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The Chinese plan for Coega

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An investment of R11-billion by Chinese manufacturer Beijing Automotive Industrial Company to build vehicles at Conga, near Port Elizabeth, represents the biggest single outlay ever in the local motor industry. David Furlonger reports

Diplomacy can be a tortuous process. The right people must be acknowledged in the right way, with the right words, and in the right order. There can be no short-cuts.

Hence the programme at the recent sod-turning ceremony for the R11-billion green eld Chinese vehicle manufacturing plant in the Coega industrial development zone, near Port Elizabeth, saw every Chinese and South African government official – whether national or local – scrupulously recognised by every speaker. So, too, were representatives of the two shareholders – Beijing Automotive Industrial Company (BAIC) and South Africa’s Industrial Development Corporation (IDC).

Each speech, in English or Mandarin, was then translated into the other language – sometimes phrase by phrase but occasionally in 10-minute blocks.

When it came to official photos of the sod-turning itself, the same determination not to cause offence was on show. So many people were given shovels and asked to turn over the earth that onlookers wondered if, left alone for a couple of days, they might not be able to dig the foundations for the entire 48-hectare site.

Still, this was an important event. In straight cash, the R11-billion is the single biggest investment ever in the local motor industry. In real terms, of course, BMW, Ford, General Motors, Mercedes-Benz, Nissan, Toyota and Volkswagen have spent considerably more down the years. But BAIC becomes the rst mass-production newcomer for over 40 years.

Other companies that have set up assembly operations since then have been truck and bus companies producing limited numbers and relying primarily on imported kits rather than building from scratch.

The BAIC plant, in which the IDC is a 35% shareholder, is the Chinese company’s rst full-scale vehicle manufacturing operation outside China. It will eventually have annual capacity for 100 000 vehicles.

The first phase of the Coega project will see R4,2-billion spent on getting to 50 000 units by 2022. The remaining R6,8-billion investment will aim at raising that number to 100 000 units by 2027. The plant will start with small cars, add sports utility vehicles (SUVs) later, and then eventually build one-ton pick-ups, or bakkies.

But will there be demand for that many? Officials say the plan is to sell about 40% of production in South Africa and 60% to export markets, mainly in Africa.

State-owned BAIC is a significant player in China, where its foreign partners include Hyundai and Mercedes-Benz. But the international reputation of Chinese companies’ own products – rather than those of their partners – is not encouraging. Just as Japanese and Korean car brands overcame early misgivings about their quality, few doubt Chinese companies will also eventually take their products up to world-class standards.

The question is: when? BAIC intends to begin commercial production of cars at Coega in early 2018, so it needs South Africa’s car-buying public to know and trust the brand by then. The company has begun importing vehicles to the country and these will go on sale by the end of the year.

A dealer network, initially comprising 25 outlets, is being established nationwide under the guidance of John Jessup, former head of sales and marketing at BMW SA and Nissan SA. He is supported by Johan Kleynhans, with whom he worked closely at both companies.

The main export targets, predictably, will be other African countries. BAIC of cials say they will set up sales networks across the whole continent, not just in sub-Saharan Africa. Other export markets are being considered but, at this stage, there is some uncertainty about which they are. Some of cials identify Australia and South America, others say these are not on the radar and that the Middle East countries are more likely.

However, there does appear to be unanimity on selling to the European Union, where locally-built vehicles enjoy duty-free access as long as a minimum 60% of their ex-factory value is sourced from South Africa. BAIC’s R11-billion outlay includes the creation of a components supplier park near the new assembly plant but, as other motor companies will attest, it takes time – possibly years – for local content to reach target levels.

Chinese officials say they are fully aware of short-term challenges – including the fact that Coega will enjoy only limited support from government’s incentives-driven Automotive Production and Development Programme (APDP), which launched in 2013 and runs to 2020.

In order to access the full raft of bene ts – including a refund of up to 30% of the investment – BAIC needs to build at least 50 000 vehicles annually. Until it does – which means 2022 at the earliest – it will get only a percentage of incentives.

An official says: “We have known this from the start but we are not taking a short-term view. Coega is a long-term investment in South Africa and Africa.”

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