Kenya Tire Factory Shut as Production Cheaper in China, Indiaby
Sameer Africa says its outsourcing its tire production
Company has struggled with cheap imports, outdated factory
Sameer Africa Ltd., a Kenyan manufacturer of automobile tires, is shuttering its factory in the capital, Nairobi, in preference for outsourcing production to China and India.
Cheap and subsidized tire imports have whittled Sameer’s market share for its flagship Yana brand to 25 percent from 62 percent in 2010, Edgar Imbamba, its company secretary, said in an e-mailed statement Thursday. Retail operations will remain in Kenya for distributions of brands including Summit and Bridgestone in neighboring Tanzania and Uganda.
Sameer will take a one-off impairment charge of 725 million shillings ($7.15 million) in respect to a plant, inventory and severance costs, which will lead a 25 percent decline in earnings this year, it said. The company’s half-year profit dipped 9 percent to 43.6 million shillings.
Kenyan companies are finding it difficult to compete in bulk manufacturing against Asian producers due to low labor productivity and high raw material costs, Aly-Khan Satchu, chief executive officer of Rich Management, said by phone.
Sameer may not be the only Kenyan company deciding to “throw in the manufacturing towel” as other producers are also struggling. Management at Sameer will probably seek to “unlock shareholder value” by selling land its factories are built on in Nairobi and Nakuru town, Satchu said.
“Sameer has struggled to have a proper production system,” said Eric Musau, a research analyst at Standard Investment Bank Ltd. “The market has become very competitive and Sameer doesn’t have the relevant technology to compete effectively.”