A Continent of Contrasts
Africa is a market that presents tyre manufacturers with both problems and opportunities. Theoretically, the potential may be there for a thriving industry and market, yet unreliable infrastructure, taxation issues and political instability are all features of the African tyre industry landscape that make operations complicated. However, despite such hurdles, the situation in some areas is improving.
In mid-July Dunlop Nigeria announced the planned closure of its factory, claiming tariff reductions on imported goods as a deciding factor. In early 2007 the Nigerian government reduced the tariff on imported truck and bus tyres from 40 per cent to 10 per cent, undermining, in Dunlop’s view, the investments it had made in expanding its radial production programme.
Dunlop’s experience with Tariffs is one shared by other manufacturers throughout parts of the continent. Kenya’s Sameer, producer of Yana brand tyres, reports that the common external tariff protocol, agreed upon in 2005 by the East African Community Customs Union, has hampered its efforts to expand and led to a flood of new and retreaded tyres from markets with lower production costs. The tax for new commercial vehicle tyres laid out under the common external tariff protocol currently stands at 10 per cent; previously tax rates between 25 and 35 per cent were employed in Kenya to protect the viability of local manufacturers.
This tax was first introduced approximately three years ago, around the time the Yana tyre brand was first launched. Commenting on the timing of the new tariff, Sameer Africa managing director Eric Kimani said “the Government has failed us on this,” and further declared the company to be at risk of closing down even before it stood on its own two feet. “It was the greatest negative hit for Sameer Africa,” he added. “It meant that importers who were bringing truck tyres at 25 per cent duty went down to 10 per cent in Kenya and Uganda, which are our largest markets…..Light trucks tyres are the leading sector of any tyre manufacturing company.”
Compounding the problem for African manufacturers is that many regions cannot depend upon a reliable and affordable power source. Sameer reports that its power costs are four times higher than those in Egypt and six times higher than in South Africa. Altogether, 22 per cent of a tyre’s production cost at the Sameer factory is accounted for by electricity consumption. For Dunlop in Nigeria, the problem was not just cost; frequent disruptions to the power supply were quoted as being yet another ground for the company’s exit from domestic manufacturing. Michelin also claimed the absence of a reliable public power supply as the underlying reason behind its exit from Nigeria at the start of 2007, and the experiences of these three manufacturers are by no means unique.
For Apollo Tyres, through its Dunlop subsidiary, operations in Zimbabwe present yet another difficulty – the company is producing at close to full capacity, yet the parent company is barred from reaping any reward. Due to the country’s political situation, the economy is at present experiencing hyperinflation (at the start of July this was estimated to be running at 9 million per cent), so Apollo cannot repatriate any profits from Dunlop Tyres International in Zimbabwe or consolidate the operation’s accounts. “Repatriation is not allowed and, with the value of Zimbabwe dollar at what it is, it is not even worthwhile for it to give dividend to the parent company,” commented Apollo Tyres chief of strategy Sunam Sarkar. “For us, it is like the plant is there and yet not there.”
In spite of this massive hindrance, production in Zimbabwe continues as usual, its 30 tonne per day output close to maximum capacity. “Being the only tyre plant in the country, the government realises its importance and has provided it with the foreign exchange needed to import raw material,” Sakar says. And Apollo is not the only company with, in spite of many obstacles, potential to grow in Africa. Sameer reports that light truck tyre sales are increasing by 30 per cent annually. A recently opened production line has increased monthly production to 15,000 units, the extra 2,700 units per month destined mainly to meet additional demand in the East Africa region. The increase in demand for light truck tyres is attributed to the increasing popularity of commuter vehicles and changing transport requirements in the agricultural sector.
Another aspect of the African tyre industry to attract controversy over the years is that linked to its primary raw material – natural rubber. The Firestone Natural Rubber plantations in Liberia has in past years faced accusations of employing workers in slavery-like conditions. The Washington-based International Labor Rights Fund, to name one instance, filed a lawsuit on these grounds in 2005. However the company points to activity that contradicts this strong accusation. The years since the end of Liberia’s civil war in 2005 have been tough, with unemployment in the country an estimated 85 per cent. According to Dan Adomitis, president of the Firestone Natural Rubber Company, the company’s focus today is on “rebuilding our operations and facilities in Liberia while supporting Liberia’s recovery efforts after 14 years of devastating civil conflict.”
Upon announcing the re-signing of a concession agreement with the government at the start of 2008, Adomitis said that the company would continue to rebuild homes and healthcare facilities for employees as well as providing schools for the more than 15,000 children of employees now being educated in 23 Firestone schools. And while some remain skeptical, the signing of an agreement between Firestone and rubber workers in August 2008 appears to confirm a positive direction is being taken in this African country. The United Steelworkers union in the US referred to the deal as a “new day for workers throughout Liberia,” and applauded the wage benefits – a 24 per cent pay increase for rubber tappers – along with the improved work, housing and educational conditions it will bring with it.