Chinese manufacturer to use Coega as base for African expansion

Chinese government-owned vehicle manufacturer First Automotive Works (FAW) has started construction on a R200-million completely knocked down (CKD) medium to heavy truck assembly plant in the Coega Industrial Development Zone. Speaking at the official signing ceremony, FAW chairperson Jin Yi said the deal had been sealed through incentives offered to the Chinese manufacturers by both the Department of Trade and Industry and the Nelson Mandela Bay Municipality. FTW was unable to obtain more information on the incentives. What can be gleaned from the official information released at the signing is that the plant will benefit from the Special Economic Zone (SEZ) tax, employment and training incentives announced by finance minister Dr Rob Davies. This would mean the creation of an SEZ within the Coega IDZ. When the first vehicles start rolling off the assembly line in 18 months’ time, the plant will be one of the only CKD truck assemblers in Africa. Kenya has an assembly industry as it has prohibited the importation of medium and heavy-duty commercial vehicles with a 3-ton or more load capacity unless they are completely dismantled and contain no components that may be produced locally. FAW will not be sourcing components in South Africa initially for its planned production of 5 000 units a year, but is looking to develop the industry, according to Yi. Speaking at the ceremony, he described South Africa as the “Gateway to Africa,” and said that the new plant was a “critical component” of FAW’s global strategy. While much of the African heavy and medium market is dominated by secondhand imports, the window of opportunity that FAW may have identified is that it is becoming increasingly difficult and costly to source Euro 1 and Euro 2 diesel engines capable of running on the high sulphur content fuels still found throughout the African continent. Auto industry sources tell FTW that China faces similar challenges outside of the main cities. FAW is therefore likely to continue manufacturing the older technology engines for its own and emerging markets, and Euro 3 and Euro 4 power plants for South Africa and other markets where emission levels have been gazetted. This will put it in a strong position in markets currently dominated by European and American manufacturers, which are phasing out the production of the older technology engines. When pushed on local value add, Li said South African companies, engineers and workers would build the new assembly facility, which will cover a total of 10 000 sqm of land in the first phase. This is in contrast to other Chinese projects FTW has seen elsewhere in Africa, where workers, professionals and materials are all brought in from China. Li also said that the majority of the 500 people working in the plant would be South African. Another 30 000 sqm has been reserved for subsequent production of light commercials and cars.