Thursday, 27 January 2011

Macro Level Trends – North Africa – Regional Transformation in the (Broadcast) Air

The recent regional unrest seen in Tunisia has been broadcast throughout Europe and the world as the beginning of a North African democratisation process and regional populace empowerment.

Whether wholly correct or not remains to be seen, since the alternate reality could in fact be simply local aggitational forces supposedly acting from good intention that simply wants greater power and financial reward for itself. Moreover, this action also providing opportunity for associated thugs and looters to act selfishly, ransacking Presidential and family homes and cars under pretense.

As the novelist Gustave Flaubert remarked “there is no truth, only perception”, himself then familiar with Tunisia's Carthage region having researched for the 1862 book 'Salammbo'*.

Yet the idea of political and ultimately economic shake-up for the region has undoubtedly been aired. An expectation of possible change now spreading across from Tunisia through Egypt to Jordan, with the collapse of the reportedly 'western-backed' government in the Lebanon, and latterly similar calls in Yemen.

Incumbent ruling families and politicos have faced popular broadcast criticism, now that this medium is in the supposed hands of the masses, yet in all probability leveraged by the activist few. TV pictures show city-centre disturbances, with 'representative' talking heads, whilst the 'democratisation' of media communications make it easy to create the appearance of a large ground-swell of opinion, the twitter-function amassing crowds who may simply follow rather than actually think from their own free will. If a true reflection, the irony could not be more prosaic. As the writer Evgeny Morozov highlights, the dark-side of the web may well be used to simply create new dictatorships.

Unfortunately, the attitude of the 'silent majority' who themselves have no web-connection will probably not be heard, most seeking everyday peace alongside economic growth that trickles through to all in society. Whilst the disenfranchised, angry young men will follow those who appear articulate and educated, who in turn direct and utilise the following.

However, that said, the endemic culture of 'greased palms' that exists in the region (aswell as of course elsewhere) makes for a sound reason for administrative reform. The question being in what form and how quickly? A worthy ambition, even if heard before to seemingly no avail.

Socio-political thinkers will quickly appreciate that the call for change now has emanated from a juxtaposition of increasing wealth in the region and the ability to communicate, thus the real issue is as to who owns the region's now bright future?

The most recent generally available GDP figures attest that Tunisia has seen volatile but stabalising growth since 1960, only in 3 separate years with negative growth, the last of those in 1986, the 2008 figure at a respectable 4%; with a 5% average over the last decade. The country enjoys a broad spectrum of economic activities across Primary, Secondary and Tertiary realms which includes (for our interest) car parts manufacture. Unsurprisingly, Europe is its primary trade region (approx 75% of exports & imports), whilst The World Economic Forum views it as the most competitive of the 40 assessed African nations.

Its geo-politically dual-facing location as a past and potential 'Istanbul' of North Africa has not been forgotten by international powers, with much Arab derived investment being witnessed with the 'Mediterranean Gate' built as Tunis' New City, Tunis Financial Harbour (Africa's off-shore financial centre), the new Tunis Sports Park, and Tunis Telecom City (the IT hub of N.Africa), the Civil Nuclear power ambition (using the culturally connected French capability) and the Desertec ambition, by which the desert-lands are converted into massive 'solar power fields'.

As the pattern of globalisation continues, so greater interests are taken in what were once seen as fringe regions, which by default become 'intermediary zones', Arabic North Africa ostensibly now in that position, having seen largely stable economic growth over the last decade: 2010 figures sourced by the Economist Intelligence Unit showing Algeria 4.0%, Morocco 3.8%, Libya 4.0%, Egypt 5.5%, with 'associative' (non-African) Lebanon 5.8%, Jordan 3.5%, Syria 4.6%,

Thus the region, in a comparative growth development reference to lacklustre 'advanced countries' and still rapacious 'BRIC regions', sits squarely in the middle. Like all burgeoning EM nations which must decide how to best proceed with domestic issues and foreign relations.

Yet the internal and external forces are apparent, the two primary issues aired being:
a) the spread of domestic wealth as a domestic concern.
b) human rights issues as an international (G20 / UN) concern.

It is also well recognised that the economic problems currently experienced by Southern Europe – with the real concern of year on year stagnancy - could be in a great part relieved by greater interaction with N.Africa, especially so in the corporate transfer of lower value internal or locally outsourced activities from Europe's higher cost-base; as seen thus far by the car parts sector and aero sector in Tunisia. European CEOs have been eyeing the region for decades, but never has the timing been so prescient as now, given the European sovereign-debt fracture and the need for S.European governments to find economic solutions.

[NB. Though the newly created E 440bn+ European bail-out fund has attracted bond-buyers, these creditors will push for S. European change now that the notion that creditors should feel much of any incurred default pain].

In an interesting precursor to the recent upheaval for structural change, France's President Sarkozy aired the idea of forming a 'Club-Med' ideology some 6 or so years ago, it in reality acting as a new economic bloc. Unsurprisingly, after the German efforts for EU unification between 1989 and 1999, such a possibility of EU separation, is viewed in Berlin with great disdain. Whilst the 'PIIGS' sovereign debt problems add massive strain, the creation of a 'Club-Med' bloc could theoretically create political frictions that turn the clock back hundreds of years. Thus 'Club-Med' adds an additional strain on Merkel - Sarkozy relations.

Yet with or without such an drastic scenario of European collapse, the Christian EU and the Arabic North Africa must find a way to coalesce with far greater ease. Given that France essentially has an historic cultural foothold in the region (from energy to automotive), so Europe's 2 other great powers, the UK and Germany must forge relationships and so garner greater influence with the region. Simplistically, the French, UK, German involvement could all to easily appears like a case of history repeating itself, though obviously not quite as heavy-handed as the Sykes-Picot agreement of 1916, and presently without the ideology of a united pan African Arabic state, given the problems the Maghreb members to unify. But greater integration has always been the aim of Arab Nationalists, using alternative methods to do so, the use of the common belief system the most obvious, just as Europe was essentially created from a singular use of an orthodoxy.

Europe in its current state was ostensibly created by, and in reaction to, the once mighty Roman Empire, itself developed from Antiquarian Greece, itself a development from Phoenician society set within the Near East.

Whilst Northern and Western Europe came into its own from the 11th century onward , for much of our theologically modeled history (ie the last 2011 years AD) and well beyond, the centre of the 'civilised' western world was the Mediterranean region. It was the 'trade-bowl' that gave the Romans, Greeks and Ottomans regional interaction, wealth and influence, stretching from the 'eastern sea wall' of the Levant across to the Atlantic 'mouth'. It marked a broad intermingling within an economic eco-system, involving the various original largely Phoenician, pagan Semite** tribes in the east to the Egyptian derived Millares & Tartarssos in Almerian Spain. In short, the obvious pre-curser to the globalisation seen today – a commercial one essentially created by Phonecian regulation via trade agreements and Egypto-Persian derived technology in the form of weighty sea-going vessels.

Obviously, the Mediterranean has also been the prime focus of various power struggles and long-lasting dynasties, yet realistically the effectual end of Ottoman rule by the late 19th century saw North Africa become a global economic backwater as its agriculture base became controlled by western european colonization, the main actors of which had other more abundant colonies with more easily controlled populaces. In the 20th century the region became little more than a geo-strategic coastline, with of course the creation of Israel in 1947, and since a focus of regional unrest for religious theologies which realistically are the veneer of power interests that date back over two millenia.

Yet the 2008 financial crisis and the resulting consequences, set in the stark juxtaposition of a quickly risen China with its own soft-power global ambitions, sets a new light upon the North African coastline and interior. One in which old and new power-bases seek to gain a greater hold as part of their own soft-power 'global grasp'. The question that sits like an elephant in the room is who's grasp is greatest yet softest for the leaders and populations of this predominantly Islamic world? East or West?

Unsurprisingly, much like the ignored wall-flower at the village-hall dance who's hand is taken-up by a late arrival, the previously over-looked Arab leaders have been enjoying their time in the sun having been effectively in the shade for decades. Renewed options provided by newcomers with their own interests and so a new 'dance-ticket'.

It is the potential of solar-based clean-energy networks (linked to the EU) via sub-sea cables that is the scenario set-up by Europe, yet alongside the 'tommorow's world imagineering is the age-old need for traditional fossil-fuel access by the West. Especially so if OPEC re-directs much of its reserves and capacity to meet the demand-pull of 'Chindia' and Asia – thus exemplified by BP's recent and necessarily pragmatic extended foothold in Libya.

For the East (Near & Far), beyond the oil-agenda, Arabic & Asian minds appear tuned to long-term influence and reach into the long-awaited 'African Promise'. The Islamic world working 'top-down' from N & NE coastlines, whilst the Chinese – and less so Indians given the history - continue to (albeit fractiously) 'ingratiate' themselves with infrastructure-build for trade-importation deals that have given welcome development, jobs, extended consumer cultures and broadened and deepened local economies in the continent.

Thus a form of re-colonization is apparent, but this time the North African and Sub-Saharan African inhabitants believe they have far greater influence over their own futures.

So what of the role of the Auto Industry within North African and African economic development?

Renault and PSA undoubtedly have expectations of regaining their old African ground given their previous and current hold on the Arabic North. But tough competition comes from foreign auto-companies, the present prime player being Hyundai-Kia which enjoyed initial regional market success in Turkey via local build, from which it could extend into N.African presence. And of course Africa is the prime destination for Chinese export vehicles of the present and critically, the future. So, although seen to be on the fringes of corporate operations - and not core to immediate strategic focus – the North African picture is being periodically assessed by global car-makers, the recent social turbulence once again giving reason to review near, medium and long-term growth scenarios.

In 2009 after French political assistance Renault opened a greenfield factory in Casablanca, Morocco, titled SOMACA it produces the Dacia Logan, Logan MCV, Kangoo and Sandero models for domestic use and export both regionally and to Europe. The Moroccan market 2007 TIV reached 100K units pa, and has been stable at that level since, of which Renault takes approximately 30%, yet reflects 60% of all locally assembled cars.
In 2008/9 – as reaction against EU TIV collapse - the previously sparse Moroccan vehicle line-up was massively buoyed by introduction of Laguna Coupe, Clio RS, Koleos and Dacia Symbol, with new generation replacements for Laguna, Megane, Scenic and Kangoo. 2008 saw the creation of the
'Renault Tanger Mediterrenne' industrial complex in Tangiers, creating a 2nd assembly site with access to Tangiers Port for export of Logan-platform based vehicles in 2012, both northwards into the Mediterranean Basin and for the western/southern African coastline. As is to be expected, Morocco has and will continue to act as the market-template for Renault throughout the region.
The once mighty Peugeot 404/504 was the archetype North African car, the 504 having been manufactured between 1968-2009 (latterly also in China), yet PSA lost market-share as its own new cars were met by strong French and international competition. PSA is still however the lead importer of cars into Morocco.

Algeria has no passenger car production, instead vehicle manufacture devoted to trucks and buses via the SNVI plant near Algeria City, itself supplied by components manufactured by domestic Tier 1 and Tier 2 companies which sit under the UPIAM trade association. The government policy regards cars specifically has been to create a domestic parts & trade 'eco-system' for the typically older car-parc that exists, to bolster manufacturing and service capability, this assisted by the 2005 introduction of the 'MOT test'. This apparent increased level of market size, (240k cars sold annually), the technological improvement and professional service, all together used as argument by the Algerian administration to attract automotive FDI in the parts and equipment sectors. As regards passenger car manufacture, it appears that the government have been trying to 'play-off' Renault and Hyundai against each other, yet neither have committed to an Algerian plant, Renault seeming the less likely given its 2 production hubs in Morocco, and so Hyundai no doubt seeking very favourable terms to do so. Car sales slipped slightly in 2009 standing at 232K units imported, whilst H1 2010 sales saw a marked decrease by about 18%, thought to be reflective of high inventory levels sat with the countries 34 car dealers. The expected FY figure was 236k units, but that appears unlikely, essentially showing flat YoY trend. However, the 2015 expectation is for 300k units. The national car-parc remains schizophrenic, with 57% of vehicles over 20 years old, and 22% being 5 years old or younger. External reports state that this represents large potential for new car sales, yet realistically it could also create what seem to be odd market dynamics as the used market stays solid relative to the inflow of new imported car with the ethos “why buy new”? Even so, for new cars sales in H1 2010 Renault holds 32%, whilst the next largest slice of 12% is held by Hyundai Motor. Interestingly a trio of companies hold 9.5% each, these being: Toyota-Daihatsu, PSA and GM Chevrolet.

Libya has been brought back into the international fold in recent years, and as such there appears to be greater domestic and FDI investment efforts. On the auto front, projects such as Algubtan Automotive's JV with FIAT-Alfa Romeo demonstrate a desire to create world standard dealerships on the outskirts of Tripoli. The capital also saw the 2nd Libyan Motor Show in November 2010, which showcased a broad range of products, but the commercial presentation events listing was unfortunately thin, with representation from only one dealership group and hydraulics experts, thus highlighting the lack of industry substance behind the show, something seemingly to be addressed for the 2011 show with cooperation from a broader range of presenters related to Transport. A key commercial market that has grown is the self-import of foreign vehicles, given that certain dealerships appear to have a hold on specific branded imports and given what appears a monopolistic position, offer little in terms of customer back-up – a 1 year or 25,000km product warranty seeming the norm. Hence the growth of self-import agents which offer greater cost savings from direct factories, or offer a service of importing cars from neighbouring countries such as Tunisia. The Libyan car-parc has about 2.2m vehicles, which compared to the 5.7m populace makes it one of the highest ownership rates in the region, 1 vehicle for every 2.6 people. Given Libya's oil reserves it is no surprise that its past has seen the country use its petro-dollars to invest in the auto-industry. In 1976 it took 9.6% of FIAT for $250m.

Today's context begs the question “could such an exercise be repeated” to perhaps bolster both FIAT SpA (Auto) and FIAT Industrial in due course? And create a prime economic bridge across the Mediterranean, as discussed previously to assist the re-emergence of Italy and S.Europe? Indeed, could Algeria or Tunis (or a dual national JV) take an interest in VW's loss-making Spanish divison SEAT? Such cross-ties could be beneficial if calculated properly.

Such exercises undertaken in the face of the Chinese Dragon.

After European 'de-colonization' it was the Japanese that established a presence for high quality vehicles in mainland Africa; engrained since Toyota's Land-Cruiser's over-powering of Land-Rover, with later robust vehicles such as Hi-Lux & Corolla, other Japanese such as Nissan and Mitsubishi also creating a following for long-lasted new and used vehicles, this preference now joined with a rising preference for Korean made vehicles in the mainstream and German in luxury. (typically used imports)

Over the last few years of African growth, the legal and illegal grey-import markets for used foreign-registered cars has witnessed a marked shift. The staple of Japanese vehicle demand has grown with a preference for younger cars and trucks., but also a marked growth in imported used luxury SUVs (typically Mercedes and Ford), especially so from the US as its own consumers relinquishes the high-ride gas-guzzler – that high-ride, soft-suspension character suited to the typical pot-holed road or rough trail in Sub-Sahara Africa.

However, the present African future appears to belong to the Chinese, have already gained political grasp in Sub-Sahara countries – such as Malawi's $1bn FDI since 2006 – and exported a number of their domestic auto-brands as a follow-up to agriculture and construction equipment - a natural corollary.

Thus the continued motorisation of the continent at large demonstrates the growing demand – albeit far slower and more patchy than other EM regions. The controlling factions of the various Arabic states of course wish to gain sovereign economic wealth and stability from this upward trend in GDP and so create their own automotive economic 'eco-systems', both inter-regionally and inter-nationally – as seen by the Lebanese efforts to bring the (Nissan) Infiniti brand to Britain- as highlighted in a previous post when the Emir of Qatar met with Her Majesty Queen Elizabeth II here in London.

And it was to economically booming Qatar that Arabic ministers went recently to visit the Qatari Motor Show and meet with the Emir - who himself stands at the cultural cross-roads between east and west – indicating the pivotal role of the automotive sector.

Today, North Africa looks to be the compelling prospect for regenerated growth for Southern Europe, and the future for western Arabia looks to be less so in the hands of the street crowds and twitters, and more in the hands of corporate leaders, western diplomats and those who can seize power in those apparently troubled countries.

Post Script
* 'Flaubert's novel 'Salaambo' is set in Carthage during the 3rd century BC, with the name 'Salammbo' referenced in western high and low culture - from opera to film to video game.
** In a true historical sense the term semitic and so 'anti-semitic' relates to all peoples of the region.