Foton Bets Further On EAC Truck Demand

Chinese commercial vehicle (CV) manufacturer Foton is looking to increase its production presence in the East Africa region with plans to build a plant in Uganda. As the company already has an assembly facility in Kenya, the news is supportive of BMI 's view that the CV segment in East Africa will outperform the passenger segment . This is mostly due to the growth of heavy industries, which generates truck demand, and also because of affordability issues in the new car market.

The Chinese firm is awaiting approval from the Ugandan government for the plant, which would turn out 100 vehicles a day. The company is looking to produce trucks and minibuses, in response to the country's growing demand for CVs, which Vice Mayor of Beijing, Gou Zhongwne, says is a result of the country's economic growth. Indeed, BMI 's Africa team expects further growth in 2013 on the back of improved performances by the services, construction and manufacturing sectors. We believe it is the latter two which is driving CV demand.

Heavy Industries Drive Growth
Uganda New Commercial Vehicle Registrations (CBUs) And Real GDP Growth (% chg y-o-y)

In 2013, we forecast growth of 9.4% in the number of newly registered commercial vehicles, compared with just 3.3% for the passenger car market. Moreover, we believe average annual CV growth of 10.7% is achievable during our forecast period to 2017, supported by our positive economic outlook. Over the longer term, we believe that growth will continue to accelerate, as investment into the oil and gas sector continues to pour in, and crude exports start to have an impact, beginning in 2016 or 2017, when we are projecting real GDP expansion to surpass 8.0%.

This is a similar trend to other markets of the East African Community, where we have also seen investment in vehicle production to capitalise on growth. Kenya has been the leader in attracting investment, particularly for light truck production, which is also a response to growth in the construction, manufacturing and agriculture sectors (see 'Heavy Industry Will Carry Autos Growth', November 10 2011).

Local production serves to make products more competitive. However, some projects also have a specific export strand in mind. There has been no mention of exports from the proposed Ugandan plant, although we still believe Kenya and possibly Tanzania are better placed as regional hubs (see 'Tanzania: Potential As EAC Gateway, But Considerable Challenges To Be Overcome', June 12). Another positive aspect to domestic production is that while most investment targets the CV segment now, the local industries are developing the processes and know-how, which could be adapted to production of affordable passenger cars in future.

This article is tagged to:
Sector: Autos
Geography: Uganda, Kenya

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