EBRD 2022: Auto components manufacturing starts shift from war-afflicted Emerging Europe to North Africa

EBRD 2022: Auto components manufacturing starts shift from war-afflicted Emerging Europe to North Africa
As data for early 2022 is published in Central Europe, the impact of the war in Ukraine on the automotive industries there becomes increasingly clear.
By Clare Nuttall in Marrakech May 12, 2022

Manufacturing of cable harnesses and other critical automotive components is being shifted from Emerging Europe to North Africa due to supply chain disruptions related to the war in Ukraine, a European Bank for Reconstruction and Development (EBRD) banker said on May 11. 

EBRD senior banker Milton Stefani said that supply chain disruptions have affected the industry in CEE, which relies on companies active mainly in western Ukraine that are manufacturing products for the car industry. 

“This has also caused problems for the production of cars in Western Europe,” he said in response to a question from bne IntelliNews at the EBRD annual meeting in Marrakesh. On the other hand, he added, “Morocco and Tunisia benefit from the situation. Some production has been transferred or is to be transferred to Morocco and Tunisia, including of cable harnesses that are produced in Ukraine. "

According to Stefani, OEMs have asked manufacturers of cable harnesses to move to safer locations. "Morocco and Tunisia are traditional manufacturers of cable harnesses. We believe there will be a positive impact on the car industry in Morocco and Tunisia — more employment, more contracts — Central Europe is more exposed to the war in Ukraine.” 

As data for early 2022 is published in Central Europe, the impact of the war in Ukraine on the automotive industries there becomes increasingly clear. 

Czech car production fell by 19% in the first quarter of this year, mainly as a result of shortages of components, in particular chips and wiring harnesses, bne IntelliNews reported, quoting the Association of the Automotive Industry. In March alone, car production fell by 21%. 

Slovakia's industrial production decreased by 7.3% year-on-year in March, with a significant 13.9% y/y decline recorded in car manufacturing.

Romania’s automobile industry has also been affected by the war in Ukraine. Minister of Economy Florin Spataru said that “the Romanian automobile industry”, with no reference to a specific plant, is facing bottlenecks in the supply chain with “essential parts” imported so far from Russia and Ukraine missing. The problems highlighted by Spataru are most likely linked to the wiring systems made in western Ukraine.

The Vienna Institute for International Economic Studies (wiiw) said recently that trade disruption will cost most CESEE economies 0.5pp of GDP growth this year. According to wiiw, the automotive industry is already suffering on account of a shortage of car components (many of which come from Ukraine). 

The EBRD’s latest Regional Economic Prospects report issued in May noted that downward revisions for its Central Europe forecasts since March reflect supply chain disruptions as well as higher food and energy prices. “Economies in Central Europe are also closely integrated in manufacturing supply chains with Ukraine. For instance, owing to lack of deliveries of parts from Ukraine, a number of car factories had to partially or fully suspend production and look for alternative suppliers as hostilities escalated,” the EBRD report says.

Meanwhile, Stefani noted that Morocco has already become an important hub for the automotive industry.

Morocco’s automotive exports rose by 4.1% y/y to MAD15bn ($1.5bn) in February, as the industry continues to show strong growth despite the negative impact of the COVID-19 pandemic, the country’s Exchange Office said in a report, quoted by bne IntelliNews

Morocco produces nearly 700,000 automobiles per year, as well as planes, trains, and ships. The automotive industry has topped the country's exports for the past seven years with sales totalling $8.6bn in 2021, up 16% y/y.

In late March, the Moroccan government signed new investment deals worth $180mn with five automotive cable suppliers to meet the growing demand from electric vehicle (EV) makers. 

Among the EBRD’s investments in Morocco’s automotive sector, the development bank extended a loan worth MAD127mn ($13.6mn) to Morocco’s Mobility and Automotive Centre (ATC) to develop its automotive testing centre in February. 

The previous month, the EBRD announced that it is investing up to 80mn in a six-year bond ESG issue by French auto parts maker Faurecia to back investments in four countries — Morocco, Poland, Romania and Tunisia — until 2026. 

Also in the first quarter of 2022, Japanese car airbag manufacturer Alva-One, a subsidiary of Toray Industries, launched operations of its new plant in Tunisia’s Naasène Chebedda industrial zone.

Zakaria Garti, principal banker at the EBRD, pointed out that Morocco has not been immune to the earlier supply chain disruptions caused by the coronavirus pandemic, which resulted in a shortage of semiconductor chips and other components. 

“The shortage of chips led to a reduction in the volume of cars produced. Even in Morocco, some factories closed for several weeks,” Garti said. However, he added, “some OEMs managed very good results because they concentrated the chips they had in high-value cars”.