The imports have caused a sharp increase in the company’s debt portfolio as it borrows heavily to pay invoices, bowing to increasing competition from Chinese brands.
Although the company invested Sh91.9 million to upgrade and increase the capacity of its Yana tyres production unit last year, it borrowed Sh722 million in 2007 to import tyres.
Yana, still struggling to a find a footing in the local market since its name change from Firestone, has been facing stiff competition from Bridgestone, Dunlop and Hankook – all imported by Sameer Africa. Other brands such as Yokohama are also offering competition to the locally produced Yana.
The company’s new source market is China, considered to offer low cost tyres owing to its efficient production units and cheap labour.
“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 the firm’s managing director Eric Kimani.
But the benefit goes to the Far East country. China, which consumes a fifth of the world’s rubber production, is also responsible for the dumping of cheap tyres in Kenya as well as Common Market for Eastern and Southern Africa that Sameer is targeting for its survival.
Kenya has opened her economy to Chinese goods but the downside accompanying this gesture has been overlooked. The result of the trade between the two countries has been the proliferation of low cost, poor quality goods, especially tyres, dry cells, apparels and wrist watches from the former communist state.
Trade between Kenya and China is skewed in China’s favour. Bilateral trade amounted to US$645 million last year. But the lion’s share flowed east to pay for exports of everything from machinery to textiles.
A recent five-country survey by The Steadman Group revealed that 49% of business leaders felt that China’s increased economic activities within Africa would have a positive impact on their businesses as compared with 30% who felt that it would have a negative impact. However, 20% feel that China’s increased engagement with Africa would have no impact at all.
Mr. Kimani says they have imported low-priced Dyna cargo, Triangle tyre brands from China lately. The low priced tyres may be a hit with Kenya’s commercial vehicle owners struggling to make profits in a country with poor road infrastructure which has been blamed for the high transport costs.
“The tyres are affordable but very durable. When we import we don’t just bring anything, we buy quality,” said Kimani at the sidelines of the company’s 39th Annual General Meeting at the end of last week.
Besides Bridgestone, the company also imports Hankook and Dunlop tyre brands from Korea and South Africa, respectively.
Sameer changed its name from Firestone East Africa (1969) three years ago when major shareholder Naushad Merali broke up long ties with Bridgestone of Japan.
Bridgestone wanted to make Firestone a trading arm for its tyre brands in the East and Central Africa region, but Merali opposed the move, saying local jobs were at stake. In a friendly parting of ways, Firestone’s technical support contract with Bridgestone ended and Merali set to rename the company Sameer Africa.
For the first time since it changed its name, the company made a pre tax profit of Sh166.5 million in 2007 financial year up from a Sh14.9 million loss in the previous year.
Chairman Naushad Merali attributed the profit to restructuring of operations that reduced costs. The company’s turnover grew by 9.4% to Sh3.4 billion. Merali said the growth in profit was also due to increased exposure to the export markets.
Sameer Africa had recorded losses in the last two years since it converted from Firestone East Africa (1969).
Previous losses were attributed to competition from cheaper tyres, an 8% increase in the price of raw materials – which constitutes 60% of the firm’s production cost, lower Common external tariff on imported tyres and the cost of re-branding. (Tire Review/Akron)
