Chinese wheels really start rolling in East Africa

Vehicle giant looks ahead with its first factory in the Kenyan capital, reports Wang Chao in Nairobi

Beiqi Foton Motor Co's commitment in Africa used to be little more than an annual meeting with local dealers.

But on Saturday, production started at its new assembly plant in Nairobi, meaning its vehicles are likely to appear in much larger numbers soon across the East Africa region.

The company, along with the Beijing government, is set to sign an agreement with Nairobi to offer advice on a growing problem in the burgeoning Kenyan capital: traffic congestion.

The biggest city in Kenya is the transportation and business hub of East Africa, but much like in Beijing, its streets are struggling to cope with a massive growth in cars and commercial vehicles.

A report by IBM Consulting listed Nairobi as one of the world's most congested cities, estimating that $430 million is wasted every year as a result of congestion, largely due to obsolete public transportation systems.

Foton, which designs and manufactures trucks, buses, sport utility vehicles and agricultural machinery, will join with the Beijing government to help create a plan to reconfigure and relocate the city's bus stops, phase out obsolete buses and improve the traffic light system.

Foton will also ask local authorities to buy its flagship product, the alternative-fuel bus from Foton AUV (Asian utility vehicle).

Foton already has a 25 percent share of Beijing's public bus fleet. Huo Yan, director of marketing and branding for its passenger vehicle division, said its Kenyan expansion will be a huge leap forward.

Instead of pure exports, the company is now a truly local operation offering workable economic solutions.

"This is a very rare opportunity for Chinese automakers, and we are very proud of that," Huo said.

Foton also plans to introduce a new model to the Kenyan market, a multipurpose vehicle designed for small business owners.

Beijing plans to mark the company's expansion in Nairobi by donating two Foton Tunland pickups to the Masai Mara National Reserve, which will be used to support its wild animal protection initiatives.

Africa is not completely virgin territory for Foton. It has been exporting to the continent since 2005. Last year, the company shipped more than 40,000 vehicles overseas. Although the number sent to Africa was not specified, the company said the region showed strong growth momentum.

It opened its Kenyan sales operation in March 2012, and the Tunland is already popular in the country.

Huo said that over the past two years, the Chinese domestic commercial vehicle market has struggled to recover after the country's economic slowdown, and the parent company's overseas market has become a lifeline for many automakers, including Foton. Its latest figures showed export volumes grew 10 to 20 percent over the past two years.

Huo said Foton's new Kenyan plant will play an important role in expanding into key East African economies. "We will use Nairobi as our manufacturing base and gradually radiate to the whole East Africa region. This also means Foton is transforming itself from being purely a trade company into a local vehicle producer."

The vehicles will be assembled and customized to suit local requirements.

"In China, the commercial vehicle market is already saturated after 30 years of development, so there is little room for sales improvement. To gain a bigger market, we have to look beyond our borders," Huo said.

Foton has three main parts to its export business: fully assembled vehicles; local assembly of imported parts and local production, which means the company buys many components locally and avoids high import tariffs.

Foton has already started such local production lines in Russia and India.

In the Middle East, North Africa and Eastern Europe, where import tariffs are relatively low, the fully assembled option is the most feasible.

Kenya's tariffs on vehicle imports are considered in the mid-level category, so the Foton Kenya plant will ship parts from China and assemble them locally.

"The fully assembled car import tariff is 45 percent," Huo said, but if the company assembles locally, the tariff can be vastly reduced. "It also allows us to create jobs locally."

Foton plans to build 16 assembly plants overseas this year and another eight next year, bringing its overseas plants to 52 spanning the Middle East, Southeast Asia, North Africa and Central America.

Zhao Yufeng, assistant general manager of Foton, said Africa is a perfect export destination for China's surplus vehicle production.

"Taking commercial vehicles (trucks and pickups) as an example: the European, American, Japanese and South Korean markets are almost saturated with their own domestic products, and the Chinese market has now passed its golden growth days, so we have to find an outlet for the capacity we currently have."

China is now producing more than 1 million medium- and heavy-duty trucks a year, compared with Europe's 300,000.

Zhao predicted that China-made trucks will become increasingly popular in developing countries.

"I can imagine a world market where the heavy-duty, cab-behind-the-engine trucks (often called long-nose trucks) will be confined to the American market; Europe will continue making high-end trucks. But in South Asia, North Africa, Central Asia, and West Asia, where consumers are more price-sensitive, European products will be too expensive, and many will turn to Chinese trucks."

Contact the writer at wangchao@chinadaily.com.cn