Impact of macroeconomic fundamentals on the performance of automotive industry in selected African, Middle Eastern and European Countries

Abstract

This study investigates the impact of the economic fundamentals on the performance of the automotive industry in selected countries within Africa, Europe, and the Middle East. The selection of countries allows for a comparison of more mature markets (in Europe) as opposed to developing countries (in Africa and the Middle East). Literature suggests that there is a direct correlation between an adverse macroeconomic environment and poor automotive industrial performance. It is widely accepted that the automotive industry is one of the most important industries that drive the economy. The degree in which a country is able to enhance its own citizens’ quality of life is the fundamental metric to measure growth, of which ease of transportation is central.

Using various econometric techniques, this study investigates the impact of economic variables (macroeconomic fundamentals) on the performance of automotive industries through vehicle sales and production, in selected countries that span both advanced fiscal and monetary systems as those in the European region, as opposed the more fledgling economies in Africa and the Middle East. The macroeconomic fundamentals that were considered relevant in this study include inflation, per capita economic growth, exchange rates, interest rate and unemployment. Human capital and skills development also play notable roles within this industry – as suggested in the review of literature.

The empirical results from various statistical analyses suggest that the performance of automotive industry – either measured through production or sales volume, are characterised by regional specificity. That is, the factors that influence the performance of this industry varies widely across the sampled regions. For instance, the results suggest that income level, unemployment, exchange rates volatility and inflation play significant roles in influencing the performance of automotive industry in Africa region, while exchange rates and skills development are central to the performance of automotive industry performance in the Middle East. However, none of the macroeconomic variables deployed in this study is found to play any significant role in the performance of automotive industry in Europe region.

In practice, the uniqueness of Europe region in both problem identification and solution-seeking distinguished the market’s advancement from the other two emerging regions. Based on the results, this study suggests that unemployment, exchange rates volatility and inflation should be curbed in Africa to improve the performance of the industry. The role of skills development is also documented, thereby requiring strategic government intervention. The need to grow the economy in a sustainable way is also identified as one of the influencing factors of the performance of automotive industry in Africa. In the Middle east however, the role of exchange rates volatility is prominent. It is therefore suggested that the exchange rates regime should be stabilised in order to grow the industry. The factors that influence the performance of automotive industry in Europe are unique and falls outside of the measurable indicators used in this study. This suggests that governments in the European countries should look beyond macroeconomic fundamentals to grow the industry.