A new ball game

Thursday, 05 August 2010 08:22

Post-Fifa 2010, Africa is wide awake with road freight possibilities – and everyone is muscling in on the act

For many decades, South Africa has been regarded as a playing ground for European, American and Japanese commercial vehicle manufacturers offering a variety of vehicle brands and models seen nowhere else in the world. This despite the fact that total annual commercial vehicle sales in South Africa, carefully monitored by the National Association of Automotive Manufacturers of South Africa (Naamsa), constitutes only less than 2% of world sales.

During the apartheid years, this choice was limited to a few European and Japanese brands that had their guts taken out. The proprietary engines powering the old faithful – Mercedes-Benz, MAN, Toyota, Nissan and Isuzu trucks – had been replaced with the locally built Atlantis Diesel Engine range.

But since the mid-1990s, when sanctions were lifted, this choice has virtually exploded into a mind-boggling variety. The European brands Volvo, Scania, DAF, Iveco and Renault joined or rejoined the old faithful, and so did the North American brands Navistar International, Freightliner, Peterbilt and Mack – all now with a bewildering offering of proprietary or American engines.

Later, Asian manufacturers such as Tata, Hyundai, First Automotive Works, Ashok Leyland and Eicher came to the party (or attempted to).

The various vehicle launches and relaunches that took place over the past decade all had a similar, much touted message: we are here to gain and maintain a foothold in the country itself and then use South Africa as a springboard into the rest of the continent.

Well, there is much springing occurring now, not only from the South African side. Africa, the continent, has become the darling of the world and only partly because the 2010 Fifa Soccer World Cup focused attention on its tourism attractions.

As things turned out, the international soccer saga coincided with a renewed global appetite for mineral resources and other commodities. This from developed nations emerging from an economic slump and developing countries resuming their roller-coaster growth that occurred before the financial crisis of 2008/9.

There is no question about it: the entire world now wants a piece of the African pie and they will take it in the name of “Aid for Trade”.

In this exercise, the Chinese in particular have given the world a wake-up call by having increased trade with the continent more than tenfold over the past decade.

French President Nicolas Sarkozy, who presided over the 25th Africa-France summit in Nice in June, for the first time tacitly acknowledged the success of China’s expansion in Africa by calling on French businesses to emulate it.

Without mentioning China by name, Sarkozy declared it was time for Europe to use infrastructure investment along with development aid and fight to increase its influence in Africa once again.

“Africa is our future... the African continent is asserting itself more and more as a major player in international life,” said Sarkozy. “We cannot govern a 21st century world with a 20th century institution.”

European and Japanese vehicle manufacturers, however, have seen the Chinese (and Indians) coming for several years, appreciating Africa as a continent of opportunities in
the process.

The result: Africa is being turned into a battleground of another kind, with mining equipment and vehicle manufacturers preparing to slog it out for market share.

It starts with the mining sector. According to rothmanresearch.com, the international mining sector has been expanding at a 3%-4% rate yearly, and this growth is expected to continue in many of the key mining regions of the world, particularly Africa.

It is a well-known fact that China, India and Brazil and, to a lesser extent, Russia – the so-called BRIC countries – are pushing the tempo.

The billions now being poured into the African continent by the first three countries in mining, as well as that into road and rail infrastructure, have been dominating business news headlines for more than a year now.

This has seen so much business growth for the likes of Caterpillar, Hitachi and Komatsu that it has prompted Caterpillar, for one, to invest $700 million in a new product range, as announced recently.

“Competition promises to be fierce in the next few years among the titans of this industry, as they literally will be sending giants to fight for market control,” the research company stated in June this year.

The spillover effect it will have is obvious. Not only are trucks required for off-road mining, but also in the construction of transport infrastructure, dams and telecommunication systems.

Once established, this again requires mobile maintenance and supply services, rendered by specialists and their transport operators – all of whom face new business opportunities in the “dark” continent.

Fact is that Africa is not ready for the latest hi-tech vehicles from the first world. But apart from second-hand and ‘disposable’ vehicles, it is now getting an ‘appropriate’ form of that technology from an emission standard, robust quality and price point of view. And it will be getting much of it through Chinese, Indian and Brazilian back doors.

China is already the world’s largest truck producer, and the performance and quality is set to improve, thanks partly to joint ventures with truck makers in other countries. Apart from these joint ventures, its vehicle manufacturing capacity is awesome and it could sell into Africa directly, specifying Chinese-made vehicles for Chinese-sponsored projects – which they obviously would.

India has been following suit. No wonder this has seen European, Japanese and, more lately, also American vehicle manufacturers forge a spate of joint ventures with Chinese and Indian vehicle manufacturers. In many cases, the aim is to sell not only into the robust Asian markets but, through them, into the African market as well.

A typical example is that of MAN Nutzfahrzeuge AG, Germany, which shrugged off its reliance on its domestic market a long time ago. Apart from its long-established South African foothold, its market diversification strategy has seen it establish a foothold in Latin America and Asia, which brought in almost a third of MAN’s sales in 2009.

Through its Latin-American and South African divisions and joint ventures with Force Motors in India and Sinotruk in Hong Kong, as well as its acquisition of Volkswagen Brazil’s truck and bus division in late 2008, MAN is now able to sell its products in Africa direct or via its division in South Africa.

Apart from the core MAN truck and bus chassis series, these include the Brazilian-built Constellation truck series, the Indian-built CLA series and the Chinese-built Sinotruk series.

MAN Truck & Bus SA saw it coming almost two years ago when it realised the potential of the African truck market. Now responsible for the entire African dealer network of MAN, it recently seconded one of its top marketing and sales directors to North Africa to open up business from there.

In fact, there has been a spate of announcements by major truck makers over recent months indicating their increased involvement in developing countries, including Africa.

Daimler AG, which already has a tie-up with Beiqi Foton Motor Co. in China, recently announced it is to invest $969m in an Indian truck unit that would start production from the middle of 2012. The new company will make light, medium and heavy-duty trucks ranging from six tonnes to 49 tonnes at the 400-acre Oragadam facility that will have capacity to make 70 000 units annually.

Also next year, Mercedes-Benz Trucks will expand its Brazilian production network to manufacture heavy-duty Mercedes-Benz Actros trucks.

The Volvo Group, which makes heavy-duty trucks under the Renault mark of UD Trucks, intends to expand its partnership with Dongfeng Motor, said its chief executive officer Leif Johansson last month. It has been present in India for more than a decade, and has a joint venture with Eicher Motors, which has been keen to enter South Africa.

Even KAMAZ of Russia seems set to enter Africa via an Indian back door. It recently began production as Kamaz Vectra Motors Limited, in a 51:49 joint venture with India’s Vectra Group, with the launch of the KAMAZ 6540 tipper model of GVW 31 T, an 8X4 dump truck. The JV also has its sights set on the African market.

Next fiscal year, it plans to introduce three models more – long wheel base chassis 8X4 for superstructures and cargo, heavy duty tractor 4X2 and heavy duty tipper 6X4.

Last month, Mahindra Navistar Automotives Ltd in India started production of its first truck offering, the 25-tonne capacity MN25, when it rolled off the assembly line in Chakan, Pune in India. Powered by Navistar’s MaxxForce® 7.2-litre diesel engine, the truck is said to deliver high performance and outstanding fuel efficiency.

Japan’s Nissan is scheduled to roll out its trucks in a joint venture with lndian player Ashok Leyland next year. Nissan Diesel South Africa, like other local manufacturers, is working on expanding its dealer network and increasing its African market share.

General Motors, which late last year teamed up with China’s SAIC in a venture to make mini commercial vehicles in India, is now moving into Brazil.

Caterpillar Inc. and Navistar International Corp. are finalising a $586-million truck and engine manufacturing tie-up with China’s Jianghuai Auto. If it goes ahead, the deal will make Caterpillar and Navistar the latest entrants in China’s 150-billion yuan heavy truck market, joining Daimler and other European rivals.

It would further provide a new growth opportunity for Jianghuai, a major player in China’s multipurpose vehicle segment that is diversifying into car and heavy truck manufacturing. Trucks made at the venture will be sold in China and other emerging markets in Asia “to begin with”, said an unnamed Reuters source.

The point is that China, India and Brazil are destined to become perfect springboards for truck and bus sales into East and West Africa, meaning South African vehicle assemblers will have to pull out all the stops to increase their cross-border market share.

There have been promises of R800bn more to be spent on new infrastructure for South Africa, but whether they will offer many opportunities for the automotive, transport and logistics industries remains to be seen. Worrying are the latest statistics that indicate substantial decreases in building activity and further increases in unemployment.

With the World Cup and its associated infrastructure building bonanza behind us, the focus will fall on new cross-border infrastructure projects, particularly in East, West and
Central Africa.

A new ball game – the fight for African market share – has begun.

Udo Rypstra

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