China’s vehicle manufacturer Foton is setting up an assembly plant in Kenya in what is set to heighten the battle between China and Western nations for business in Kenya.
The Sh1.2 billion assembly plant is expected to churn out 10,000 units of prime movers, tippers, buses, pick-ups, and light commercial trucks per year, making it one of the biggest foreign direct investments by a Chinese company.
Foton said it is setting up the plant to avoid paying a 25 per cent import duty on cars to allow in its low cost products putting it in a head-to-head battle with Japanese and European brands such as Mercedes, Iveco, Mitsubishi, and Nissan.
“Chinese vehicles are generally competitively priced but that aside, we shall invest heavily in service, parts, and distribution network to gain market share,” said Calvin Guo, the general manager at Foton East Africa.
The assembly plant is expected to be complete by May next year, creating more than 100 new direct jobs.
Foton brands were previously shipped into the country fully made but the move to assemble them locally is set to give them a sharp price advantage as they face off with brands sold by Toyota, General Motors, Simba Colt, and CMC Motors.
Imports of completely knocked down units (CKD) for local assembly are zero-rated as opposed to a 25 per cent import duty on fully made vehicle imports, giving Foton a greater pricing headroom, riding on China’s low cost production.
Foton is signing a dealership agreement with Marshalls East Africa, a move that could help the loss-making auto dealer reverse its dwindling fortunes since losing the Peugeot franchise in 2007.
Increased activity in the construction and trade sectors has boosted demand for light commercial trucks which Marshalls wants to exploit using the Foton brand that is one of the cheapest in that segment.
The entry of Foton comes when relations between Nairobi and Beijing are getting cosier, with China increasingly expanding its economic footprint in the country in line with the government’s policy to look East for new investments and aid.
This has seen Chinese imports more than double in the last five years to Sh74.9 billion, besides Chinese firms winning major contracts in military and infrastructure sectors including telecoms, roads, and airport network upgrade.
Japan’s Toyota and India’s Tata are other vehicle manufacturers that have announced plans to set up assemblies in Kenya seeking a gateway to the East African market.
The EAC market, which recently came under a Common Market, is emerging as a major consumer of goods and services, boasting of 126 million people whose incomes are rising.
The economies of the five member states, including Rwanda, Kenya, and Uganda, are projected to grow by more than five per cent year-on-year in the medium term, according to the World Bank.
The setting up of more vehicle assembly plants in Kenya is expected to pile pressure on existing auto dealers and assemblers like Thika-based Kenya Vehicle Manufacturer (KVM), the Association of Vehicle Assemblers (AVA) Limited of Mombasa and General Motors East Africa (GMEA) who have come under the spotlight for possible involvement in anti-competitive market practices linked to sale of overpriced goods.
The sector has slowed down in the past two years on the effects of the global recession, the 2008 post election violence.