Fahamu (Oxford)

13 December 2012

Cameroon: Chinese Car Making in Cameroon? A Romantic Notion

analysis

Talk about Chinese investors venturing into vehicle manufacturing in Cameroon is certainly hot air. The central African nation is ill prepared for such an industry

An article by Chris Mbunwe in the Cameroon Post Line last November talked about the Chinese opening a car manufacturing plant in Bamenda. What a romantic notion! It is a notion shared by many a politician and others who have no clue as to what it takes to open an assembly plant. And it will continue to be an elusive concept for a long time.

If the Chinese are that interested in developing a manufacturing base in the northwest, a good starting point (unless they are afraid of competition) would be to invest and work with the locals on light manufacturing especially of the consumer goods that the Chinese flood the rest of the world with including the ubiquitous motorcycle. The light manufacturing could include food and wood processing, plastics, soaps and other detergents, tires, simple auto parts such as clutch plates, gears, batteries, and seats; and cell phones. Did I forget toothpicks! The list of consumer goods is endless. There are advantages to this approach: capital investments (for light manufacturing) are more affordable. You build a skill base of technicians and craftsmen that are necessary for auto manufacturing. Auto assembly is at the pinnacle of industrialization and the Chinese are still struggling with that.

The presence and interests of Chinese is much stronger in a lot of other African countries such as Angola, Sudan and the DRC. In Angola they have been criticized for not involving and employing a large number of Angolans. This creates a vacuum in technology transfer. They haven't set up auto assembly plants in these countries. The incentives are just not there.

Here is why I know the talk of an assembly plant in Bamenda is just that.

Infrastructure, which refers to roads, ports and the rail system, are a must. Roads are necessary to transport raw materials (components) to the assembly facility and transport the finished product away. The wear and tear resulting from the heavy load require constant repair. Bulky parts such as frames, axles and sheet metal cannot be transported readily by road. They require rail transport right to the point of use. A rail system is just as important for the finished product. Quite frequently there are unpredictable breakdowns or parts shortages in the production process and those parts have to be flown in by air. Proximity to a functioning airport is a necessity.

Abundant and reliable water supply is required for capture (waste paint) and booth balance processes in the paint shop and cooling elsewhere within the plant. For example welding robots in body and white (body shop) require cooling. Large volumes of water are required for waste water treatment.

Power supply should be reliable and adequate to support the numerous assembly processes and operations. Power outages do have adverse consequences resulting in rework or reprocess which are costly. In some instances the product, typically paints, can be completely damaged beyond reprocess. This requires backup generators which add to operating costs.

Equally important is compressed air for assembly tools. Compressed air, as the name implies is generated from large bulky equipment known as compressors and boilers. Special skills are required to keep this equipment operating 24/7.

There is always a supplier network (which also depends on developed infrastructure) within proximity to support the assembly plant. This network includes suppliers for paint, sheet metal, tires, drive train or chassis as well as trim components. It is estimated that for each job in a car factory there are about 15- 20 supporting jobs.

A distribution or dealership network helps sell the product since it is unlikely that that the entire product will be exported. There has to be a significant domestic demand to justify locating the plant in the first place.

One major consideration is the labor force or human capital. Cameroon has one of the highest literacy rates (estimated at 69 percent) in Sub Saharan Africa. The workforce can be easily trained for basic assembly operations. Unfortunately it still lacks critical skills in the form of programming electricians, millwrights, pipefitters and toolmakers. These are the trades that support the daily activities of a car factory. This skill set takes time and effort to develop. It is simply lacking in Cameroon at this time.

When it comes to locating a car factory there is international competition in the light of the attendant economic benefits (competitive wages and the creation of a middle class). In addition, it costs well over US $600 million to build a car factory. With this kind of capital investment the investor would need to build about 200 units/day to break even and about 400 units/day to realize a return on investment within a 5-year frame.

Finally, let's face the political reality in Cameroon. If there were sound economic prospects for a car manufacturing plant in Cameroon, the project would have been diverted to the South or similar Region in the country. Bamenda would be last on the selection list.

Samba Tata has over 25 years of automobile manufacturing experience and was involved in the launch of popular brands such as the (Dodge) Durango.

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