Renault Bets On Africa With Continent's Largest Automotive Factory

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The Renault-Nissan Alliance (Paris: RNO) (Tokyo: 7201) headed by superstar CEO Carlos Ghosn is hoping to beat the crowds in the nascent African automotive market by building the largest assembly plant on the continent.

Renault-Nissan's multi-national management team has long pursued a strategy of global expansion, seeking to localize manufacturing whenever possible and to expand into emerging markets like Russia and Brazil, Ghosn's homeland. In July, the Renault group said international sales climbed 14.3 percent for the French automaker in the first half of 2012 compared with an industry average of 9.5 percent, and 47 percent of Renault Group's sales are now outside of Europe.

Renault brand sales dropped 2.4 percent in the first half of 2012, mainly due to weakness in the European market, but the group's Romanian subsidiary Dacia, which makes many vehicles for emerging markets, boosted sales 2.5 percent. Moreover, Renault affirmed that "six out of the Group's top 10 markets were outside Europe and three non-European countries made the top five: Brazil, Russia and Argentina." While Renault reported sales growth in all of its major regions outside of Europe, one in particular stands out: Renault Group sales in the Euromed-Africa region surged 7.9 percent in the first half of 2012 and now account for 15.7 percent of market share there.

Renault now sees Africa as being a major growth market in addition to the "established" emerging BRIC markets of Brazil, Russia, India and China. Renault Group now operates two plants in Morocco, where sales rose 22.4 percent in the first half of 2012, and it now controls 37.6 percent of market share in the North African nation. The growth in African market share is not limited just to Morocco, though. Algerian sales skyrocketed 50.5 percent, and Renault Group now controls 28.1 percent of that market.

Renault Group seems to be carrying out a simple but calculated strategy to be the primary manufacturer in Africa before most other automakers are even considering the continent as a growth area. The Renault-Nissan Alliance is spending €1 billion ($1.23 billion) to build a new factory in Tangier, Morocco, that will be able to produce 400,000 vehicles a year and will employ 6,000 people by 2015.

The plant will produce cheap, entry-level vehicles like the Dacia Lodgy for the African market, and "it will ensure that the Renault Group is in a position to meet its customers' growing demand for entry level vehicles." The Tangier plant is being constructed along with a major factory in Chennai, India, as part of a "global growth" plan for the Renault-Nissan Alliance.

"We're always looking for new frontiers. Most definitely, Africa is one of those. Kenya and Nigeria are on the verge," Andy Palmer, Nissan executive vice president for global planning, said Wednesday, according to Bloomberg News. The new plant in Tangier will be the largest automotive assembly plant in Africa, and analysts predict that Africa may be the next major automotive growth market.

Renault also has a pre-existing plant in Casablanca, Morocco, through its SOMACA subsidiary that produces Dacia Kangoo, Logan and Sandero vehicles. Renault has had a presence in Morocco since 1928. Morocco was a French protectorate from 1912 to 1956, and as such provided a natural foothold in North Africa for Renault, and in recent years it has been seen as a bastion of liberal Islamic rule under the hand of King Mohammed VI.

Renault SA (Paris: RNO) shares rose 0.28 percent to €37.12 Thursday. Nissan Motor Co. (Tokyo: 7201) shares were unchanged.

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