Motoring Africa: Sustainable Automotive Industrialization: Building Entrepreneurs, Creating Jobs, and Driving the World's Next Economic Miracle.

By Edward T. Hightower

Global business leaders looking for profitable growth and cost-effective access to new markets will want to read Motoring Africa. Local African business leaders looking to innovate and create new opportunities will want to read Motoring Africa. Local African government leaders looking to encourage investment and create jobs will want to read Mot

• Language: English
• Publisher: AnewPress
• Release date: Jun 18, 2019
• ISBN: 9781970109115

Edward T. Hightower

Edward Hightower is an accomplished global automotive engineering and business executive, entrepreneur, and now author. He is managing director of Motoring Ventures LLC, a private capital investment, and operations and growth advisory firm.Previously, Hightower led GM's $15 billion global crossovers business as executive chief engineer and vehicle line executive; and served in leadership roles at BMW and Ford. He also worked as a hands-on management consultant at AlixPartners, LLP. He has extensive experience in Asia, Africa, and Latin America.Originally from Chicago, Hightower earned a BS in General Engineering from the University of Illinois at Urbana-Champaign and an MBA from the University of Michigan Ross School of Business. He is a life member of both Kappa Alpha Psi and the Council on Foreign Relations. Hightower is a fourth-degree Black Belt and certified sensei instructor of Isshinryu karate. He and his family live in metro Detroit, Michigan, USA.

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Dedication

To my wife Tracie. And to our wonderful daughters, Nia and Kali.

May your passions and future careers lead you to also come to know Africa.

Epigraph

The way to significantly improve your life is to increase the demand for your labor.

-As heard on CBS This Morning, 2 March 2017

If you get an auto assembly plant, Walmart follows; if you get a Walmart, an auto assembly plant doesn’t follow.

-Ron Bloom, Senior Counselor to US President Barack Obama for Manufacturing Policy, Forbes, 27 May 2012

Sustainable growth in emerging markets will require local capability inside a global footprint.

-Jeff Immelt, Former Chairman of General Electric, Fortune Magazine, 20 May 2016

…The only way to move Africa forward is for people like us to take very bold moves.

-Aliko Dangote, Chairman and CEO of Dangote Group, Bloomberg Businessweek, 19 August 2017

If a nation’s people can create and manufacture automobiles, they can create and manufacture anything.

-Edward T. Hightower, 8 February 2017

African Continent Map

Preface

Who am I? Who should read Motoring Africa, and why?

This book is forward looking and forward thinking. This book is about investing in making a positive impact on the world and being rewarded for your investment. I wrote Motoring Africa to create a vision for how African nations can develop opportunities for local entrepreneurs, create jobs for their citizens, and grow their local economies by building industrial capability in the high-potential and wide-open African automobile manufacturing sector.

Dictionary.com defines industrialization as the large-scale introduction of manufacturing, advanced technical enterprises, and other productive economic activity into an area, society or country. From my career in the global automobile industry, I have had the opportunity to see first hand how the introduction of automobile production has transformed the economies of China, India, Mexico, and South Korea. Jobs are created, technology is both transferred and developed, product exports yield foreign exchange (fx) reserves, and standards of living rise. Many economists, investment professionals, businesspeople, and citizens of the world see Africa as the next major emerging market and the last and final frontier for growth and development. In this book, I will illustrate how the development miracle of automotive industrialization can also play out in several regions on the African continent. I will show how entrepreneurs and investors can contribute to and participate in the success of this movement. If you missed investing in China’s growth over the last thirty years, here is your chance to participate in Africa’s for the next thirty.

My Automotive Journey

The design, engineering, and manufacture of cars, trucks, motorcycles, and other motor vehicles is a complex yet exciting endeavor. For as long as I can remember, the creation and production of motor vehicles has been a personal interest and passion. I am truly blessed to have been able to turn this passion into a twenty-plus year automotive career, working around the world in the professional disciplines of product design and engineering, brand marketing, and general management for three global automakers: GM, BMW, and Ford.

I started my career as a chassis and vehicle performance development engineer with GM. My desk was practically next to the test track. I was one of the engineers who determined how your Pontiac Bonneville handled as you were accelerating onto an expressway on-ramp, or how quiet your Buick Park Avenue sounded on the interstate. This role was followed by assignments in strategic planning for Cadillac products, and new vehicle development program management. After receiving an offer to leave GM to join BMW, I served as the brand manager for the 5 Series, 6 Series, and 7 Series models in the US. After three years at BMW, I received an offer to combine my technical and commercial experiences in an executive position at Ford Motor Company. I joined Ford as the department manager of chassis engineering for Super Duty trucks, and was later promoted to chief engineer of the Excursion, Expedition, and Navigator full-size SUV business.

Along with my experiences working for three of the world’s best automakers, I worked as a hands-on business advisor for the global consulting firm AlixPartners LLP. I have travelled around the world to work with clients who were company owners, CEOs, and private equity investors. For these businesses, my job was to help fix company operations, grow revenue, improve operating profits, and execute merger and acquisition (M&A) transactions. My clients included global automakers and suppliers, plus companies in the consumer electronics, industrial products, renewable energy, sporting goods, and life sciences industries. Automaker and supplier clients and their respective regions included: Chrysler, Dana, and Delphi in North America; Jaguar, Land Rover, and McLaren in Europe; and Geely in Asia. I have also served as an advisor to owners and investors in several start-up, commercial, and niche vehicle manufactures.

Later in my career, I was offered the opportunity to return to GM to lead their $15 billion global crossovers business as the executive chief engineer and vehicle line executive. My team and I created nine new crossover vehicle models that are produced in three assembly plants on two continents, and sold in more than one hundred fifty countries, under five GM brands. These models include the latest generations of the Cadillac XT5, GMC Acadia and Denali, Chevrolet Traverse, Buick Enclave and Avenir, and other unannounced models. The 2017 Cadillac XT5 crossover, formerly known as the Cadillac SRX, is the third generation of the world’s best-selling Cadillac. This new model is now built in an updated assembly plant outside of Nashville, Tennessee. For the Chinese market, the XT5 is also locally built, with a local parts supply chain, in an all-new plant in Shanghai, China. I also served as the executive chief engineer for the Buick brand, responsible for driving brand consistency in all global Buick product programs. Additionally, I served as GM’s executive director responsible for global emerging market industrialization, focusing on localizing the production and supply chain for a new portfolio of high-value vehicles in China, India, Brazil, and Mexico.

I currently lead Motoring Ventures LLC, a private capital investment and management consulting firm focused on automotive and manufacturing businesses around the world. My work as an automotive engineering executive, global business leader, management consultant, private capital investor, and entrepreneur, has given me a deep understanding of how industry works. In addition, it has enabled me to gain on-the-ground experience in emerging markets in Asia, Africa, and Latin America.

I am neither a journalist nor a development economist, academic, or Wall Street analyst. I have written this book from the perspective of a hands-on industry operator with a passion for the automotive business and extensive experience in both developed and emerging markets. While I have worked for and advised many automobile companies and suppliers around the world throughout my career, the views, recommendations, and proposals in this book are strictly my own, and do not represent the strategies or plans of any manufacturer.

Who Should Read Motoring Africa

But enough about me…this book is for people interested in investing in advancing the economies on the African continent and changing the world, while earning a return along the way. Target readers include:

Entrepreneurs

Investment community – investment bankers, family investment offices, commercial banks, venture capital and private equity professionals

Global business leaders looking for growth opportunities

Local African business leaders

Global automotive OEM (original equipment manufacturer) and supplier executives, strategic planners, and corporate development professionals

African heads of state, government leaders, and ministers of industry, trade, finance, infrastructure, energy, and education

Local African automobile dealers

Automotive industry associations around the world

International development and development financial institutions (DFIs) including the United Nations, World Bank, International Finance Corporation, African Development Bank, and China Africa Development Fund

University faculty and students of business schools, schools of international affairs, and schools of government and public policy

Persons with a general interest in emerging markets

Persons interested in sustainable manufacturing

Persons interested in investing in the future growth and success of Africa

Why it Matters

The African continent is currently experiencing a period of tremendous population growth and economic growth potential. India is following the economic miracle that China experienced over the last three decades, and the African continent has the potential to be the next economic miracle. According to the United Nations Economic Commission on Africa (ECA), the population of the African continent is expected to grow from approximately one billion people today to two billion by 2050.¹ According to the global management consulting firm McKinsey & Company, the African continent is expected to have the world’s largest workforce by the year 2034.² Ten million jobs per year need to be created to absorb this new workforce.

The creation and production of automobiles and other motor vehicles requires a sizable and skilled workforce. When done correctly, locally creating industries like automobile manufacturing on the African continent can lead to the development of many profitable businesses across many sectors, and the sustainable transformation of local economies. History has demonstrated the ability of industrialization to transform economies, stabilize nations, and improve lives. Compared to foreign aid, the impacts of industrialization have shown to be more sustainable and enduring in numerous cases around the world. It is also a global business enabler and imperative. Industrialization and localization of the production of products like motor vehicles can significantly improve efficiencies and reduce manufacturing costs, leading to higher margins, reduced risks, and more profitable business ventures.

Economic growth which is solely built on agriculture or mineral extraction is heavily dependent on global commodity prices, supply, and demand. Also, extractive industries are limited in their ability to create direct and indirect employment, and to raise wages and per capita GDP. The development and production of motor vehicles requires many people of various skill levels. In addition to assembly line workers on the factory floor, these jobs include product engineers, manufacturing process engineers, accountants, administrators, software developers and information technology professionals, machinists, electricians, plant maintenance technicians, and other skilled tradespeople. Automobile production also creates local jobs in automotive components manufacturing and transportation and logistics services, for both parts and finished vehicles. Together, automobile product development, manufacturing, and the parts supply chain have a leverage effect in creating jobs in the retail and services sectors in their local communities. Success in the motor vehicle production sector can lead to sustainable economic success in the region where it is located. If you get an auto assembly plant, Walmart follows; if you get a Walmart, an auto assembly plant doesn’t follow, said Ron Bloom, Senior Counselor to U.S. President Barack Obama for Manufacturing Policy.³ Entrepreneurship, jobs, and greater economic success typically leads to greater political stability of local governments and the development of robust institutions to serve the nation’s people. Industrialization is world changing.

Motor vehicles and the automobile industry have progressed significantly since the early days of Gottlieb Daimler, Karl Benz, and Henry Ford. Cars go faster, stop sooner, better protect their occupants in the event of a crash, pollute less, and continue to become more accessible to consumers of all income levels. Recent technology advancements and current trends point to more vehicles running on electricity vs. the internal combustion of fossil fuels; more consumers sharing vehicles and rides instead of everyone aspiring to own a car; and soon…the introduction of autonomous or driverless vehicles.

As relative newcomers to mass scale automobile production, African regions would have the opportunity to avoid many of the negative environmental impacts of automobile manufacturing, use, and disposal. Car production plants of today can now use less energy, operate almost completely on renewable energy, and generate less waste. Advanced manufacturing techniques such as 3D printing and advanced robotics contribute to higher productivity, reduced material waste, and lower costs. Developing nations have the opportunity to integrate these technologies at the outset of their industrialization journeys instead of retrofitting them down the line.

From a customer and consumer use standpoint, vehicle sharing solutions enable personal mobility while avoiding mass ownership of vehicles, reducing congestion in urban centers and cutting the number of high-polluting internal combustion engine vehicles on the road. Being forward thinking in the approaches to both manufacturing and delivering personal mobility will allow newly industrializing (and motorizing) nations in Africa to leapfrog outdated practices, and create new technical solutions that are environmentally sustainable and minimize the impact on the planet.

Recently there have been a number of writings in business news and world affairs publications about the progress and potential of the African continent. Several articles include the refrains Africa is rising or say that we are living in the African century. Other articles refer to the African countries with greatest promise as the African Lions. These claims are supported by the recent improvements in economic metrics such as gross domestic product (GDP) growth, foreign direct investment (FDI) inflows, and average income levels. There has not been a more favorable period of news about Africa’s advancements in recent history. The positive state of current affairs is well documented, so I will not attempt to review it in detail in this book. I will instead focus on how we leverage this progress to create a sustainable automobile manufacturing industry and overall industrial development on the continent.

Motoring Africa: Sustainable Automotive Industrialization. Building Entrepreneurs, Creating Jobs, and Driving the World’s Next Economic Miracle, will review how nations in Asia and Latin America have successfully industrialized the auto sector in their countries and how their economies and people have benefited. After this exploration, this book will propose strategies and recommend approaches for creating similar successes on the African continent. While many of these lessons and strategies will be applicable to other industrial and consumer product manufacturing sectors, our vehicle for driving industrialization is automobile production…puns intended.

Introduction

Ghana 1994: Like Cuba for Japanese compact cars. Do they build any cars here?

How it All Started

The citizens of Cuba are well known for maintaining the late 1950s American sedans and convertibles that dot their roads. In the early 1960s, the island nation banned the import of foreign vehicles, leaving late '50s Fords, Oldsmobiles, Chevrolets, and Plymouths as the dominant era and brands of cars on the streets of Havana.

It had been over a decade since I had seen so many late '70s Datsun B210 sedans, Toyota Corona and Subaru DL wagons, and Mazda GLC sport hatchbacks. They all were here as taxis, driving down the crowded six-lane road past the massive Kaneshie market off Winneba Road in Accra, the capital city of Ghana. My taxi was a four-door Datsun B210 with the oil light on. A common practice among taxi drivers in Ghana to save fuel was for the driver to shut off the car’s engine every time he came to a stop at a red light or in the heavy traffic, and restart the motor once the light turned green or the heavy traffic allowed him to proceed. I had owned a rust-covered turquoise-blue 1976 version of the same model back in high school. It was the first car I purchased on my own, with money I earned from working at D.B. Kaplan’s restaurant in downtown Chicago. I remembered every detail of that Datsun. The ride that afternoon was like a trip back in time.

During the summer of 1994, between the first and second year of my MBA program at the University of Michigan Ross School of Business, I participated in the school’s African Business Development Corps (Africa Corps) summer internship program. I worked as a business strategy consultant for the government of Ghana. My assignment was to develop business plans for several of the government-owned businesses that were in process of being privatized, i.e., converted from government-owned companies to investor-owned businesses. This summer internship was the first time that I, or anyone in my immediate family, had visited the African continent. For the duration of my three-month assignment in Accra, these old Japanese compact car-based taxis were my primary mode of transportation. Day after day I would ride to and from work in these should have been scrapped vehicles that were enduring severe use as taxis and being held together by the ingenuity of the African taxi drivers and roadside mechanics. Sometimes, the driver and mechanic were the same person. The mechanics displayed the same level of ingenuity and industriousness as a Cuban owner of a black-and-red 1958 Oldsmobile Super 88 convertible, struggling to keep his car running and on the road in Havana.

During the spring of that same year, and before traveling to Ghana for my extended stay, I also had the opportunity to make my first visit to Asia. I visited Hong Kong (three years before the United Kingdom returned control to China), mainland China, and Indonesia. During this visit, I had the opportunity to tour a Toyota pickup truck plant in Jakarta, Indonesia. After observing the ingenuity and industriousness of the Ghanaian taxi drivers and their mechanics, and thinking about the Toyota plant in Indonesia, I began to wonder out loud, Do they build any cars here in Ghana? I remember asking many of the taxi drivers, several of my local work colleagues, other professionals, and anyone else that I met, whether any cars were being built in the country. There were none. The locals and expats that I encountered who had any interest in the car business primarily saw the region as a ready market to import secondhand spare parts from the US or Europe, to service the all-imported cars on the road. It became apparent to me then that Ghana, the West Africa region, and the entire African continent had great potential for automobile manufacturing and other industrial endeavors.

I finished my project in late August, and it was time to return to Ann Arbor for the second year of my Michigan MBA program. My summer in Ghana left me with a love for Africa. Not just for the beautiful people, cultures, beaches, and landscapes in the typical tourist sense, but also a strong interest in Africa’s economic development. I left Accra with the deep desire to, at some point in my career, combine my automotive passion and the industry experience, that I was still acquiring at the time, with this new-found interest in emerging markets and Africa’s development. What if those ingenious and industrious taxi mechanics around Accra could direct their self-taught automotive skills towards the development of their economies and the improvement of their living standards?

Strong Auto Sector, Strong Economy

In the twenty-three years since my first experiences in Africa, when I first wondered if they built any cars there, I have had the opportunity to work with auto manufacturers all over the world, not only throughout the US and Europe, but also in China, India, Mexico, Brazil, and South Korea. Every automaker in every market wants the same thing: growth, market leadership, and profits. Their home countries want them to succeed as well. A thriving auto manufacturing sector is a reliable indicator of a strong economy. If you look at countries and regions that have developed a local automotive industry over the last 20-40 years, you will see a strong relationship between their industrialization success and the growth of their respective economies.

As China developed its local auto industry, total vehicle production grew from 500 thousand units in 1990 to 24.5 million units in 2015, 49X (49 times the initial production). Nominal GDP (gross domestic product) grew from US $360 billion to US $10 trillion, 27X during the same time.

As South Korea developed its local auto industry, total vehicle production grew from 123 thousand units in 1980 to 4.5 million units in 2015, 37X. Nominal GDP grew from US $68 billion to US $1.4 trillion, 21X, during the same period.

As India developed its local auto industry, total vehicle production grew from 114 thousand units in 1980 to 4.1 million units, 36X, in 2015. Nominal GDP grew from US $190 billion to US $2 trillion, 11X, during the same period.

As Brazil developed its local auto industry, total vehicle production grew from 416 thousand units in 1970, to a peak year of 3.7 million units, 9X, in 2013, then declining to 2.4 million in 2015 due to government and financial challenges. Nominal GDP grew from US $42 billion to US $2.4 trillion, 57X, during the same period prior to the 2015 local economic crisis.

By comparison, the two African countries that produced the largest number of vehicles in 2016 were South Africa, with 600 thousand units and a nominal GDP of US $295 billion; and Morocco, with 345 thousand units and a nominal GDP of US $101 billion. Given the above examples from Asia and Latin America, the potential for South Africa, Morocco, and other economies on the African continent to grow from automotive industrialization is significant.

Sources: Vehicle production-OICA, International Organization of Auto Manufacturers 2015; Nominal GDP-World Bank statistics; Number of vehicles on the road in the US-US Dept. of Energy; Number of vehicles on the road across the African continent-McKinsey & Company

The best way to capitalize on the African market potential is to create more potential local car buyers. The best way to create more local car buyers is to create opportunities to earn higher income levels. The best way to create higher income levels is to create more local entrepreneurs, local businesses, and local jobs. The best way to create more local entrepreneurs, local businesses, and local jobs is sustainable industrialization. If locally focused companies do not pursue this opportunity, foreign and multinational corporations will likely take over many of the high-margin opportunities in these markets. These multinational companies may not always prioritize what is best for the local region.

How Motoring Africa is Organized... and my Initial Premise

This book is organized into three sections. The fifteen chapters will flow from defining and making the case for industrialization, to presenting examples of automotive industrialization from other regions of the world, to the presentation of a proposed plan to sustainably industrialize automobile production on the African continent.

Part 1 – What, Whys, and How – will define the concept of industrialization in detail. I will discuss how industrializataion impacts the cost structure of a product, and how it reduces risks and improves the profit potential of a manufacturing enterprise. I also explain why industrial manufacturing creates more jobs and results in more lasting improvements to a nation’s productive capability, vs. other business sectors or approaches to economic development. This section makes the case for the automobile industry. A car is the most complex consumer product that an individual will purchase: highly technical, heavily regulated, and expensive to buy, operate and maintain. Countries that invest in developing the industrial capacity to create and manufacture motor vehicles will build businesses, create jobs, grow their economies, and generate skills and capabilities that are transferrable to multiple industries and sectors.

Part 1 will also cover the topic of sustainability, from both business longevity and environmental perspectives. How do countries and businesses industrialize auto production in a manner that results in companies that are profitable and able to sustain through economic cycles, foreign exchange fluctuations, increased competitive threats, and changes in consumer tastes? How do you industrialize auto production in a manner that yields a car parc–industry vernacular for the number of vehicles on the road in a market–with minimal negative impact on the environment? How do you industrialize automobile production with advanced manufacturing processes and supply chain networks that will have minimal negative impact on the environment? How do you create businesses that serve their local communities as well as serving the needs of their shareholders?

The largest of the recently developed and developing auto markets, specifically urban centers in China and India, are facing significant challenges due to traffic congestion and air quality. Is It wise to accelerate the introduction of more vehicles into a market only to force gridlock on the public, increase pollution, and have these vehicles sit parked and unused for 90% of the time? What if African markets and investors, looking to participate in the industrialization of automobile production, decided to leapfrog the historical practices and create a local auto industry where alternative propulsion systems (electric vehicles), advanced manufacturing tools and processes, shared vehicle usage, and ride sharing were part of the development of the industry at the outset, instead of retrofitting these advancements later?

Africa sustainably industrializing automobile production does not mean doing things exactly as in China. While China is the country and market most recently and most significantly transformed through the development of their automobile manufacturing and design capabilities, the industry has continued to evolve. Lower local wage rates, compared to developed nations, are not the only reason to invest in automotive industrialization. African nations must also adopt the latest manufacturing process technologies to optimize productivity and costs. Industry 4.0 tools, the internet of things (IoT) and increased data computational offerings have enabled the development of advanced manufacturing tools that have the potential to reduce capital investment and production costs, while improving product consistency and quality. Tools and technologies like additive manufacturing (also known as 3D printing), advanced robotics, product performance simulation, and manufacturing process simulation are driving product innovation and efficiency. Industrializing with these tools at the outset will provide African regions with the treble benefits of lower manufacturing and labor costs, optimal productivity, and proximity to growing markets.

When my British Airways flight first landed in Ghana for my summer 1994 project, the phone system throughout most of Accra was not working, due to damage from severe weather the night before. Of the few people who had land lines, most were out of service. I had to wait two days to make a safe arrival call back to my family in the US. I mention this because I have made multiple visits back to Ghana and other parts of Africa since the mid-90s. By the early 2000s, nearly everyone had a cell phone and internet cafés were sprouting up all over the city of Accra. Most Africans have leapfrogged directly to cell phones and lived their entire adult lives without having a land line. By the early 2010s, local African ingenuity had made mobile payments by phone a reality, using Kenya’s M-Pesa.

The ability to innovate and develop new products and technologies that excite the customer are foundational to developing great brands, value creation, and sustainable business success. The ability to innovate is also critical to the creation of environmentally sustainable personal mobility solutions. Twenty years ago, Accra’s resource-conscious taxi