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African road to growth

Updated: 2014-01-17 09:29
By Wang Chao ( China Daily Africa)

 African road to growth

Africa has become a new target of Chinese automakers' overseas operations.Now the continent is the destination for both passenger cars and commercial vehicles. Provided to China Daily

Despite the odd obstacle, growing Africa is still a promising drive for Chinese auto companies

At a time when foreign automakers are planning to further consolidate their presence in China, their Chinese counterparts are looking to boost exports to newer destinations such as Africa and Russia this year.

The decision to boost exports also comes at time when domestic sales are flagging due to vehicle purchase restrictions in big cities and renewed nationwide efforts to reduce pollution.

With these two aspects expected to reduce sales and profits this year, Chinese automakers are looking to offset losses through higher exports to emerging markets. That decision also seems to be buoyed by the growing demand for utility vehicles and mid and small-sized energy-efficient vehicles in the emerging markets.

According to data provided by the China Association of Automobile Manufacturers, vehicle export volumes dropped by 7.5 percent from 1 million to 977,300 in 2013. The association, however, did not provide details on the exact number of vehicles shipped by Chinese companies to Africa.

John Zeng, head of the Shanghai-based consulting firm LMC Automotive, says part of the reason why exports remained weak for most of last year was due to the depreciating Japanese yen and the appreciating Chinese renminbi.

"Africa and Russia have become major export destinations for Japanese carmakers, especially for second-hand cars as the currency fluctuations have increased the demand for Japanese cars in Africa," Zeng says.

This, however, should not deter Chinese automakers from further expanding their presence in Africa, experts say. According to CAAM, many Chinese automakers are hastening plans to build factories in Africa this year so that they can reach out to more local customers.

Lifan Motors, one of the first Chinese automakers to operate in overseas markets, has been one of the early movers in Africa. The company entered the African market in 2007 and has made Ethiopia its main base for the continent.

Most of Lifan's vehicle exports to Africa are in the form of semi-knocked down kits that are later assembled locally. In this process, the company exports major parts of the car such as engine, chassis, gear box and body separately and then assembles them.

The company plans to move to a knocked-down mode of manufacture later, so that they can ship all parts for local assembly plants. Company officials say that this process helps reduce the final costs in Africa, due to the lower customs duties.

By the end of last year, Lifan had moved its assembly lines in Ethiopia to a new location in the China Eastern Park, an industrial park developed by a Chinese private company. The shift helped Lifan raise its vehicle production capacity in Africa to 5,000 units a year from 1,000.

Later this year, the company will add another production line and an inspection line in the new factory. Its most popular brands such as Lifan 520, 530, sports utility vehicles and minivans will all be assembled in Africa.

Lifan, however, is not the only company betting big on Africa.

Foton Motor, the largest commercial vehicle manufacturer in China in terms of sales volume, has shipped more than 20,000 vehicles to Africa, including vans, pickups and light trucks. Major sales destinations in Africa include South Africa, Algeria and Egypt.

Foton currently exports its vehicles to more than 80 countries and has units in more than 20 countries.

Two years ago, Foton established a company in Kenya with an initial investment of $50 million. When the factory reaches its full capacity, it is expected to make 10,000 cars every year. It has also set up a division in Kenya to oversee the entire sales operations for the East African region.

The company says it will gradually build factories in other major African markets such as South Africa and Egypt.

"Foton will not be a high-end brand in the global market, but more of a medium-level player," says Zhao Jingguang, vice-president of Foton. "That means there will not be too many luxury brands, but products that meet global emission and safety standards."

Five years ago, Foton Lovol started to tap the demand for agricultural machinery and vehicle by delivering 425 harvesters to Sudan. It exported 300 big tractors to Sudan in 2013.

Chang Jiamao, vice-president of Foton Lovol, says the company is now looking to tap into the niche machinery market, especially as Africa is a hot and humid place. The company is banking on adding more power to the cooling systems and installing air filters in its machines to suit the African climate.

Yin Tianjun, president of Lifan in Ethiopia, says African is still a virgin market for Chinese companies, and there is less competition from traditionally strong rivals such as Toyota of Japan.

"Take Ethiopia for example, the big names are reluctant to come here as the people are poor and the market relatively small. Most of the big brands operate in Africa through local agents," Yin says.

That aside, Chinese automakers have problems, such as dealing with the unstable political situation and high tariffs in Africa, which remain the major barrier. Although the 54 African countries have various categories under which import duties are usually exempted, Chinese companies often have to pay huge export duties when they try to sell cars within Africa itself.

"The export duty is so high that we may as well ship the cars from China. Road conditions are also so bad in some areas, which leads to higher logistics and vehicle costs," Yin says.

Adding up all these costs, a car priced at 50,000 yuan ($8,270; 6,074 euros) may finally end up being sold at 150,000 yuan in a neighboring African country from the point of manufacture or assembly on the continent. The additional costs are mostly made up of taxes and logistics costs.

Nevertheless, companies like Lifan take comfort from the World Bank forecast that Africa will maintain an average growth rate of about 3.5 percent in the next five to 10 years. "It presents new opportunities for Chinese automakers," company officials say.

wangchao@chinadaily.com.cn

(China Daily Africa Weekly 01/17/2014 page23)

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