The Tyre Industry in East Africa

The global economic downturn has had an adverse impact on the growing tyre industry in East Africa...

T he tyre business in East Africa is undergoing a major transformation as the demand-and-supply equilibrium has been disturbed by the recent global economic crisis which continues to have a huge impact on the tyre industry in Kenya, Uganda and Tanzania.

The rising demand for tyres in Africa has led to stiff competition between tyremanufacturers from all across the world seeking to garner a major share of the market for tyres in the new and emerging African markets. Traditionally, European tyre manufacturers had had a monopoly over the African markets and many European brands were top selling tyres in many African countries.

However, in recent times, European tyre firms are beginning to loose ground to Chinese and other Asian brands in many emerging markets not only in Africa, but around the world. Chinese tyres are gaining popularity in several African markets. Many developing countries, specially in Africa, are price-sensitive markets and prefer to import 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.

“Many tyre manufacturers shut down their plants during the financial crisis and so are playing catch up even today,” says Micky Bassi, a director at Tyremasters Limited, a Kenya Top 100 company. “Supply is still way behind demand and with manufacturers unable to cater for everybody, we have to be careful and plan way ahead to ensure we get the supplies we need.”

Kenya’s leading tyre manufacturer Kenyan manufacturer, Sameer Africa, has been importing tyres from China to meet a strong demand for low priced products in the East Africa market. The company also installed a light truck tyre assembly machine recently and also increased capacity. “We were not making enough money from our tyre production unit so we borrowed to finance the importation of tyres that we don’t make” said managing director, Eric Kimani.

The Chinese brands imported by Sameer Africa include Dyna and Triangle. “The tyres are affordable but very durable. When we import we don’t just bring anything, we buy quality,” he added.

Usually, it takes 90 days for confirmed shipment to arrive in East Africa from suppliers overseas. Sometimes it takes as long as six months and the company doesn’t always get what it wants. “Tyre manufacturers were hoping the situation would stabilise this year but it didn’t happen,” says Bassi.

The increasing demand by China for raw material is another challenge. The country’s need for steel, which has starved other markets, is seen in rubber as it buys huge qualities of the commodity. Piracy in the Horn of Africa has resulted in ships using alternative routes and incurring higher insurance costs, which are passed on to clients. All these factors have contributed to the escalating cost of tyres.

“At the moment tyre prices in Kenya are changing every 15-20 days. We can absorb small price changes but a level reaches when we have to pass on the increasing cost to consumers,” says Bassi. “This upward trend is expected to continue until worldwide supply stabilises.”

Tyremasters has been in the business of selling tyres (both retail and wholesale) since the 1980s. The company started out as agents for Firestone EA, which dominated the market at that time. Eight years ago the company became agents for Cooper Tyres, a popular American brand. Today, it has a large portfolio of brands including those from Sameer Africa (Yana, Bridgestone, Dunlop and Hankook), Michelin, Goodyear, Pirellli, Apollo, Kumho and JK tyres.

Liberalisation of the industry in the 1990s created a huge market for grey products – imported tyres that enter the market without paying import duty and tax thereby making them cheaper. Tyremasters has survived by maintaining uncompromising quality at an affordable price backed up by good service.

The company’s client mix includes walk-in clients, corporates and commercial vehicle owners. The bulk of its revenues come from commercial tyres and light truck tyres especially Sameer Africa brands.
“These tyres are popular because they are geared to local road conditions and perform well. The 4×4 range of Cooper tyres are the next most popular,” says Bassi.

The company, which has 18 employees has six agents in various towns in Kenya and two in Arusha and Dar es Salaam in Tanzania to cater for its clients in the East Africa region. It is also trying to increase its presence in the Uganda market.

In 2006, in a significant all-cash overseas deal worth about US$80 million, the board of directors of Apollo Tyres Ltd (ATL) approved 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 US$ 726 million ATL to secure a toehold in the fast growing Africa region and also a strong presence in the South African tyre market.

Besides the benefit of superior radial tyre technology, the acquisition would also enable the domestic tyre major to access the European market through the distribution network owned by the $200-million Dunlop South Africa.

By virtue of the equity buyout of Dunlop South Africa, ATL would get to control Dunlop Africa Marketing UK (registered in the UK), which is a 100 per cent subsidiary of Dunlop South Africa and also the holding company of Dunlop Zimbabwe (which owns the Zimbabwe facility).

Dunlop South Africa had 3,000 employees, two plants in South Africa (each 75 tonnes per day) and one plant in Zimbabwe (35 tonnes per day bias tyre facility of Dunlop Zimbabwe). At present, ATL’s capacity in India is about 750 tonnes per day!

Sarkar said that ATL has no plans of making any changes to the management of Dunlop South Africa. Moreover, the existing brands of the acquired company would be continued.

Prior to this transaction, financial investors (comprising mainly private equity, individual investors and some holding by members of senior management) owned Dunlop South Africa.

Sarkar expressed confidence that all regulatory approvals would be received easily. “As far as India is concerned, we have to only get a post-facto approval from the Reserve Bank of India as the transaction is lower than $500 million. As regards the South African Competition Commission, we don’t foresee any problem,” he said.

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.

 

Business Contacts for Importers in Africa
	Abdul Hadi Trading All kinds of Tyres, Tubes for trucks, trailers, passenger cars, forklift tyres, solid tyres, pneumatic tyres, offroad tyres, agricultural tyres. Supplies many Chinese, Korean and Indian tyre brands...
	Bagader Trading Est Supplier of Tyres, Tubes and Batteries in Dubai. GT Radial, Chengshan, Starfire, DoubleStar as well as Rocket Battery, Tokyo Battery. Also supplies Korean Tubes of all sizes...
	BBG Trading Exporter of Chinese and Korean tyres and tubes to many African markets. Major brands include Westlake Tyres, Good Ride Tyres, Hankook Tyres, Chaoyang Tyres...
	Infinity Tyres Exporter of Infinity brand of Tyres to Africa for Passenger Car Tyres, Light Truck Tyres, Bus Tyres, Agricultural Tyres, Industrial Tyres, OTR (Off-The Road) Tyres...
	Abdul Zahir Bashir General Trading A major exporter of tyres, tubes, batteries and lubricants to Africa from Dubai. Deals in several popular brands like Double Star Tyres, Triangle Tyres, Rock Stone, Crown, Sonar, Durun, Ling Long, Three A. Also deals in popular batteries like Platinum, SBK, Mustang, MF Power etc.
	VRB Trades FZE Importer, exporter, wholesaler and stockist of a wide range of Indian, Chinese and Korean tyres. Has been a leading supplier of tyres to many African markets...
	Zafco One of the largest suppliers of tyres, tubes, batteries and lubricants in Dubai dealing in popular brands like Toyo Tyres, Otani Tyres, Zeetex Tyres, MRF and many more. Leading exporter to Africa...