Chinese motor vehicle dealer Foton East Africa’s multi-million shilling Nairobi assembly plant is set to be auctioned to repay debts, signalling the end of the road for the firm that entered the Kenyan market in 2011.
A public auction notice has invited bids for Foton’s 10-acre land on Old Mombasa Road where it had built a warehouse for limited vehicle assembly ahead of plans to develop a fully-fledged 10,000 units-a-year facility.
The liquidation, set for today, signals the company’s failure to secure a sizeable market share in the local market where other Chinese brands such as Chery, JMC, Sinotruck and Grand Tiger have capitalised on their relatively lower pricing to gain ground.
The auctioneers’ notice published yesterday shows Foton had made significant investments in the assembly plant that will now be sold to another investor who could complete it or rebuild it for other commercial uses.
The plant features a body building area, painting section, a completely knocked down (parts) area and a vehicle assembly line with cranes. Foton had also planned to build a vehicle repairs facility on the leasehold land.
The company had estimated the entire assembly plant to cost Sh1.2 billion at the time.
Foton entered the Kenyan market in 2011 through imports of fully built motor vehicles, including trucks, vans, buses and pick-ups.
It then acquired the land to build an assembly plant with a capacity to churn out 10,000 vehicles for the local and regional market.
The local assembly plan was informed by a tax incentive exempting completely knocked-down (CKD) units from the 25 per cent import duty charged on purchase of fully built vehicles.
While Foton awaited its assembly plant to be ready, it contracted Thika-based Kenya Vehicle Manufacturers (KVM) to assemble its brands.
The two companies fell out in 2012, with Foton opting to run an assembly operation at its Mlolongo plant on a smaller scale than initially planned.
Foton has also been embroiled in other business disputes, including failure to pay taxes that led to the seizure of its CKD imports by the Kenya Revenue Authority (KRA).
As recently as last month, KVM was contracted to assemble 24 Foton double-cab pick-ups by a businessman who had bought the vehicles at an auction, according to a source familiar with the matter.
Foton’s market penetration strategy of lower pricing — the hallmark of Chinese business — appears not to have been enough to win it a significant market share in the competitive industry.
The company’s performance in the local market contrasts with that of other Chinese multinationals that have bagged large contracts, especially from the government.
The fact that the Chinese government has close links with Foton appears not to have helped in a market where others have thrived on the backing of Beijing, which in some cases has financed projects undertaken by its multinationals.
Not that China has not tried to flex its muscles to help Foton. Former Vice-President Kalonzo Musyoka was the chief guest at the groundbreaking ceremony of Foton’s Mlolongo plant in 2011.
A year later, then Prime Minister Raila Odinga was at the same site during the launch of a new Foton truck model in the company of officials of the Communist Party of China.
The Nairobi county government in 2014 signed a memorandum of understanding with Foton and Beijing Municipal Commission of Transport for the supply of buses, paving the way for potential order of 2,000 buses over five years.
Foton was to initially supply City Hall with buses valued at Sh82 million but the contract was cancelled, derailing the Chinese company’s first stab at a public sector deal.
Foton’s collapse comes at a time when local assembly has been reinvigorated by new incentives offered by the government to boost the industry, including guaranteed orders from the State.
The East African Community is also mulling limiting the age of used cars to a maximum five years by 2021, a proposal that, if adopted, will reduce the price advantage of second-hand vehicle dealers.
Volskwagen dealer DT Dobie recently started assembling the Polo Vivo car at KVM following an agreement signed by the government and the German automaker.
Peugeot dealer Urysia and the French automaker are expected to start assembling cars, including the Peugeot 508 and 3008 (SUV), in the country in the coming months.