The previous web-log provided outline of the indigenous economic eco-system that exists in India as part and parcel of its historically linked national evolution. Yet on a global basis, India of course is not alone, and may indeed be seen to be progressive compared to other continents in which even greater historical, cultural and economic complexity exists.
One such is Africa and its constituent countries.
Seen by non-Africans as geographically massive land mass, largely culturally indistinct from north to south and west to east, and with the exception of South Africa, much of it caught somewhere between a merged yesteryear Dutch, German and British colonial past and today's and tomorrow's Chinese colonial future. Its enormous agricultural, mineral and labour reserves, were seemingly less exploited during the post WW2 period of Euro-African intercontinental stability, globalised markets and growing African independence. But in a fresh era of financial markets concern, food security and supply chain integrity, the resource wealth of Africa has once again become a central focus for many, from the leadership of China to New York, London and Hong Kong's private equity funds who once again seek 'fundamentals' style investment approaches.
The global public's eye was drawn to Africa in 2010 when it hosted the World Cup football (soccer) tournement, its theme song 'Waka Waka (This Time for Africa) sung by 'Shakira & FreshlyGround' highlighting the continent's much raised profile relative to worldwide matters, with the support band's name referring to a desired new non-exploitative era of coffee (ie commodities) fair-trade.
Yet though others treat Africa as one entity, it is of course massively complex: ethnically, religiously politically, nationally, intra-nationally and internationally.
Indigenous Black people co-exist live alongside the 'remaining', non-diaspora multi-generational Indian & European people who to themselves are 'African' – a reversal of the African-American precept. Whilst the 'new' Chinese inhabitants simply re-run a trading relationship that China & parts of Africa shared centuries ago.
The following provides a basic outline of the vast continent, within it one country – The Republic of Kenya – that sits on a geographic, historical and hence geo-political cross-roads between Europe, the Middle East and Asia and within that country one firm named Kenya Vehicle Manufacturers Ltd that may be viewed as one of a myriad of SME economic pillars, who's own business will in a small but critical way, when reflected a hundred-fold by similar others will help determine the continent's future.
As a limited and purely desk-bound exercise, it will not delve as deep nor wide as the fictional investigative achievements of the Botswanian female detective Mma Precious Ramotswe, the central character of “No 1 Ladies Detective Agency” (by Alexander McCall Smith), and who herself marries the proprietor of 'Speedy Motors' garage. However, it does hope to provide a general, rounded, analytical and fair understanding of the opportunities and challenges that investors face when considering the automotive investment potential of indigenous Africa.
Basic facts regards the massive and diverse continent are:
- Land Mass of approximately 30.2m km² (11.7mi sq mi)
- Covers 6% of Earth's surface area
- 20.4% of total land area.
- 61 countries / territories
- 1bn people approximately
- 14.72% of the world's population
- De-Colonisation & Cold War created C20th socio-political upheaval
- Rich natural reserves again being leveraged
- Chinese trade levels an impetus for Western & Asian interest
- 'Collectivised' via the African Union (exc Morocco)
Beyond these very basic observations, Africa geo-politics has undergone very recent transformation with the departure of long-time leaders in the Arabic North, with the supposed 'African Leadership' presented by Libya's Gadaffi now overtaken by events and a rebalancing of international interests in the continent's natural resources and peoples.
On a cultural level, African leaders have understandable concerns about the emerging issue of FDI and Foreign Grant and Loan programmes becoming linked to the 'human rights' issue of homosexuality. Whilst political and religious rights are seeing slow progress, it is the issue of gay-rights that has caused friction since (esp Sub-Sahara) Africa is beneath the 'sexualised exterior' socially deeply conservative. It is a rationale that underpins 'community and family' and indeed continuing tribal existance / identity, and is very probably in no small part also related to its AIDS epidemic (5% of population in Kenya) which even the west itself historically publicised as being more easily and viralently spread through prostitution and amongst gay males.
Thus today this deeply cultural issue may provide a very real sticking point in broad European / US & African relations, a function of very different social backgrounds.
Kenya is located on Africa's mid-eastern seaboard, and borders with Ethiopia, Somalia, South Sudan (after its recent independence),Tanzania and Uganda; its land mass totals 580,367 square kilometres, which rises from the Indian Ocean across low plains and up to the Central Highlands with the Rift Valley as a dominant feature. It houses a diverse eco-system of flora and fauna, is typically prone to the usual equatorial conditions including drought and flooding, and suffers from water availability and quality problems for its populace.
Its 41m population are: Kikuyu (22%), Luhya (14%), Luo (13%), Kalenjin (12%), Kamba (11%), Kisii (6%), Meru (6%), other African (15%), with Asian, European, & Arab descendancies (1%).
Demographically, it is a very young country with an average age of 19 years old, thus shows a very 'bottom heavy' population pyramid, 42% being 14 or under, and a relatively high average birth rate of 4.19 children per mother.
The capital is inland Nairobi (3.375m people), with coastal Mombassa (1m approx) as the second urban centre. 22% of Kenyans live in urban areas, thus with 78% spread across rural areas, pan-national and intra-regional transport links are critical, mostly served by 'Matatu' vans and state buses, with taxis and auto-rickshaws more common in towns and cities.
Administratively, the country is divided into 7 provinces and 1 'area': Central, Coast, Eastern, Nairobi 'Area', North Eastern, Nyanza, Rift Valley, and Western.
Kenya gained its independence from the UK (formerly known as British East Africa) in 1963, led by Jomo Kenyatta – from which it derives its name. The Kenyan African National Union (KANU) ruled as a one-party state until 1982, with political liberalisation in 1991, yet KANU remained in power until 2002 after heavy social unrest The National Rainbow Coalition came into power with an anti-corruption promise, yet it fractured internally, some joining with KANU to formed the Orange Democratic. 2007 saw further social unrest with accusations of vote rigging.
The UN negotiated a power-sharing accord between President Mwai Kibaki & Prime Minister Raila Amolo Ondiga
Economically, Kenya is the regional hub for trade and finance in East Africa, but has been restricted – as the CIA World Fact Book reports - by the headwinds of reliance upon export goods which in recent years have commanded only low prices in the global market and ongoing existence of innate corruption. A failure to curb this corruption led the IMF to suspend its assistance via the 'Enhanced Structural Adjustment Program' on various occasions, the last being 2006. Lending from international sources resumed despite continuing corruption cases. Post-election violence in early 2008, coupled with the effects of the global financial crisis on remittance and exports, reduced GDP growth to 1.7% in 2008, but the economy rebounded in 2009-10 at a 4.5% growth rate based upon tourism, telecoms, transport, construction and recovery in agriculture. The 2011 upward trend through H1 was re-rated by the World Bank as remaining at 4.5% to year end as a result of drought impacting agricultural output and a ripple-effect through the rest of the economy.
Agriculture represents only 22% of GDP yet contains 75% of the labour force, whilst industry and services offer 16% & 62% GDP respectively (78% combined) yet utlilising only 25% of the labour force; thus highlighting a lack of economic development compared to .S.Africa, N.Africa and non-African countries; translating as a a GDP per capita at US$1,600 (2009 & 2010). This income level resulting also from a 40% unemployment rate, leading to 50% living below the poverty line
2010 Government Revenues were US $7.016 billion, with an expenditure of US $9.043 billion, showing the current degree of internal investment led ambition, whilst 2010 Public Debt remains low by European standards at 47.7% of GDP, up 0.6% YoY. The overall 2010 Investment Level reached 19.8% of GDP.
However FDI, primarily from the US and UK still accounts for a hefty portion of investment monies, this perhaps resulting from the Kenya's own 'viscous liquity' as seen by a 2010 Central Bank Discount Rate at 7% (ie the wholesale buying level) and a Commercial Bank Lending Rate of about 14.5% (ie available to SME's and private individuals). The reluctance to borrow at these rates – no doubt set by default levels and corruption cases – is seen in the somewhat low 2010 inflation rate of 4%, heavily down from the 9% of the previous year.
As stated, even though Kenya is the most industrially developed country in East Africa, manufacturing only represents 16% of GDP, a level which has increased by a tiny proportion since Independence in 1963. Initial expansion in the 1960s flailed in the 1970s and stagnated thereafter, undermined by infrastructure problems: energy shortages and retailing costs, aged transport and the 'dumping' of inexpensive imported goods. But with slowly increased urbanization comes a raising of industry's economic importance, especially around Nairobi, Mombasa and Kisumu.
Prime industrial activities are: processing of steel / aluminium / lead / cement, ship repair, food-processing (grain milling / flour, beer production, sugarcane crushing), furniture, batteries, textiles, soap, cigarettes, the fabrication / assembly of consumer goods, such as vehicles, farm implements and white / brown durable goods.
Critically, Kenya has a Mombasa based oil refinery operated by Kenya Petroleum Refineries Ltd itself 50% government owned & 50% by India's Essar Oil and Gas; processing imported crude petroleum into petroleum products, in most part for the domestic market.
[NB One key area for regulatory and practical progress appears to be – as the CIA World Fact Book once again notes – is the arena of drug production, trafficking and money laundering, Kenya's small-holder agricultural system often realistically operating at subsistence level together with its seeming loose land borders & sea border and its financial centre enabling the raising and transportation of various narcotics and the laundering of associated monies].
Kenyan Auto Sector -
The country has a total of 160,886 km of roadways, of which in 2008 11,197 km are paved and
149,689 km were unpaved, demonstrating that only 7.5% of its route-way infrastructure may be considered modern. Thus hindering the use of large buses / coaches with importantly an impact on the use of large (container and long-bed type) trucks as efficient nationwide logistical conveyors, though useful along modern routes such as the 6-lane Uhuru Highway
With slowly increased wealth car ownership has grown, with a preference for used imported Japanese products especially in compact sedans, hatch-backs, estates / wagons and SUVs such as the Mitsubishi Pajero, and aspirations of German vehicles from VW golf to BMW to Mercedes etc.
As mentioned, the 'Matatu' van has been the primary mode of mass transit for years, these vehicles passenger carrying variants of the medium sized vans produced by typically the Japanese VMs Toyota (Hiace), Nissan (Urvan), Mazda (E-series) and Mitsubushi (L300). These later joined by larger Toyota-Hino and Isuzu truck-based buses, operated on a very free-market, privateer basis, painted in eye-catching lurid paint-schemes (pertaining to music, Kenyan culture, global brands etc) and with fare-conductors soliciting for passengers as the 'Matatu' drives.
These core transit vehicles increasingly complimented by an influx of larger medium coaches that are used to serve the 'luxury' tourist and local premium markets. Tourism companies also historically used 4x4s by way of Toyota (Landcruiser), Nissan (Patrol) and Land Rover (Defender) for out-of town excursions across poor rural roads and into the Bush.
Historically given the older age of the Kenyan car parc and its essentialness to national activity the authorities were lax on vehicle emissions and safety issues, but with an increasing desire to be seen as modern and to capture revenues through vehicle non-compliance there appears to have been an increasing trend toward mass stop-checks on motorists. Whilst painful for the average motorist, taxi driver and fleet operator should result in not only improved safety and pollution conditions but also feed the Kenyan garage sector with greater 'replace and repair' jobs and so income.
Like many counterpart African countries, the low income base of Kenya (though higher than others) has historically necessitated low-cost solution-seeking and a 'make do and mend' philosophy, the arena of transport and vehicles no exception.
The country's motoring heritage dates back to 1912 when Cooper Motor Corporation was founded as importer of the Ford Model T and assembler of the eponymous Land Rover in the 1950s and 1960s, adding later brands in the 1970s, 1980s and 1990s such as VW, Mazda, Skoda, Maruti (see last India web-log), Suzuki, Iveco, Nissan Diesel (truck), and in the agricultural fold Bobcat, Liebherr, Case CE, Case IH and New Holland. Today it exists today as CMC Motors, owned by parent group CMC Holdings Ltd, and is the largest vehicle assembler and distributor in Kenya, operating numerous franchises from Range Rover to Nissan Truck. A sister division named CMC Engineering provides a range of custom designed and built truck bodies, high speed trailers, agricultural trailers, water tanks and commission items. Another division being the Accident Repair workshop which is equipped with the latest equipment in dent repair and re-spray booths.
CMC Holdings forms an important part of the 4 company listing in the 'Autos & Accessories' sector of the Nairobi Stock Exchange, it's participants being
- CMC Holdings Ltd
- Car & General Ltd
2-wheelers / 3-wheelers / power sets / white goods / garden goods / marine goods /pneumatic goods.
- Marshalls (EA) Ltd
Vehicles from: Kia, Force, TATA, Delta / Leasing / Hire / Used Sales / Parts / Import-Exprot
- Sameer Africa Ltd
Tyres from: Yana, Hankook, Firestone, Bridgestone
More recently established and at the opposite end of the spectrum, and non-listed, is a relatively new start-up called Mobius Motors. Its aim is to create a truly indigenous African vehicle using simple engineering and off-the-shelf component parts / systems. It seeks to replicate the ambiton of the previously ill-faited AFRICAR project, but using a more durable construction method of steel tubular frame (as opposed to wood) [but not true conventional “monocoque” as advertised], seemingly higher ground clearance than AFRICAR (but with similar suspension travel), and uses conventional seemingly Ford based components (as opposed to the light but fragile Citroen 2CV parts of AFRICAR). However, like the original 2CV it is intended as an affordable rural farmers' car but with greater durability and payload limits. The projects eventual success or failure will only be seen in a metter of time, but the very fundamentals of product type and basic business case strategy are highly unorthodox and to a seemingly large degree questionable, thus up against real headwinds given the historical propensity for emergent 'middle classe' consumers to buy 'tried and tested' and critically aspirationally induced used mainstream vehicles.
Beyond the passenger car realm and Kenya like much of Africa – and akin to the previous India web-log - partly satisfies its transportation needs by importing older generation* CKD (complete knock down) kits for its 'Matatu' vans; their age and import form thus being as inexpensive as possible and and having them built-up by an abundance of local low cost labour. It seems that assembly was and is undertaken by prime assembler/fabricator contractors in Kenya's industrially aligned provinces; very possibly each company seemingly taking a specific van model to build and so assist the local economy.
One such is 'KVM' in the Eastern province, 20kms north east of Nairobi in Thika.
As a privately held Limited statute company it is not listed on the Nairobi Stock Exchange, thus there is no current liquidity in its trading. But it (and no doubt many other similar companies Africa-wide) may well be viewed by present owners as offering potential in the long term as 'economic growth vehicles', thus might, be shaped to eventually undertake part-share IPO, very possibly after initial honing and shaping by private equity interests.
It is then as a case study that 'KVM' is considered here.
Kenya Vehicle Manufacturers -
The company was originally established in 1974 under the title Kenya Leyland Ltd. Start of production followed in 1976 the plant itself fitted-out to assemble and part fabricate LCVs & MCVs, specifically the Series 2 Land Rover, Series 1 Range Rover, VolksWagen T2 Microbus, and Leyland Trucks and Buses.
After what appears a busy period the 1980s saw contraction, and as part of a re-energisation initiative in1989 the company changed to its current trading name.
KVM states that since inception almost 40 years ago it has assembled 11 vehicle models, and approximately 60,000 units, the later production consisting of Nissan(s), Mazda, Land Rover Mercedes and Iveco.
The website provides an overview of operations:
- Nissan Urvan 'Matatu' (E24 model) on behalf of (French) African distributor CFAO
- Land Rover Defender – 4 variants; some stated as CKD
- Nissan Diesel Truck (MCV) Truck & Bus Build on behalf of CMC Holding
- MAN Diesel Truck (HCV) Truck Build
- SVO Dept dealing in Safari & Tour specific vehicles & adaptions
Repair & Paint of all vehicles
- All Vehicles
- “Vehicle Rehabilitation” (full rebuild)
Design & Build
- Semi-Truck Trailer Units
- Water Tanker Trailers
- Safari-Camp Trailers (for 4x4s).
- Large Tents / Marquees
- Hawker's Boxes
- Ice Boxes
- Pre-Fab Houses
- Steel (sheet & tube)
- For company employees
Vehicle Importation & Distribution
- Beiqi Foton Motor Co Pick-Up Trucks from China (Isuzu based)
Thus we see that KVM derives its income from a broad-aspect product and service portfolio, itself no doubt the outcome of past boom and bust periods, which made horizontal expansion into synergistic, complimentary and extensional realms no doubt necessary.
The following looks a little closer at some of these activities:
Nissan Urvan 'Matatu' :
This vehicle appears to be primarily supplied to the Kenyan Nissan Dealer Group D.T. Dobie (owned by CFAO) (which offers locally build Urvan and half-ton Pick-Up alongside imported vehicles). The dealer offers the Urvan starting at KShs. 2,375,000 (approximately £16,540 / $26,115).
However investment-auto-motives believes that constant 'series' production is not undertaken to feed a constant supply of demand from dealers. Instead units or unit assembly undertaken on a commission bases from fleet operators in Kenya and from elsewhere. With the common-sense probability that only when such a large order is obtained, then additional units are built for KVM/CMC inventory, thus lowering the overhead and boosting unit margins of any self-build, self-sell. However a single vehicle commission at Kshs 2,375,000 would it is imagined cover parts, labour and amortised overhead
However, it must be stated that the photos of 2 'new' vehicles as shown give cause for concern. The main vehicle pictures shows evidence of corrosion (rust) to the rear face of both front and rear wheel-arches. This would clearly not be the case in a 'brand new' production vehicle. Either the 'old stock' part was heavily exposed to corrosion before the body was welded together and not removed and treated, or a very real question arises over the newness of the van's structural shell. The area affected is recognised as being a rust-spot on high-mileage Urvans, especially those in European climates.
[NB investment-auto-motives later describes a van refurbishment business model which may be of use to KVM and the Kenyan and Africa-wide economies, which involves the re-conditioning of old vans, but critically sold as “as new”vans known to be wholly reconditioned].
However, there is a remote possibility that the company is unwittingly or knowingly acquiring old shells - or complete vehicles – shipped from Europe, where many of these vehicles have either been scrapped and sold on to exporters or stolen. The demand for new Urvans (and similar Japanese vans) across Africa could well entice a criminal network to 'sell on' vehicle shells and parts to assembler companies.
[NB Given KVM appears to hold the United Kingdom's Accreditation Service qualification this is something that UKAS should investigate, with the relevant British government department overseeing the UKAS investigation].
Land Rover Defender -
Of the 4 Defender models presented, it is stated that 3 are CKD assembly builds. However, a anomaly is that one of these CKDs – the 140 Safari Wagon – is described as a 'Kenyan designed variant', thus cannot purport to be a pure CKD vehicle. [CKD is a complete vehicle pack shipped from the VM's original factory]. Thus it appears a LWB adaption of standard CKD kit-form 110 station wagon, and should be described properly as such.
SVO Department -
This section deals with Safari & Tour specific vehicles and vehicle adaptions. Typically upgrading of standard Land Rover Defender, body customisation into wild game viewing vehicles, the widening of standard vehicles and the offering of large Overland tour truck.
To date the Tour operators who have ordered such vehicles have relied upon European and American package tourists. Since the dramatic 2008 financial collapse and subsequent recession – now extended in Europe due to 'austerity' measures – it is believed that this market for vehicle adaption would have markedly contracted, tour operators either cancelling or postponing new builds. Whilst Chinese, Asian and Arab tourists have become a new source of Safari & Tour income, the present levels and near term levels are not expected to off-set the income loss from Europeans, Americans Australians & Japanese, thus this sector of the market looks to be presently far quieter than previously.
Repair & Paint -
The previous rise in vehicle fleet operators through 2000s and rise in private car ownership seen by the influx of imported 'grey market' Japanese used cars and demand growth for Japanese, S.Korean and German sourced new cars means that the Kenyan car parc is presently a record levels.
However, the emergence of the global economic slowdown means that the previous rising tide that Kenya experienced may well slow. This in turn slows demand for new vehicles, supports the price of used vehicles and buoys demand for Repair Services from insurance companies and private pay car owners and fleet operators.
Equally, the “Vehicle Rehabilitation” (full rebuild) service should start to see a growth in demand in the mid-term, especially from specialist vehicle owner-operators such as the Safari & Tour companies as they seek to avoid CapEx spending on new vehicles and instead seek major overhauls and and refits of current vehicles. Moreover, many of these operators may decid eto re-freshen corporate logos and colour schemes so demanding new vehicle liveries to provide the impression of newness.
This division of KVM then looks set to benefit from the large and now probably re-ageing car parc.
Design & Build -
As stated, this arm deals with the production of 'Semi-Trailer' Units for articulated trucks, the manufacture of similar articulated Water Tanker Trailers and the more recent emergence of Safari-Camp Trailers (for 4x4s).for tour operators and self-discovery tourists.
The Semi-Trailer work of the company has undoubtedly developed in tandem with the governments efforts to grow the quality of main trunk roads serving major metropolitan and urban areas. With special focus on the ability to transfer with greater efficiency goods from Mombasa port inland to its light and heavy industrial areas, aswell as of course returning goods for export. Thus the large carrying capacities such Trailers offer are the natural 'scale-efficient' solution as well as meeting the typical international standard of road haulage; something well understood by KVM given its contract to erect ex-European used trailers for DHL's apparent expansion ambitions in Kenya..
Given the improved but still problematic methods for providing Kenya's people with clean fresh water, the need to produce Water Tankers Trailers – for Kenya and other nations – looks to be sustained over the long term. Whilst water supply infrastructure has improved in main cities and towns, the majority of the populace (as stated) still lives rurally, and cannot possibly capture their general domestic and agricultural requirement from either the sporadic rains or the flood vs draught periods. This then a critical non-cyclical business stream for KVM.
The business opportunity regards Safari-Trailers for 4x4s has proven itself, but as with SVO vehicles may possibly wain over the near term given the slowdown in tourist travel. Moreover, it is a segment that has low barriers to entry and so both tour operators and self-discovery tourists may be able to shop-around and negotiate discounts for those that they do intend to commission, possibly avoiding the larger players like KVM and instead using local garages to create self-designed Bush Trailers.
So. from the perspective of the Design and Build arm of the company, 2 income streams appear as safeguarded.
This appears the company's historic heart and core competence, very much reflective of the African Engineering personality, typically simple but robust. This arm deals with 3 distinct income streams:
- 'Markets Durables'
- 'State Emergency'.
- 'Open Air Gatherings'
The company supplies the basic needs of one man traders and small companies in the street market
realm with: Hawker's Boxes, Ice Boxes, Trolleys and Tri-Cycles. This income space will continue to demand items as new waves of small traders come from the ranks of cross-border refugees and the growth of small business holders employing family and friends to broaden street and market coverage.
Secondly KVM produces 'Pre-Fabricated' small houses suitable as both emergency relief shelter to serve refugees and flood impacted citizens. The reletive stability of Kenya will keep drawing refugees and the flood problems presently seem insurmountable without major national budget spend which looks unlikely. Thus both forms of income look to continue.
Lastly it fabricates Large and Medium sized “Tents” (ie Marquees) for personal and corporate gatherings and festivities ranging from weddings to award ceremonies, aswell as serving the corporate conference agenda as an inexpensive spring and autumn alternative to typical conference room hire.
Given that Kenya's population is so young, and that KVM is essentially Nairobi based, it should have been theoretically enjoying a boom period in tent rentals over previous years, this demand maintained in the present day and well into the future, a steady income base set to continue and probably grow as Kenyans grow slowly more wealthy and spend greater sums on festivities. This a similar story for the corporate sector which will seek to retain its talented staff and management by holding 'business family' type gatherings aswell as participating in ever greater conference gatherings as the Kenyan economy itself grows.
KVM highlights its eco-friendly credentials as a recycler, thus most materials across Steel (sheet & tube), Wood, Plastics (thermoplastics and thermosets), Cardboard and General Packaging are examined and either re-appropriated for another use of sold to major collection companies which in turn recycle at a far greater scale.
Like Fabrication, Recycling has always been at the heart of African nations given a history for self-sufficiency and typically low-income backgrounds. Thus for KVM and many similar others, a case of 'business as usual'.
Training Unit -
The firm states that it offers training facilities for its new staff, this then 'part and parcel' of a business model that must constantly seek-out the lowest cost labour in young and untrained, whilst obviously seeking a level of practical capability to work quickly, efficiently and with product quality in mind.
It is not known how the training unit operates, its curriculum, intake numbers , achievement / qualification criteria etc. But such a method typically captures the first-timer and has them work their way up from the basic Fabrication division on Hawkers boxes etc, into Semi-Trailers and into either Vehicle Repair or Vehicle Assembly, these 2 highly complimentary as thus able to transfer trained staff across different business operations as necessary.
Vehicle Importation & Distribution -
A more recent initiative has been the apparent agreement with Beijing's 'Beiqi Foton Motor Company' to import and distribute its (originally Isuzu based) single-cab and double-cab Pick-Up Trucks from China.
Seen in the greater context of KVM;s co-owner DT Dobie, this then allows for the introduction of a new (Chinese) Pick-Up product to ostensibly inter-fill between the smaller (old) Nissan Half-Tonne, the newer Nissan badged (Dacia Logan) Pick-up (Half-Tonne aswell), and the more expensive standard Nissan range of Pick-Ups (1-1.5 Tonne) and the Land Rover Heavy Duty (up to 3 tonnes)
Thus the Foton vehicle whilst offering little recognised brand attractiveness does offer low-priced heavier GVW and durability. It is assumed that the agreement with Nissan prohibits DT Dobie from also offering competitor produts, so the routeway through KVM already with Pick-Up history is the natural alternative for the co-owners to capture demand for lower priced Chinese vehicles.
Company Share-Hold -
35% Government owned
32.5% D.T. Dobie & Co Ltd owned (part of CFAO Group)
32.5% CMC Holdings Ltd (see above)
The company's structural share-holding suggests to have been formatted so that whilst its day to day operations and corporate strategy is commercial in nature, that the company's facilities (or rather sections thereof) may effectively be 'commandeered' by the Kenyan government in times of state emergency.
Previous Investment -
The company states that “investment in buildings and plant now stands at over US$4m”. Yet to be candid, little of such a seemingly large sum for such a relatively simple fabrication firm is directly viewable via the website. Beyond the training centre, which appears an external refurbishment of an older building, other buildings appeared somewhat decrepid, with have severely cracked concrete floors and the like.
Given that KVM operates a business model that seeks to understandably reduce outlay – thus seeks its 'contract manufacture customers' to supply all necessary production equipment (jigs etc) – one would expect the infrastructure conditions to be better, especially given its apparent UKAS and ISO 9001 standing.
That US$4m investment may indeed represent 40 years worth of on-off site improvement, or may represent the purchase &/or leasing costs of the 58 acre site itself; or indeed a combine of both. But the seemingly rudimentary conditions of the site do not reflect the ideal or near ideal for a vehicle assembly plant. Whilst it is not expected that the infrastructure or operations meet world-class standards, the ensure quality in product execution and management and employee mindsets, improvements appear to be necessary to continue attracting new contract assembly customers.
It should be noted that any future assembly efforts by Chinese VMs may very well bypass indigenous assemblers so as to maintain Chinese quality standards (themselves drawn from Japanese and European practice), by building their own African indigenous operations of far greater standard, and utilising local low-cost labour run by Chinese management. A duplication then of the usual Sino-African business model.
A website based review of infrastructure is of course overtly cursory and cannot truly appreciate the reality 'on the ground'. However, the critical challenge that KVM and its parental co-owners must meet is the demonstration that investment in infrastructure bears productive fruit, and not ends up as non-productive sunk-costs to no advantage to the firm or its customers.
KVM appears to operate with typically African business acumen, exploiting its resources to maximum coverage & efficiency whilst simultaneously running very lean using a low-cost labour force, basic equipment levels and so avoiding heavy CapEx and Working Capital costs.
Given economic roller-coaster Kenya has ridden since 1963 – like much of Africa – this ends up as the default position for many firms that must both limit exposure yet seek maximum profits to see themselves through lean periods.
Those lean periods resulted in broad diversification, today seeking income from 5 distinctly different yet wholly fabrication-centric fields.
KVM also acts as a 'core feeder' to the operations of its two commercial parents: DT. Dobie (Vans & Pick-Ups) and CMC Holdings (Trucks & Buses), aswell as serving the Kenyan Government. Possibly a case of “One Man, Two Governors”: commercial and state. Yet this may not be the case in eality where the two side of the ownership equation are justly weighted to the commercial.
The problem may be that as the 'subordinate child' to DT Dobie and CMC Holding that it is intentionally (and perhaps necessarily) exploited to support each of those companies' own profitability margins, perhaps greater onus from CMC Holdings given its public listed on the Nairobi Stock Exchange.
Any such CapEx or Working Capital 'starvation' may also have impact on what KVM states as its 'core values' : “quality through standards” and “customer & supplier intimacy” and “uncomprimised integrity” in particular, since any observations of little self-investment will undermine confidence levels.
Thus KVM must continue to seek new income streams and critically be able to re-inject such monies from old and new activities into its own future potential.
Additional Income Stream -
Matatu (Nissan Urvan) Major Reconditioning / Rebuild -
It was previously mentioned that there appears a remote possibility that old vehicles were being re-fitted and sold as new. Not an accusation but an observation of product evidence set within the African context of legal and criminal shipping activities toward African vehicle re-use and participant profitability. investment-auto-motives presumes this not to be the case with KVM but nevertheless seeks that relative Kenyan and UK authorities look into the matter.
Thus assuming it is not presently the case, there may be a opportunity for a new income stream that sees mass refurbishment of old and scrapped Urvans.
The fact that Kenya has thousands of Matatu's, the majority appearing to be Nissan Urvan E24 models, means that the company looks to have a possible additional income stream.
Given the near unlimited supply of vehicles – which in their basic form were little structurally changed during their 22 year production span in E23 & E24 guises – a seemingly feasible incremental and sizeable income stream, would be as follows. To cheaply purchase those used vehicles which have failed official test procedures (equivalent to the UK's MOT), and provide a full over-haul / re-build / re-fit to a near 'as new' condition.
The process would include: strip the vehicle down to major component parts – body shell vs mechanicals. Strip to basic shells (with glazing and dashboard intact), cut-out oxidised metal and replace with welded section, replace door skins etc as necessary; surface preparation and re-paint of all exposed exterior and interior metal surfaces; re-condition of engine, gearboxes, suspension and all piping and cabling as necessary, application of late-model front face headlights / grill / bumper and general re-fit to required variant type. This would span the following and no doubt more: Matatu bus, school bus, corporate van, authority agency van, tradesmans' van, ambulance, fire truck, army vehicle etc etc.
Thus whilst the city-based Matatu's are replaced with either younger vehicle models from S.Korea and China to maintain operator attractiveness in the highly competitive trade. The 'as new' models can be used for rural route Matatu's, as school and college mini-buses and by various government agencies etc.
KVM is undoubtedly a fascinating business which reflects the character of the country and continent. Its central competency and need to diversify demonstrates its ability to match market forces with internal vision, capturing opportunities across varied market arenas and income streams, from the national commercial imperative of HGV trucks suited to improving roads, to the needs of those at the bottom of the socio-economic pyramid seeking to earn a living, to the celebratory aspirations of a young nation seeking better new tomorrows of their own.
However, the apparent shortcomings of the firm, from this very shallow and brief review, have been made clear and should be addressed by its 3-way owners of CMC Holdings, DT Dobie and the Kenyan government if the company itself is not to be overtaken in its core assembly competances by the well entrenched Chinese seeking price-based entry and later possibly Japanese and Europeans that seek to replay their own South African growth play as Kenya itself develops.
Kenya as a country, whilst notionally industrialised is so at a very low level, still obviously reliant upon agriculture, subsistence farming and relatively low-value commodities orientated exports.
Thus itself appears stuck between the ideals of an ambitious future – as were previously relayed during its period after Independence – that of an an African lead country, and the realities which see it stuck in a virtuous circle where immediate fiscal needs or desires of many are met through more nefarious dealings through corruption and the drugs trade.
Yet as ever, there is a far better future for all if it can be created by government, commerce and foreign interests.
Kenya itself has high literacy rates compared to the rest of Africa thus showing educational ability and possibilities, it has a major population swell of young people – its average age being 19 years – thus highlighting both a pressure and opportunity to enable personal and economic development,
This socio-demographic pressure approaches the 'neck of the Kenyan bottle' represented by high unemployment, a heavy bias toward very low value agricultural labour, and at the administrative and commercial level a proven propensity to turn a blind eye to matters of corruption. As that pressure grows so the potential for social unrest heightens and as a result an unwillingness by international markets and governments to invest in a teetering or unstable country.
Thus the age old 'African problem' persists.
Botswana has been able to produce a turnaround in fortunes thanks to the increasingly ethical exploitation of its diamonds. Kenya, like many other countries, is not so fortunate to have such a high levels of mineral wealth ready for extraction, but it has a diverse, cosmopolitan and young population, high literacy rates and obvious increasing educational focus which should underpin a more successful future.
Whilst the 2010 'African' World Cup gave joy in a soccer obsessed continent, the old phrase “give them bread and games” will not suffice into the 21st century. This new era of 'emerging country' prominence means that Kenya's leaders must be as successful in pro-actively placing Kenya strategically within the broad international context to vastly improve its competitive position, as the likes of the BRICs and 'Next 11' (including Nigeria) have done.
A key path by truly investing in its auto-sector and associated industries.