Angola: Robust Autos Growth, But Logistics Needs A Lot Of Work
Angola is situated in a competitive neighbourhood. Next door lies Namibia, which is currently our autos-logistics outperformer. The problem for Angola is that it will be compared and contrasted with Namibia. If automotives firms are seeking to develop a base in the region and are choosing between Angola and Namibia, they will in BMI's opinion pick Namibia, with the country offering a more developed transport network, transit links to the hinterland and Namibia being considerably cheaper to import into. That is not to say that Angola will not be a market of great interest for automotive firms. The country boasts a robust auto sales outlook. It is developing its transit links with its landlocked neighbours and is investing in its domestic transport network. Angola also already boasts an autos manufacturing plant and has a history of autos production prior to the 1990s.
Strong vehicle demand growth outlook, which will be the key factor in attracting automotives firms into Angola;
Angola already boasts an autos assembly plant, but underdeveloped port and transport links currently work against further expansion in this area.
Investment is in the pipeline at port, rail and inland waterway level, with plans in place to develop Angola's links to the landlocked hinterland so Angola can play a transit role;
Proximity to Namibia leads to comparison between the two states, with Namibia's logistics sector the outperformer;
Imports into Angola in comparison with Namibia are costlier, longer and more bureaucratically laden;
While export logistics demand is a long way off for Angola's autos sector, exporting is cheaper than importing and is more cost competitive than Namibian exports.
Strong Growth Credentials
Automotives firms' interest in Angola will be centred on the strong autos sales outlook in the country. Vehicle sales is the country are projected by BMI's Automotives team to expand by 20% y-o-y to 20,400 unit in 2013 up from 17,000 units in 2012. Over the medium term (2013-2017), we project Angola's vehicle sales to expand by 140.3%, an annual average increase of 19.2% to reach a predicted 40,865 units in 2017.
|Stronger Auto Demand|
|Angola & Namibia Vehicle Sales (Units)|
Autos demand is the one area, where Angola is outperforming Namibia and will likely be the reason why automotives firms are prepared to put up with a more costly export environment and underdeveloped logistics network in order to gain access to the strong demand for vehicles.
In 2012 Namibia's vehicle sales reached 13,692 units, 3,308 units less than in Angola. Over the medium term Namibia's vehicle sales are projected to expand by 81.7%, compared with Angola's forecast vehicle sales growth of 140.3% over this period, with Namibia's vehicle sales projected to reach 24,880 units in 2017, 15,985 units below Angola's projected vehicle sales of units.
The question that automotives firms will be asking is: should they battle against comparatively higher import costs and an underdeveloped logistics network to break into Angola or could the answer be to develop facilities in Namibia, with the idea of using it as a transit point to freight into next door Angola?
Angola's automotives demand has been driven by the country's oil wealth, with the country's real GDP expanding by an annual average of 10.2% per annum over the last decade (2002-2012). BMI projects this robust growth to continue with Angola's economy forecast by BMI's Country Risk team to expand by an annual average of 7.3% over the medium term (2013-2017).
But BMI highlights that there is an unequal distribution of wealth in the country and this impacts the demand for autos brands. We note that premium brand demand has attracted BMW and Mercedes - Benz, but volume brand names are also making their mark, with Kia Motors and VW to name a couple being sold in Angola.
Containers Already Playing A Role As Auto Kits Imported
Angola's developing consumer sector will likely lead to increasing demand for these volume brands and the country is already a few steps ahead of some of the other six other Sub-Saharan states (Namibia, Ghana, Nigeria, Botswana, Kenya and Tanzania) that we have been analysing, as Angola already boasts an (albeit small) autos assembly sector.
Dongfeng Nissan (is a JV between Nissan and its Chinese partner Dongfeng Motors) operates the assembly plant, which develops assembled vehicles from imported kits. The production levels are small and so the majority of Angola's automotive needs are met through the import of fully assembled cars. Some auto kits are imported already and should Angola's auto assembly sector expand, auto imports will diversify toward being more reliant on Angola's container logistics sector.
This will place pressure primarily on Angola's main container ports of Luanda and Lobito. A steady increase in liner connectivity, highlighted by the port of Luanda welcoming Maersk Line's new series of West Africa specific container ships the WAFMAX (West Africa Max) in November 2012 highlights shipping lines' increasing interest in the country.
BMI believes that as Angola's economy continues to expand container lines as they increase their exposure to the market, which will boost the country's liner connectivity, as Angola's liner connectivity currently ranks in fourth place out of the seven Sub-Saharan states that we are analysing, with Botswana discounted as it is landlocked, according to UNCTADstat.
|LHC: Angola Liner Connectivity. RHC: UNCTADstat Regional Liner Connectivity Ranking|
The likely increase in container throughput will, however, place pressure on Angola's relatively underdeveloped port sector. While the docking of Maersk Line's WAFMAX, the Maersk Cape Coast , can be seen as a positive, with major lines expanding their coverage, the development of Maersk Line's WAFMAX fleet highlights the underdeveloped nature of Africa's ports on the continent's western coast line.
The WAFMAX fleet was specifically developed by Maersk Line to enable the company to expand its Africa coverage, while designing a ship that would fit Africa's western coast criteria of shallow draughts and lacking shore side equipment. The 4,500TEU capacity WAFMAX has a draught of just 13.5m with some of the vessels boasting cranes, to enable the ship to load and unload containers at ports, which lack the required equipment to cater for container vessels of this capacity.
BMI highlights that investment is being made into Angola's port sector, which will develop the country's ports to a higher standard. For example, at the port of Lobito a new container terminal is being constructed and investment is being made to equip it with the most modern cranes. In December 2012 two Chinese ships docked at the port of Lobito and unloaded two ship-to-shore (STS) gantry cranes, rubber-tyred gantries and another crane, which will be put into service at the new box terminal.
Network Needs Investment To Keep Pace With Domestic Growth And Potential Transit Role
BMI notes that the investment at Angola's ports must also be followed through with investment in the country's internal transport network, to ensure quicker goods transit to and from the ports. The underdeveloped nature of Angola's road and rail network is highlighted by the country's long import lead times. According to World Bank data the average import lead time in Angola to transport goods from the port to the consignee is eight days, placing Angola second to last, above Ghana where the average is 19 days (Botswana is not ranked).
|Underdeveloped Transport Network Places Drag On Import Speed|
|Lead Time To Import (Median Case Days)|
Angola's road and railway network stretches for 51,429km and 2,764km, respectively, with just 10.4% of Angola's road network paved.
Investment is steadily being made in Angola's internal transport sector. A total of 2,700km of Angolan railroads were reconstructed in the last few years, according to Angola's Transport Minister Augusto Tomás. More than US$3.3bn was spent on three key railroads - Luanda, Benguela and Namibe. The reconstruction programme included attending to the railroads and 148 stations, as well as the cost of 243 units of rolling stock such as locomotives, wagons and coaches. The programme also involved the construction of workshops and professional training centres. The reconstruction work on the three railroads is being done by Chinese companies with financing from the Chinese government.
Angola's inland waterways are also being developed. The Angolan Maritime-Port Institute (IMPA) is constructing a river channel between Xangongo and Rivungo to transport goods and people. The construction work is at an advanced stage and the river channel will start operations in 2014, according to the director-general of the IMPA, Victor de Carvalho. Meanwhile, IMPA is also considering a river link between Zaire province and the Democratic Republic of Congo to make trade easier, Carvalho added.
Plans to better connect Angola with its landlocked hinterland neighbours and so to develop a transit role for Angola is a wise strategy. Automotives firms seeking a base of operations will not only look at a country's domestic demand outlook, but also of those in the surrounding area, with the idea that operations based in a country on Africa's coast could also serve as a transit point for goods into Africa's interior and potentially, over the longer term, for the development of intra-Africa goods exports.
In the case of Angola the country's links with its neighbours have been held back by the fact that connections between the states have been reliant on road. Rail links are now being developed, with Angola's railway link with the Democratic Republic Of Congo (DRC), the Benguela railway being re-established and plans in place to also develop a railway link with Zambia. The building blocks to develop better railway connections between the countries are there with Angola, DRC and Zambia's railways all operating on the narrow gauge. The same rail gauge system leads to ease and speed of transport, as trains operated in one state can operate in the others and no time is lost as the bogies don't need changing.
|Country||Railway Network Length||Railway Gauge|
|Source: CIA World Factbook|
BMI highlights that both Zambia and the DRC are developing autos markets and stronger demand is likely to stem from Zambia, as the DRC is one of the poorest countries on the continent, while Zambia is relatively wealthy thanks to the country's copper exports to China.
We believe that domestic demand alone in Angola will be enough to attract the attention of automotives firms seeking to expand their operations in Africa. The country has already attracted Dongfeng Nissan to develop an assembly plant in the Angola and BMI's Automotives team highlights that the country boasted an autos production industry prior to the 1990s.
Automotives firms investigating the possibility of breaking into or expanding their Angola operations and looking into developing assembly plants in the country, will face a number of hurdles to import the containers that will transport the auto kits and could lead companies to choose other states, especially as BMI's logistics outperformer Namibia is next door.
Angola Needs To Ease The Burden On Importers
BMI has already noted Angola's comparatively long import lead times with imports into the country taking five days longer to be transported from the nation's ports to the consignees compared with Namibia. Angola's import bureaucracy is also greater than that of Namibia's, with Angolan imports requiring eight documents to pass through customs compared to Namibia's seven documents.
|LHC: Documents To Import (Number). RHC: Cost To Import (US$ Per Container)|
Long import lead times and increased levels of bureaucracy heighten Angola's cost to import. According to World Bank data it costs an average of US$2,690 to import a container, US$785 more expensive than the average cost to import a box into Namibia.
BMI highlights that with just one autos assembly plant, Angola's autos production levels are low and cater for domestic demand. This is likely to remain the case even if more automotives companies move into Angola and set up more plants. Over the longer term, however, BMI expects automotives manufacturers to look to Africa to play a greater role in the automotives supply chain. This is a longer term view and so there is time for Angola to invest and adapt its export sector to ease the country's export process.
As it currently stands, Angola's lead time to export, although less than to import, at just six days compared with eight days, still ranks Angola bottom when compared with its Sub-Saharan peers. The bureaucracy level to export from Angola is even more acute than that to import, with 11 documents required to ship goods out of the country, placing Angola bottom out of the seven Sub-Saharan states that we are analysing.
|Angola A Cheaper Export Alternative|
|LHC: Angola Cost To Import & Export (US$ per Container). RHC: Sub-Saharan African States Cost To Export (US$ per Container)|
Despite this being cheaper for companies in Angola to export rather than import, with Angolan exports costing on average US$1,450 per container US$350 less than the US$1,800 per container required to import, BMI also highlights that at US$1,450 per container to export, Angola is cheaper to export from than Namibia, where it costs US$1,800 per container.