Sameer Africa plants to close down its Nairobi tyre factory due to increased competition from cheaper imports from China and other Asian manufacturers. The tyre manufacturer has decided to close the Mombasa Road tyre plant due to severe competition caused by what Sameer says is the dumping of cheaper and low quality tires in the Kenyan market. The other reason was due to under-invoicing by tyre importers in the region, which makes the playing field uneven for local tyre manufacturers. The company has blamed the government for not stopping the cheap imports.
Back in the year 2008, Sameer used to import tires from China, which was supplying low cost tires owing to their cheap labor and efficiency. These tires were of high quality, durable and affordable.
At the same time, Yana was struggling to find a footing after a change of name from Firestone East Africa (1969). This was necessitated after Naushad Merali, a major shareholder, broke up ties with Bridgestone of Japan. Bridgestone wanted to make Firestone its trading arm for its tyre brands in Central and East Africa. However, Merali opposed the move, fearing that local jobs would be at stake. Eventually, they parted ways and Merali renamed the company to Sameer Africa.
Over the recent past, Sameer has been facing stiff competition from Bridgestone, Dunlop and Hankook and Yokohama. These have reduced their revenue over the years and the company has been struggling to make profits. In addition, more competition from cheaper tyre imports, and an increased cost of raw materials – which makes up to 60% of the production cost, has seen the type manufacturer operate at a loss.
In 2013, Sameer Africa opened a new unit for re-manufacturing second-hand tyres. This was largely attributed to rising production costs and increased competition from cheap imports. Retreading of tyres can be done three times on the same tyre. The process involves replacing the treads on the worn out tyres. The material cost is about 20% that of making a new product and thus cost friendly. The reduction in production costs allowed Sameer to sell the tyre retreads at nearly half the cost of new ones.
However, in the year 2015, there was an influx cheap Chinese tyres and the company decided to start producing a cheaper quality brand so as to reduce the competition. Sameer Africa partnered with a Chinese company to produce and sell its brand Summit tyre.
Despite their efforts to remain profitable, Sameer Africa’s Managing Director said that the company has undergone through hard times since 2014. This can be attributed to the cheap imports from Asia, and reduced market due to factors such as conflict in South Sudan. The Sameer Africa, factory based in Nairobi’s Industrial Area had a production capacity of 600,000 per day.
Companies closing factories in Kenya
By closing down their tyre factory, Sameer Africa will join a list of other manufacturers that have left Kenya due to stiff competition and what they call harsh operating environment. The companies that have closed down factories and instead opted to import manufactured products include;
Eveready East Africa
Cadbury Chocolate Company
Sameer Africa is planning to shift its production to India or China after the shutdown of its tyre manufacturing plant in Nairobi. They foresee themselves earning higher margins, especially if they partner with other manufacturers. They will most likely partner with an Indian firm that unsuccessfully tried to acquire Sameer some time back.
Sameer Africa Performance
Sameer has been making losses for over the last two years. They made a Ksh 15 million loss in the year 2015, and KSh 66 million in 2014. The company’s best performance in the last five years was in the year 2013 when it made a Ksh 401 million net profit.
Sameer Africa Limited market share has decreased from 62%a few years back, to only its current 25%. Apart from stiff competition, the company said that the high cost of electricity and under utilization of the factory capacity, are some of the other factors that led to its decision to close the factory.
Sameer Africa investments
Sameer Africa has investments across a wide variety of industries, and the loss making tyre manufacturing is just one of the many investments. The company has invested in IT, real estate, commercial buildings, and more.
Among its main investments include the KSh 7 billion Sameer Business Park, Sameer Mall, and some warehouses on the 100-acre parcel of land along Mombasa Road which the firm built in July 2017.
Effect of closing down Sameer Africa tyre manufacturing business
Sameer Africa (Yana brand of tyres) section will lay down several employees and incur employee compensation costs estimated at about KSh 725 million.
The Managing Director, Allan Walmsley, added that the firm will continue to expand its Summit tyre brand for all markets, continue distributing the Bridgestone tyres in Kenya, Tanzania and Uganda. The only affected brand is the Yana and the company is not entirely closing the tyre business. Sameer Africa says that they will continue to invest in Research and Development so as to provide tyres that are custom-built for African roads.