The Foton Nairobi plant will assemble parts shipped from China to cut tariff costs. The company says the plant will supply products for the whole of East Africa. Provided to China Daily

Vehicle giant opens first assembly plant in Nairobi; set to sign transport deal

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

But on July 12, production starts at its new 10,000-squar-meter assembly plant in Nairobi, meaning its vehicles are likely to appear in much larger numbers right across the East Africa region.

More than that, the company, along with the Beijing government, is set to sign an agreement with Nairobi officials to offer advice on how to solve 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 on its roads.

A report by IBM Consulting released recently lists Nairobi as one of the most congested cities in the world, estimating that around $430 million is wasted every year as a result of the congestion, largely due to its out-dated public transportation systems.

As part of the agreement, Foton, which designs and manufactures trucks, buses, sport utility vehicles and agricultural machinery, would help create a comprehensive plan, which among other measures would reconfigure and relocate its bus stops, phase out obsolete buses, and improve the traffic lights system, with the Beijing government.

During the process, Foton would also be given the opportunity to convince the local authorities to buy its flagship product, the new energy-powered Foton AUV bus.

Back home, 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, says its Kenyan expansion marks a huge leap forward.

Instead of pure export, the company is now a truly local operation, which is offering workable economic solutions to the African country as well.

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

Foton is also planning to introduce a new model to the Kenyan market, a multiple-purpose vehicle designed for small business owners.

The Beijing government is planning 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.

But 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 of shipments to Africa is not available, the company says the region shows strong growth momentum.

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

Huo says that over the past two years, the Chinese domestic commercial vehicle market has struggled to recover after the country's recent economic slowturn, and the parent company's overseas market has become a lifeline for many automakers, including Foton.

Its latest figures show export volumes have grown between 10 and 20 percent over the past two years.

Huo says Foton's new Kenyan plant will play an important role in expanding into the five 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 there. To gain a bigger market, we have to look beyond our borders," Huo adds.

Foton currently has three main parts to its export business: whole-car exports; local assembly, which means the company ships vehicles in parts and then assembles them in a destination market; and local production, which means the company will procure a considerable proportion of spare parts locally, so as to avoid the high tariff cost.

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 whole-car option is the most feasible.

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

"Whole-car import tariff is 45 percent, but when we knock down the spare parts and assemble them in Kenya, the tariff can be vastly reduced," Huo says.

"At the same time it also allows us to create jobs locally."

Foton plans to build 16 local assembly plants overseas this year, and another eight next year, bringing its overseas plants to 52, spreading across the Middle East, Southeast Asia, North Africa and Central America by the end of 2015.

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

"Taking commercial vehicles (trucks and pick-ups) as an example: the European, American, Japanese and 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 a million medium and heavy-duty trucks a year, compared to Europe's 300,000.

Zhao predicts that in the future, 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 so many will turn to Chinese trucks."

He explains that Foton's strategy was set out in what the company calls its "5+3+1" overseas strategy.

That means opening local plants in five countries before 2015: India, Russia, Brazil, Mexico and Indonesia; making sales breakthroughs in three mature markets: North America, Europe, and Japan/Korea; and building one global R&D center, back home in Beijing.

Wang Xiangyin, its vice-president, has no doubt that Africa offers a unique advantage to Chinese companies, as most countries there already enjoy strong relations with China and the local people trust Chinese business partnerships.

"As a result, we face fewer trade barriers in Africa, which is a huge advantage," he says.

wangchao@chinadaily.com.cn

(China Daily Africa Weekly 07/11/2014 page20)