China’s Foton to build Sh1.2 billion plant in Kenya

Foton Kenya
Foton is building the assembly plant to avoid paying the 25 per cent import duty on vehicles. PHOTO/COURTESY
Beiqi Foton Motor Company, a Chinese vehicle manufacturer, is building a vehicle assembly plant in Nairobi to expand its operations in Africa.

Scheduled for completion by May 2012, the Sh1.2 billion plant will consist of two production lines with a capacity to manufacture about 10,000 vehicles a year – making it one of the largest foreign direct investment by a Chinese company.

According to Foton East Africa’s general Manager Calvin Guo, Foton is building the assembly plant to avoid paying the 25 per cent import duty on vehicles to allow in its low cost products, thereby putting it in a head-to-head battle with CMC Motors, Simba Colt, Toyota and General Motors.

“Chinese vehicles are generally competitively priced but that aside, we shall invest heavily in service, parts, and distribution network to gain market share,” said Mr. Guo.

Imports of completely knocked down units (CKD) for local assembly are zero-rated as opposed to a 25 per cent import duty on fully made vehicle imports, giving Foton a greater pricing headroom, riding on China’s low cost production.

Foton Kenya is entering into a dealership agreement with Marshalls East Africa, a move that could help reverse dwindling fortunes of Marshalls since losing the Peugeot franchise in 2007.

Increased activity in the construction and trade sectors has boosted demand for light commercial trucks which Marshalls wants to exploit using the Foton Kenya brand that is one of the cheapest in that segment.

The entry of Foton comes when relations between Kenya and China are getting cosier, with Chinese firms winning major contracts in infrastructure sectors including roads, telecoms and airport network upgrade.

Japan’s Toyota and India’s Tata are other vehicle manufacturers that have announced plans to build vehicle assembly plants in Kenya, a move that is expected to pile pressure on existing auto dealers and assemblers.