(This is a transcript of the podcast posted on Monday, July 26th 2021. You can listen to the podcast by clicking on this link https://open.spotify.com/episode/763m3ERbbWqL8htciEi7qI?si=nh0QyguqSeezi9WVFVIdrg&dl_branch=1&nd=1)
A very warm welcome to this edition of Mansa’s The Weekly Beat I’m Arnold Sagawa, joining you from Johannesburg in a very, very cold winter snow in the Eastern Cape. Everything you would have thought Santa came with, only in July as always. I’m not alone. I’m joined by our resident not to say panelists, but they’re discussion co-hosts. Dumi Jere also in Johannesburg I’m hoping is very warm and Maggie Mutesi, half the time I’m not sure where she is. Maggie, happy birthday. Let me start with you.
Thank you. I feel so special.
Thank you Arnold. I can’t believe you keep saying this half the time, “You don’t know where I am.” I’m in Nairobi.
Oh yes. And the other half you’re traveling this very beautiful continent that the rest of us are yet to actually traverse. Dumi, how is it going? How’s it going in Jacob Zuma land?
Nah, it’s going alright. The vaccine is gathering more steam now. So that is very, very good. And I think there’s been lots of good reception from the 35 year-olds to the 49 year-olds, because that’s the code that’s getting vaccinated in South Africa now. So yes, a lot of uptake on that. So hopefully South Africa’s vaccination program will show positive results going forward now.
Obviously for some of our listeners who might not be cognizant of the whole vaccine rollout, South Africa has been cutting the ages. Obviously starting from 60, then 55, then 50, it’s been kind of an age driven program. And now they’ve reached the 35 age bracket that some of us are not yet in, of course, me and Maggie.
But today’s not a day to delve into a vaccines. And let’s take it a bit up north to Ghana where just a few weeks ago, Toyota actually launched auto assembly plant in the country in less than a year. And President Nana Akufo-Addo actually looks like he’s getting things done away from attacking other sovereigns. The assembly unit is close to $7 million with an annual production capacity of around 1,330 units.
This following of course, Volkswagen. They also have a plant that’s about 5,000 units per day that was launched in August, 2020. Maggie, you’ve been around East Africa. Ethiopia has a few plants, Chinese plants. Rwanda, Volkswagen. Just give me your 2 cents on this particular development.
I think it’s always a very good development, especially when it comes to manufacturing. For a continent that talks about opening up its markets, there’s going to be factories, industries to leverage on. We can’t talk about opening up when we have nothing to trade. So it’s a good step. Nevertheless, the question is usually, are we ready for such massive infrastructure?
It’s great to see Toyota opening up. In the past, like you’ve mentioned, opening up in different markets in Rwanda, Kenya, and South Africa. They invested about $20 million in 2018 in Rwanda. Now I feel like it’s the same model, assembling cars, but I don’t know in terms of return on investment or in terms of creation of jobs and all of that, that sustainability and how this really works.
Now the Volkswagen plant in Kenya for example, where I am, was massive when it was launched I think in 2016, right before Rwanda. And it’s a plant that even when we’ve covered the news, you could feel like, okay, this is a game changer. Until now I don’t know how many people really drive Volkswagen. So it’s a great, great, great investment, but is it realistic?
The African market I think is probably waking up and showing its true potential. And like Maggie’s saying, that’s why we’re seeing the VWs, the Nissans, the Toyotas, the Hondas, the Peugeots and so forth, even I think GWM, I think it’s called from China. It’s showing Africa’s potential essentially because these markets, the car sales market has predominantly been dominated by used car sales and Ghana is not an exception.
Like in most African countries you’ll see a variety of used Japanese cars, some still working well, some not so much. So the launch of this Toyota plant in Ghana will likely reduce inputs of secondhand vehicles, in so doing it will boost the export earnings. How far this will actually materialize? We are not sure at this particular point, but we always try to take a positive view and we are choosing to say, it’s going to boost the export earnings, it’s going to make sure that the foreign currency that is usually used to buy the secondhand cars from Japan and U.K. and all those other countries will stay in the country and be put to use for other things.
If a Toyota is able to manufacture good reasonably priced cars, then I think it will be a very good game changer in the country.
And I have a question though. I really want to understand this and I like that Dumi you’ve brought it up that there’s lots of secondhand cars across the continent. When such plants are set up is it really for export or for local consumption? Because also we have to really understand that these cars assembled within the countries are not the cheapest. In fact, they usually cost much more money than sometimes importing in a car for example, from Japan. Is it really affordable?
Let me give you an example. So I’ll say that, I mean, obviously in South Africa there’s a BMW plant, a Mercedes-Benz plant and so on and so forth. So how usually some of these things work is that say the Mercedes-Benz U.S. market, they will put out a request to say they want maybe a certain model of a Mercedes-Benz. Maybe I don’t know, let’s call it a C200. Yeah. Then the different countries where there are Mercedes-Benz plants across the world, they will sort of bid to then say, we can produce that much.
Then when you then go to the plant in Port Elizabeth, in Gqeberha, it’s no longer Port Elizabeth, they’ll actually be producing cars that will be destined for the European market or the U.S. market. So you will get there and you see at the port it’s left-handed cars that are being loaded, lots and lots and lots of them.
So that tells you that obviously they were not producing for the local market. Maybe for that production line, they were just specifically targeting the foreign market. So if we take it to the Ghana example, because Toyota will be there, then that probably means that Toyota could actually then be to produce some of the cars that will go for other export markets. In turn that will then earn that country some foreign currency, I mean yeah, from those exports.
So when we’re talking of exports, I think that’s where it fits in. But like I mentioned earlier on, if they’re able to also bring certain other smaller models that are reasonably priced and can compete with the Japanese cars then it makes a bit more sense. But to say they’ll keep a production line at the high end, for example, Toyota Land Cruiser, and hope that they’re going to service the Ghana market, not necessarily.
I mean Dumi you do raise as well some interesting points there. And this brings me to Rwanda. We remember when Volkswagen actually opened the plant in Rwanda, the VW plant. I mean, they were not making the Tiguan and the high end Volkswagens, they’re not making Passats for that reason. They went in with a relatively priced Volkswagen and still one would have thought these are being pushed out across the country, across Eastern, Central Africa as the plan would have been. But I mean, correct me if I’m wrong, still these cars are relatively more expensive. Maybe you could just touch on that.
But didn’t I see them the other day pivoting to now electric tractors? The other day I think I saw something along those lines. Cars are not working and Africa is an agricultural continent. Now-
Well, this could actually go on for another 30 good minutes, but I want to touch on the trade aspect. My biggest issue with some of these plants is really on one side, I’m sitting on the fence because as opposed to opening up a plant that assembles when the rules of origin are very, very clear, this car will never be made in Ghana. Why? Because over 60% of the car is actually just hold in, the engine blocks and this is a problem that Morocco had.
Still if these calls are not being actually made like the essential competence, then the rules of origin just do us no good. Still a car would be assembled in Ghana or in Port Elizabeth as maybe that the name changed, it still shows that it is a car made in Germany or in Japan. Isn’t it better for us to actually address the issue around spare parts and as they call it in technical lingo, that would be around well, the ITC, the international trade organization, we’re looking at close to HB805 I think if I’m not mistaken.
Isn’t it better for us to actually address that as opposed to looking at 708, which is the component for trade as opposed, which is spare parts, because these would be actually registered as made on the continent.
I think you raise a very important point Arnold and in perspective of trade, or even as Africa really opens up, I just feel like we are opening up to the rest of the world indirectly, while directly thinking we’re actually opening up to the rest of Africa because our manufacturing capacity is really low. And it’s one of the things for me that really lingers a lot. If we still want to trade with each other, what are we going to trade when barely nothing is made on the continent? It’s either assembled or either imported in and then sent to different markets.
Like you’ve mentioned, even the assembly cars. It’s a good thing. I feel like for me Ghana is really an exciting place, opening up to different big companies, startups like Twitter. And now the assembling plant, but again, like you’ve mentioned, it’s not going to be made in Ghana. It’s going to be assembled in Ghana. And that, for me, I feel like it takes away our potential to negotiate, to say, it should not just be a symbol. It has to be made here, but maybe there’s a starting point, but yeah, I just feel like the rules of origin, even though the AfCFTA is one of the biggest components that countries like Nigeria were very skeptical about. And it’s something that really needs to be re-discussed deeply.
Okay. So I think that’s on the one hand. I think a different angle though would be to say, perhaps it results in quality job creation, right? Because when you look at the world, the world is a global place, right? So at the end of the day, as a business person, you look at where are the costs lower for me to actually be able to manufacture something. Okay. So if I’ve got, say for example, let’s say I’m in IT, right? And I’m looking for a developer and a developer in South Africa is charging me $40 per hour, but one in Philippines is charging me $8 an hour.
If I give the job to the one in Philippines am I really exploiting that one, or I’m just going with where it’s lower costs for me? So maybe Africa’s costs are just lower and these companies are seeing that. And that’s why they are now putting their plants in Africa and saying, okay, let’s put it there. The labor force is probably lower. The cost is probably lower vis-a-vis Europe or America and so forth. So bit of a catch 22, I guess. Arnold?
I think going forward we need to address this from a trade perspective. And that’s where my lovely friends at the African Union come in, who I think are just enjoying the amazing view of Addis. Because until we address the issue of the rules of origin, this is a problem that the likes of Peugeots worked with the Morocco’s of this world. North Africa is actually looking very good because all they have to do is cross the Mediterranean and guess what? They’re in Europe. So they are actually producing cars for the hugest European market.
But there conditions are very tough. You’re giving questions like is the engine actually made in Morocco or not? If we’re to say, okay, jobs have been created, what kind of jobs are being created? It’s like opening up a huge, huge, you know, a hundred floor building in a country. And then you say that, oh, we’re giving jobs to janitors, people who will clean, but all the technical expertise it’s actually going to the same people who were your colonialists to start with.
So until engines are made, until carburetors are made, until direct injectors are made, because guess what? It’s almost impossible to make a car without having different components from other people who are actually outsourced. So until we get a piece of that cake, I don’t think we’re winning because at the end of the day, you’re going to ship in whatever you need, a steering wheel from Kazakhstan, leather seats from Gqeberha, you’re going to get an engine from Toyota itself, which up to this stage is not really able to actually share some of this information and guess what? All we do we’re the janitor, we’re the guy who just assembles, put this and the other together.
I don’t know if we’re adding any skills to our continent, which let’s face it has a median age of close to 18 years. So many questions there at the end of 40 years of assembly all we will know how to do is replace wipers, but that’s just my 2 cents.
Ladies and gentlemen let’s leave it there. We have run of time. As always, if you missed anything in the course of the day, just visit the website for Mansa, mansamedia.africa. On Twitter we are @mansa_media. From me and the entire gang, have a lovely week.
The Weekly Beat by Mansa with your hosts Arnold Segawa and Maggie Mutesi and Dumi Jere, giving you all the info on Africa’s big finance and economic stories, The Weekly Beat by Mansa.