African tyre markets buckle under Chinese pressure

With Tyrexpo Africa 2016 scheduled to be held in Johannesburg from March 8-10, the focus is once again on the tyre industry in Africa. Over the past few years, the African continent has emerged as one of the fastest growing markets for the global tyre industry. The reason is simple: the rapid growth of the middle-class in many African countries has pushed demand for automobiles to an all-time high – in turn creating a growing market for all kinds of tyres, including passenger car tyres, off-the-road tyres, industrial tyres, agricultural tyres, truck, bus and trailer tyres as well as motorcycle and bicycle tyres.

The scenario has also led to increasing, and intense, competition between tyre manufacturers from all across the world seeking to capture a major share of the market for tyres in the new and emerging African markets. Traditionally, European tyre manufacturers have had a monopoly over the African markets and many European brands were top-selling tyres in many African countries. However, there has been a shift in the equation. Chinese and Asian-make tyres are now pushing the erstwhile toppers to the outer ring. Many developing countries, especially Africa, are price-sensitive markets and prefer imported low-priced Chinese tyres rather than the expensive European and American brands. As a result, China has emerged as a leading exporter of tyres to many African countries in recent times.

However, the forecast for the tyre market in South Africa is positive. It is estimated that the country’s tyre industry will grow by about 9 per cent by 2019 – a considerable growth performance in four years. This production increase is slated to be due to the various trade agreements which has helped to promote South Africa as an innovative manufacturing base for automotive products, including tyres. Two years ago, South Africa launched APDP – Automotive Production and Development Program – in order to fully support the country’s overall tyre manufacturing facilities and capabilities.

In Kenya though, the MNCs are facing an uphill task, having to tackle a significant bulk of low quality imports. There is also the problem of taxation. Tyres attract a duty of 35 per cent which, according to business analysts, should place the prices of imported and locally manufactured tyres roughly at par, with only marginal price variations on some brands. However, international tyre manufacturers say retail and wholesale prices of some foreign products in the market are well below the expected minimum if costs of production, transport, insurance and duty are considered, an indication that there is illegal dumping.

Meanwhile, a recent development has been a significant all-cash overseas deal worth about USD 80 million with the board of directors of Apollo Tyres Ltd. (ATL) approving the acquisition of the Durban-headquartered Dunlop Tyres International (Pty) Ltd (Dunlop South Africa). The 100 per cent equity buyout transaction, subject to regulatory approvals in both countries, would enable the USD 726 million ATL to secure a toehold in the fast growing Africa region and also a strong presence in the South African tyre market. Apart from Dunlop South Africa, the other three significant players in the South African market are Continental, Bridgestone and Goodyear. All the four players enjoyed nearly equal market share.

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