Sullivan and International

Monetary Fund Database, 2010

Note: The figure denotes GDP at market prices in 2020

The figure in brackets denotes GDP at market prices in 2010

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Global CV Vision 2020: Chinese Investments—Africa: 2012–2013

0

100

200

300

400

500

2002 2012 2022e

China-Africa Bilateral Trade,2002-2022

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~200

~420

Bill

ion

($)

• Bilateral trade involves export of minerals, oil and gas and other related materials which are critical for Chinese growth.

• 1 out of 5 buses sold in Sub-Saharan region is from China

Foreign Investment Increasing Foreign Investment Especially from China to Influence the Economical and Political Environment in African Nations;

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Dedicated Vehicles Being Developed for African Terrain

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Flat-pack OX truck http://www.mobiusmotors.com/vehicles/

http://www.independent.co.uk/life-style/motoring/features/sir-torquil-norman-has-designed-a-flatpack-ox-truck-for-the-developing-world-8617814.html

Mobius Motors - Expected launch price 10k

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$

Same vehicle, multiple functions

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www.frost.com

AFRICAN AUTOMOTIVE MARKET OVERVIEW

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African Automotive Market Characteristics A Battleground for Market Share and Customers in a low Volumes Market

4x4’s, SUV’s and Pickups continue to dominate

across Africa

Government & corporate

sales for major

industries remain

dominant channels

European & US brands are leading

in North Africa but

now Chinese and Korean are increasing

their dominance

Japanese & Korean brands

occupy top spots

across West and Sub-Saharan

Africa

Competition is intense across the continent with new entrants

from emerging

brands from China and

India

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More than 21.6 million vehicles operational in Africa The Top 4 account for more than 65% of all vehicles in Africa

North Africa = nearly 11.0 Million

Sub-Saharan Africa (excluding South Africa) = 10.6 million

3.06

3.47

2.29

0.97

0.24

1.17

0.20

0.18

0.68

0.23

0.99

0.36

0.22

5.39

0.57

1.63

Egypt

Algeria

Morroco

Tunisia

Zambia

Zimbabwe

Botswana

Namibia

Angola

Mozambique

Kenya

Tanzania

Uganda

Nigeria

Ghana

Others

Key 4 markets contributes nearly 65.5%

In Sub-Saharan countries more than 30 year old vehicle are still available in UIO

<5 Yrs 15%

6-10 Yrs 17%

11-15 Yrs

14%

16-20 Yrs

24%

>20 yrs. 30%

>16 years vehicle = 54%

Base Year 2013; Source: Frost & Sullivan Analysis

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These vehicles generate demand for nearly $7.68 billion* Average cost of repair in North Africa = $423 per vehicle/year Average cost of repair in Sub Saharan Africa = $285 per vehicle/year

North Africa = nearly $4.65 billion (60.6%)

Sub-Saharan Countries (excluding South Africa) = $3.03 billion (39.4%)

(*) this does not include tires, batteries and lubricants

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Spar

e Pa

rts

Sale

s ($

bill

ion

) These 4 markets contributed nearly 69% in parts consumption

Overall per vehicle repair cost = $355

1.20

1.70

1.07

1.35

$392

$490

$465

$251

Vehicle Repair Cost

Base Year 2013; Source: Frost & Sullivan Analysis

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African New Car Market Dynamics Countries outside of Top 5 delivering higher growth rates; competition between manufacturers and importers across the continent intensifying

Angola New Car Volumes

2010 2011 2012 2013

Kenya New Car Volumes

2011 2012 2013

17,695 23,436

29,980 32,505

49,667 60,792

76,122

New businesses are entering the African market e.g. in Kenya the sale of CMC Group to UAE-based Al-Futtaim Group was concluded in March 2014

Manufacturers are taking direct action to grow their presence across the regions in anticipation of market growth with Honda setting up West African office in Nigeria in 09/13

IMPORTER ACTIVITY MANUFACTURER ACTIVITY

4,891 5,527 6,522

Mozambique New Car Volumes

2011 2012 2013

Note: All figures are rounded. The base year is 2012.. Source Frost & Sullivan Analysis

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Leading Vehicle Brands across Africa Korean & Japanese brands dominant in the West and South; European & US brands better placed in the North and East

Market Leader (New Car Sales)

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Parts Distribution Overview

Note: Revenue share by distribution level

Local parts production is limited to a few North African countries

Algeria, Egypt and Morocco are self sustained markets, where Algeria is driven by strict regulations

Limited impact of government legislation/regulation in most of the Sub-Saharan countries; Nigeria is the largest market for Grey Imports

Grey Imports include domestic parts, spurious/fake parts

After Market Distribution Structure

Product Level Market Share

Wholesale Level Market Share

Repair Level Market Share

Car Assembler 10%

OES Distributor 25-30%

Authorised Vehicle Dealer (OES)

40-45%

Component Manufacturers/Importers

90%

Wholesalers 70-75%

Independent Repairers 55-60%

Source: Frost & Sullivan Analysis

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Channel Particulars Type of Channel Estimated Market Share

Channel 1 Authorised Parts - Going to Vehicle Authorised Dealer (for own vehicle servicing)

Authorised Channel

Authorised Channel is nearly 40-45% and

Unauthorised Channel accounts for

the rest (Spurious and fake products =

nearly 40%)

Channel 2 Authorised Parts - Going to Vehicle Authorised Dealer (for wholesale purpose)

Authorised Channel

Channel 3 OES/VMs Second Brand (low end) Genuine parts going to aftermarket

Authorised Channel

Channel 4 OEM (Part Manufacturer) who is supplying in after market as Authorised dealers

Authorised Channel

Channel 5

Tier 1 suppliers e.g. Bosch. TRW

Authorised & Unauthorised Channel

Part providers like part Mart who does a job of integrator and logistic company which means they get parts from local Korean/Japanese/Chinese suppliers, import them in Africa and sale it to aftermarket

Channel 6 Fake Parts - completely fake, spurious parts Unauthorised Channel

Channel 7

Domestic parts - back channel e.g. direct import of OES parts from manufacturing country without involving OES local office, these parts will come in boxes which will have local language e.g. for Toyota, Nissan it will be written in Japanese

Unauthorised Channel

Channel 8 Domestically Assembled/Manufactured parts supplied in aftermarket through 2 tier/3 tier or 4 tier channels

Authorised & Unauthorised Channel

Source: Frost & Sullivan Analysis

More than 8 channels for parts distribution Sub-Saharan Africa is the largest market for Grey Imports; We expect nearly 55-60% market to be driven by Grey Imports

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Key Trends in Distribution

National network coverage, either fully owned or

operated in partnership

Multi-brand showrooms are the norm across

Revenues from new car sales

form big chunk of the

business..and increasingly

parts sales (non branded)

Warranty is a main issue due to huge claims -

Service / parts facilities & trained professional is key

factor

Used car sales and leasing has

become important sales

channels

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Key Conclusion Asian OEMs are expected to play critical role in the future. This is a result of the huge potential demonstrated by the market

Future infrastructure development to drive vehicles and parts demand

Increased urbanisation will necessitate the need for efficient transport

systems

African markets offering potential for assembly/manufacturing activities

Sustained economic growth and sound fiscal and monetary policies

Share of Chinese OEMs expected to increase in short-medium term

Con

clus

ions

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ABOUT FROST & SULLIVAN

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Who is Frost & Sullivan? 50 years of partnering Global Companies helping Accelerate Growth

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Vehicles, Construction , Mining & Farm Equipment

Automotive Systems & Components - OE

Vehicle Dealership, OES & Independent Aftermarket

A team of 300 + automotive analysts, consultants and research experts across the globe specialize in 8 program areas

Global Automotive Practice – Program Areas

Powertrain, Electric Vehicles & Hybrids

Chassis, Drive Assistance & Safety Systems

Telematics, Navigation & Infotainment Urban Mobility

Business Innovation & Strategy Global Commercial Vehicles Low Cost Vehicles &

Technologies Aftermarket

Middle East & North Africa Practice Team

A regional team (MENASA) of 25 automotive analysts, consultants and research experts manage two functional areas complimented by global teams functioning seamlessly to provide global automotive expertize

Automotive Practice Team

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Product Offerings for Automotive across Value Chain

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Archana Amarnath, Global Program Manager, Global Mega Trends Expert

Frost & Sullivan Leverage on Expertise of Regional and Global Trend Experts in 45 F&S offices in 30 Countries

Mohamed Mubarak Regional Expert, CEE

Sarwant Singh Senior Partner, Thought Leader Arnaud Bossy

Growth Implementation Solutions Expert, Europe

Manoj Menon Partner and Asia Trends Expert, Singapore

Lorena Isla Country Manager, LATAM

Trends Expert, Mexico

Richard Sear Vice President, Global

Thought Leader, United States

Vijay Kakade Director Automotive -

MENASA

Mani James Regional Expert, Africa

Jason Huang Regional Expert, China

Masaki Honda Regional Expert,

Japan

Cristiano Zaroni Country Manager, LATAM

Trends Expert, Brazil

Subhash Joshi Head - MENA