Driving Force

Zhejiang Geely's flagship store in Addis Ababa, Ethiopia. Feng Yongbin / China Daily

Foton's success in this part of the world is partly due to a free-trade zone that takes in Burundi, Kenya, Rwanda, Tanzania and Uganda under the umbrella of the East African Community, formed nearly six years ago. The lack of taxes on inter-bloc trade gives access to a market of more than 120 million consumers, and Chinese companies in the region have been only too willing to grab the opportunity.

"Pickups and light trucks are popular in Kenya, and that fits well with our product line," says Yang Liyuan, director of sales for Foton East Africa. "The trucks we sell here have larger oil tanks and bigger engines, because most consumers need them for long-distance traveling.

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"We also have a number of car models but we don't import from China because second-hand Japanese and European cars are still competitive in quality and price, so selling cars here is not cost-effective."

Foton light trucks now account for 15 percent of the Kenyan market, having sold 662 small and medium-sized trucks last year, consisting of 432 light trucks and 230 pickup trucks. The average price for a pickup truck is about $20,000 and the price for a seven-ton light truck is $30,000.

Apart from assembling vehicles in Kenya, the company also imports them already built. In November it received an order from the Nigerian company Dangote Group for 500 heavy-duty trucks to be used for carrying cement and grain.

While Toyota, Cooper Motor Corporation, General Motors, Simba Colt and DT Dobie have long dominated the automotive industry in Kenya and East Africa, Associated Vehicle Assemblers, General Motors East Africa Limited and Kenya Vehicle Manufacturers are the established players in Kenya's automobile assembly sector.

In what may be a preemptive move against Chinese competition, Toyota Kenya Limited has begun to produce more trucks and buses in its assembly plant in Mombasa, Kenya's second-largest city. That increase in production began in February, and the Japanese carmaker wants to produce 30 trucks and 10 buses a month, satisfying its plan to double production this year in a drive to become East Africa's biggest large-vehicle supplier.

Liu Guangyuan, China's ambassador to Kenya, says the emerging competition in the motor vehicle assembly industry in Kenya is a sign of good times ahead.

"In the past, the fragmented economies of the East African countries discouraged automakers from setting up assembly plants. The common market of the East African Community has put a market of more than 120 million people within dealers' reach," Liu says.

"This is a new era of competition. And competition is always great news for consumers, not only in Kenya, but in Africa, and this is just the beginning."

But it is not only in East Africa that Chinese automakers are making their presence felt. In South Africa an ambitious Chinese automaker has begun to make a push to increase truck production.

To further engage in automobile and component trade in Africa, FAW Africa Investment Co Ltd, jointly founded by its mother company, China FAW Group Corporation and the China-Africa Development Fund in 2010, has invested $100 million to build a knock-down assembly plant at Nelson Mandela Bay in Eastern Cape province.

The plant, which will be able to produce 5,000 trucks a year, is expected to open next year.

"Lower emissions and safety requirements in African countries are two fundamental factors in motivating Chinese auto brands to go to Africa," says Hao Wei, secretary-general of the auto branch of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products in Beijing. "They offer low-cost cars and have been quick to seize on opportunities in the continent."

After more than 20 years of exporting, large Chinese carmakers have discovered that money cannot buy cutting-edge technology and brand awareness and have begun to spend time and money on creating those things themselves.

"However, a new problem has arisen: the destination markets are setting a much higher bar for Chinese carmakers, and they cannot simply load cars onto ships and expect them to sell like hot cakes as they did until 2007."

An increasing number of African governments now require Chinese vehicle producers to create new jobs and bring technologies to their countries, over and above the products they sell. To a certain extent, this means sending vehicle carriers to Africa is no longer sustainable and profitable. In relatively mature markets such as Egypt, the government requires foreign auto brands to buy at least 45 percent of component parts locally to qualify for tax breaks.

Zhao Ying, a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences in Beijing, says that as tax barriers are raised and profit margins are lowered, Chinese carmakers are adopting other approaches to explore overseas markets, including building knock-down assembly plants, where cars are delivered in parts and assembled locally with materials procured locally.

SGMW, a joint venture between SAIC Motor Corp, Liuzhou Wuling Motors Co and GM China, is one of the Chinese companies that has reacted quickly.

Last year it abandoned the idea of exporting vehicles to Africa as a top priority and switched its focus to factories in the continent. Late last year it set up a factory in Egypt where it expects to produce 5,000 vehicles a year.

Yuan Zhijun, vice-president of SGMW, says that when Chinese vehicle brands first came to Africa, they faced an uphill challenge. Coming in at the lower end of the market, they were often bought because they were cheap.

"But Chinese vehicle makers have paid a lot of money to top German, Japanese and US designers to improve the quality and look of their products, and they now have no hesitation about going head-to-head with global brands on new-car sales in Africa today," Yuan says.

"With long-term growth in mind, they are willing to invest more on design and adding reinforcing materials to extend product life."

SGMW sold 1.46 million micro-vans in China last year, half of the domestic micro-van market. In Egypt, the 1.2-liter five-seat micro-van is SGMW's best-selling product, sold under the name of Chevrolet Move, and with a price tag of $8,500. This is the second model SGMW has sold in Egypt. In 2009 it started exporting the eight-seat Chevrolet N200 micro-van, known as the Wuling Hongtu in China, to Egypt and other African countries.

"Localization is one of our key strategies in developing our market here," Yuan says.

"That means we have to look at local distributors carefully and select only those with long sales experience and a complete sales and service network that can provide auto maintenance systematically."

As in other emerging markets, there is a large disparity in Africa between the pace of development in disparate markets. In that regard, Kenya, South Africa and Egypt are the trailblazers.

"To compete with our Japanese, South Korea and Indian rivals, we have designed an advanced system for African consumers, which involves before-sales service, sales service and after-sales service," Yuan says.

"Now everyone realizes that there is no difference in quality and service between Chinese and foreign vehicles running on African roads."

zhongnan@chinadaily.com.cn