The Great Wall is a series of stone and earthen fortifications stretching from Shanhaiguan in the east of China to Lop Nur in the west. It was built as early as the fifth century BC to protect the Chinese Empire’s northern borders against intrusions by various nomadic groups but, since the unification of its empire, China has been keen on keeping things in rather than out.
This is particularly true of its fledgling auto industry: while China has in recent years become increasingly economically open and democratic, and despite a recent shift in focus to large-scale exports of its home-grown products, China remains wary of venturing beyond its borders. Economic growth remains one of the Chinese government’s top priorities, with the manufacturing base at its core and, since most Chinese automakers are government-owned, very few have established themselves as true multinationals.
This makes the recent announcement by Imran Moola, director of CMC Auto, on the East Rand-based company’s intentions to build a US$1-billion (R7 billion) vehicle manufacturing facility in Harrismith in the Free State, all the more intriguing.
Since 2008, CMC Auto has been importing numerous commercial and passenger products from China and its product offerings include a 16- and 15-seater taxi (called the Ses’buyile and Amandla) as well as Plutus pickup. It has 40 dealerships nationwide and a 10 000 m2 parts warehouse in Gauteng – carrying spare parts to the value of R50 million. CMC Auto clearly has lofty ambitions, but if this is a bridge too far remains to be seen.
The company plans to break ground in Harrismith before year-end and production should start in 2015. The medium-term goal is to produce 50 000 units of its pickup and taxi products per year in order to qualify for automotive production and development programme incentives. The project should create around 2 500 jobs and will have positive spill-overs for component suppliers and logistic companies in the area.
Of course, there is no reason for a Chinese company to not set up a manufacturing facility in South Africa or anywhere else. While Chinese imports are relatively cheap at the moment, this will probably change with time: the country’s currency is getting stronger and labour costs as well as inflation are on the increase, which will make Chinese products less price competitive over time. Moola suggested that this will see more Chinese companies looking for greener pastures outside its borders.
That said, Moola was quick to point out that this project will remain a South African initiative. “We will utilise Chinese technology in order to acquire the skills and expertise needed, but while we will be producing Chinese-based vehicles, it is our intention to build a South African brand – with South African money. We will use locally-made CMC products as an entry-point into the market.” The company plans to manufacture or source most of the required components locally and, despite not being able to comment in detail on this at the time, are confident at acquiring the necessary funding.
But, there are reasons to be sceptical and prominent industry commentators have been very vocal in the media regarding the project’s feasibility and choice of location – predominantly citing a major stumbling block as being the lack of a feasible market for Chinese vehicles in South Africa.
Surprisingly, Moola agreed but remains upbeat. “We are in the final stages of a feasibility study and all seems positive,” he added. “Yes, the South African market is very limited, but we see great opportunity in the medium- and long-term. We currently operate in north, west and east Africa and Chinese products do very well there, despite the strong challenge of cheap used imports from Japan. We are aware that the current opportunities may be limited, but we have a long-term vision and the market will have changed drastically over five years,” added Moola. “Africa offers great opportunities and the proposed Cape-to-Cairo free trade area, potentially incorporating 26 countries, shows that the potential for growth in Africa is unbelievable.”
Exports form a large part of CMC Auto’s plans as the production of both left- and right-hand-drive vehicles is planned, opening up further opportunities to export to South America. Clearly, Harrismith’s proximity to the Durban harbour helps.
That said, the plant’s intended location in the Free State has been criticised. It is, for a lack of a better description, in the middle of nowhere. But, according to Moola, it’s logical. “Harrismith is located on the busy N3 highway and is almost an equal distance from Durban and Johannesburg. It is close to the borders of several provinces and is located near the middle of the country, which aids distribution and access to suppliers from areas other than Gauteng.”
The town also has an IDZ (industrial development zone) and government is keen to develop the town as a logistics hub in order to alleviate poverty in the area through job creation and investment. An IDZ may offer incentives in order to attract invesments such as this. A massive investment such as this may also alleviate the affect of the proposed new national highway running from Durban to Johannesburg that will bypass the town.
The office of Thabo Makweya, CEO of the Free State Development Corporation (FDC), said that they were “very pleased” with the proposed plans as it will have a major impact on the province’s and town’s economic and social position. According to Moola, negotiations between CMC Auto, the FDC and the Harrismith municipality are ongoing. “We have the ground we need in Harrismith, but negotiations regarding services are still being held.”
Moola also confirmed that the East London IDZ has made a proposal for the production facility to be based in the Eastern Cape. The East London IDZ could only confirm that it is their mandate to try and attract investment opportunities to its municipality.
CMC Auto’s plans are clearly ambitious. If it works, it represents a major shift (and an even bigger first step) for the possibilities of Chinese vehicle manufacturing in South Africa and Africa. If it doesn’t, R7 billion is a pretty large white elephant…