Transport equipment is one of the key sectors for Indian exports and the country’s principal players are increasingly looking to cement the success of their exports by establishing assembly plants in Africa.
In fact, the doubling in India’s exports to Africa, from 2006 to 2010, has been significantly aided by an increase in the export of transport equipment. Globally, Indian car sales are predicted to more than quadruple to $145bn by 2016.
After South Africa, Kenya is seen as the hot spot for commercial vehicles. Following the World Bank’s approval of the next tranche of funding to improve East Africa’s transport infrastructure, growth is expected to accelerate in the commercial vehicle sector.
Perhaps one of the biggest success for Indian automobile companies venturing into Africa is Tata Motors, the subsidiary of India’s famous Tata Group. Tata Motors has registered spectacular growth in Africa, emerging as the third-largest player in South Africa’s commercial vehicles market in 2008 after a period of just three years.
It is today one of the fastest-growing brands in the passenger vehicles segment across Africa. The company also makes the world’s cheapest car, the Tata Nano, which costs around $2,500.
Like many players across different industries in India, there is an increasing pressure to look abroad to fulfil revenue targets due to competitive challenges in the home market. Competition, apart from crowding the market, is having an inflationary effect on salaries.
The Tata Group’s first international expansion was in 2000 with Tata Tea, which bought the famous brew, Britain’s Tetley, for £271m. Since then it seems that the group has not stopped looking outside its borders for acquisitions; for example, Tata Motors bought out Daewoo’s truck unit in Korea.
Analysts believe that Tata Motors played a vital role in the development of Tata Africa’s origins and current operations in the continent.
In June 2011, based on market value, Tata Group has become India’s wealthiest with a market value of $98.7bn. The group first put its foot on the continent by marketing Tata Motors’ heavy vehicles in Zambia in the 1970s.
India’s Setco Automotive is planning to build a plant on the continent sometime this year as part of its aggressive export growth. The clutch manufacturer, which focuses on medium to heavy commercial vehicles, is optimistic about the prospects for growth in this sector.
It also believes there is little in the way of competition currently since most clutches are imported into the region. The company is a major provider of clutches in India and has now set aside $33.4m for investment over the next four years.
Having won a road-building contract in Kenya, Chinese firm Beiqi Foton is already building a truck plant there that will produce 5,000 trucks a year. Setco could be looking to capitalise in the African market using relationships it has developed at home in India.
Mahindra Navistar is appraising a possible expansion into South Africa; MAN and Daimler are thought likely to follow suit.
Strong market for pick up trucks
Japanese giant Toyota has been at the heart of a trend to significantly increase the flow of pick up trucks into Kenya.
Toyota has recently invested in an assembly plant in Kenya that will produce Hilux pick-up trucks. The company already has a 26% market share; producing locally will enable it to avoid import taxes, save freight costs and so lower its prices to try and seize an even larger proportion of the market.
Indian companies have been quick to follow in Toyota’s footsteps. In November India’s Tata Motors announced its intention to produce 5,000 pick-up trucks and light commercial vehicles annually. Since June 2011, China’s Foton Motors is also selling trucks in Kenya and its own plant will come online in 2012.
According to the Kenya Motor Industry (KMI), 35% of all vehicles sold in the first nine months of 2011 were pick-up trucks. Significant new demand is being generated by growth in agriculture, manufacturing and trade.
The trend seems to be moving away from the heavy truck segment, represented by CMC Motors and Simba Colt, and towards pick-up trucks made by Toyota and Nissan.
Nigeria’s imports totalled $13.2bn in the fourth quarter of 2010 of which transport equipment and parts accounted for 23%. “We see Africa as a region of tremendous potential for the group,” says the Tata Motors managing director for India operations, PM Telang.