Ethiopian car assemblers dump Chinese and go upmarket

This week Ethiopia’s Belayab Motors signed an agreement to assemble South Korean Kia vehicles – dropping its existing Chinese partner, part of a trend of local car assembly plants replacing partnerships with Chinese car manufacturers.

They started with Chinese companies because licensing agreements with them were cheaper and the technology was simpler but there have been questions about quality and so some Ethiopian companies are changing partners.

One recent example was one of Ethiopia’s leading car assembly plants, Mesfin Industrial Engineering (MIE), which launched its plant to assemble French Peugeot vehicles on July 1, 2016.

It was the second European brand MIE had introduced, after Germany’s Man Truck & Bus Company.

MIE is no ordinary company, it’s part of the EFFORT endowment group of companies affiliated with Tigray People’s Liberation Front (TPLF) ,the senior partner in the country’s ruling political coalition, the Ethiopian People’s Revolutionary Democratic Front (EPRDF).

This automotive company, like its other non-politically-affiliated competitors, is trying to tap into Ethiopia’s burgeoning middle class and the fast economic growth which the country has achieved over the last decade.

MIE and Belayab Motors both started business assembling Chinese vehicles. MIE assembled vehicles of the Chinese Zhejiang Geely Holding Group and Belayab assembled FAW vehicles.

Despite its fast economic growth, about 80 of Ethiopia’s population still lives in the countryside and the economy is still mainly agrarian.

However, rapid urbanisation has created a large pool of underemployed and unemployed young people in the cities.

Dr. Alemu Sime Deputy state minister of Industry, says companies like Belayab Motors partnering with global automotive brands not only transfers global knowledge and experience to Ethiopia but also helps the government’s efforts to industrialise the country.

The government hopes industrialisation will help transform Ethiopia from a low-income to a lower middle income economy by 2025, with a special focus on metal and engineering.

Fikadu Girma, General Manager of Belayab Motors, which has been in the automotive business for a decade, said the company plans to export some of it’s KIA cars, earning badly needed hard currency for Ethiopia.

He said it plans to sell the vehicles 25 % more cheaply than the same imported brands.

With 200 staff already working in its plant, when the new cars are assembled and sold by January, it expects to add 100 extra staff and increase it’s working capital by US$7.5 million to reach US$17.5 million in total.

While Belayab will phase out production of its Chinese FAW vehicles, Girma said an independent unit of the company would continue to sell spare parts, and provide after sales service to customers.

“Ethiopia a special place in Korea’s heart.”

While for Belayab the agreement is largely about business, Soon-Nam Lee, President of KIA for Middle East and Africa region, says Ethiopia holds a special place for South Korea as one of the 16 countries that came to the assistance of the country during the Korean war of 1950-53.

Earlier this year, South Korean president Park Geun-hye visited Ethiopia and signed a number of agreements, quietly making inroads into the country.

Several other Korean companies, ranging from the construction sector to textile and garment sector, are active in Ethiopia, with the Korea Export-Import Bank having already loaned money for several road projects.

South Korea is already hosting hundreds of Ethiopian students, many of whom are descended from soldiers who fought in the Korean War.

The East Asian’s country’s development technical assistance institute, Korea International Cooperation Agency (KOICA), is building several technical and vocational institutes across the country, to help Ethiopia meet it’s skilled manpower targets.

“I’ve done a survey in Ethiopia and seen too many old polluting minivans especially. I hope this agreement will contribute to the country’s automotive industry, while also ensuring safety,with competitive prices,” said Lee.

There are now more than a dozen vehicle assembly plants in Ethiopia but the government hopes that the entry of KIA will attract many more global brands into the country’s small but rising automotive market.

Girma said Belayab was preparing for increased competition, including making plans to give buyers long-term loans.  – ANA