Monday, December 14, 2015

NOW WE ARE GOING INTO CAR MANUFACTURE? #SMH

Last week the Kiira Motors Company (KMC) unveiled their 25 year old business plan.

The company which started as some engineering undergraduates tinkering around resulted in the development of the Kiira EV prototype, a car that runs on electric power in 2011. According to the business the planned car assembly plant will employ up to 10,000 people, is projected to be profitable by 2023 and at full capacity in 2039 will be rolling out 60,000 units.

The project will be developed by Makerere University and the government.

You will forgive me if I do not share the same enthusiasm for the project as its promoters.

When the Kiira EV was launched I struggled to put the development in its place in the wider context of Uganda. It was a great achievement for the students and their supervisors without a doubt. I wondered whether maybe they could license the process to someone else. Then disturbing noises started about how we are going to commercialise the concept and even build buses.

Disturbing because whereas the car may have passed muster technically, it did not mean the market will embrace it. It was hard to even get a price of how much a Kiira EV would cost on the road.

So when last week the promoters revealed that KMC’s cars would go at $20,000 (sh66m) I had to pinch myself.  I would have dismissed it as a bad dream were it not for the fanfare that surrounded the business plan’s launch.

Let us start from first principles.

Despite the congestion there are less than a million cars on Ugandan roads today. Easily nine in ten of these are second hand cars bought for less than $10,000. Most if all of them bought cash down.

For years the dealers of brand new cars have tried to bend government’s year towards making new cars easy to buy. They suggested more taxes on second hand cars, relax conditions on asset financing, to name a few. Government made some concessions here and there but nothing to get the new car industry flying.

These concessions pale in comparison with what KMC will demand to be a viable enterprise. Already it was reported that the land and infrastructure required will cost $36m (sh120b).

Concessions are necessary to make the car affordable, a $20,000 car in Uganda would be dead on arrival, setting 2023 as a breakeven date would have to be taken with a tablespoon of salt.
And if you can’t sell the car locally do we believe we can compete abroad?

"Secondly, as a country we have neither the comparative advantage --  that we can make cars better than any other product, nor the competitive advantage --  that we can make cars better than other people, which is a red flag for the enterprise. Both conditions are not insurmountable but at great cost and without guarantee of success...

Essentially, we will have to deny much needed funds to social services and infrastructure development to indulge in this adventure and after we have poured in millions of dollars, only to find that after all, we cannot make a commercial success of it. Ask the Kenyans.

And finally and connected to the last point is, is the push into car assembly the best use of our hard earned cash? Wouldn’t we be better building more roads or dams, whose outcomes would have a more far reaching effect on the economy?

One can argue that the car assembly industry would be a technological leap for us and would throw off many more industries that would have wider applications like electronics, metallurgy and upholstery. But advances in technology and supply chain management suggest that to make the industry viable the plant will require fewer than the 10,000 workers suggested and most components will be sourced abroad.

Indian industrial conglomerate, Tata in 2008 started producing the Nano car, a small energy efficient, inexpensive car with a $2,500 price tag. They thought the 30 million middle class would lap it up. They are still waiting. Initial indicators were that the car was too expensive, being more costly than a motorcycle so they stayed away.


"I would love to be wrong on this but whichever way you look at it this project has no wheels, is a whacky distraction from more serious priorities and can only be justified as a vanity project – until it doesn’t work...

5 comments:

  1. Paul I share your sentiments, but guess we are not in sync with the great brains. I just think this project is one other way to make money like the matooke project. But lets wait and see.

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  2. Michael my sentiments exactly. These are projects best left to the private sector, support them if you will but let them face the market if they fail the fold. the problem is this one may fail and we keep throwing good money after bad for other reasons than economic

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  3. Hi Paul,you are on the money. A great piece. If I had my way I would lock the promoters of this project in a room and tell them to come up with an invention of a hand held tractor to substitute the hoe and promote the agriculture sector. A simple cost effective mechanized hand held tractor that can be shared by small scale farmers in a cooperative society or farmers association. In this way we shall take the how to Uganda Museum as an exhibit of how Agriculture was done in the 20th century. In this day and age there is no need to re-invent the wheel. India and China have something that can be replicated here. China is the world's second biggest economy partly based on copy and paste. I have bumped into the promoters of the Kiira car project and there is a lot of show BIZ. I honestly wonder how they make it to front page news! Our society is easily swayed by populist sentiments. We should focus economic growth on sectors were we have a competitive and comparative advantage and let the Japanese of this world do the vehicles. Import substitution should be done in a SWOT and not out of rural-urban excitement as the promoters of the Kiira car project. At this Raye after manufacturing the car, are they going to send the first Ugandan to the moon in a Ugandan build space craft?Kiira 1 copied from Apollo 1. Cry my beloved country!

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  4. Paul thought my identity was automatic. Above comments from Daniel Karibwije

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