Wednesday, September 6, 2017

HOW THE AUTOMOTIVE INDUSTRY HAS SUCCEEDED IN NEW EMERGING MARKETS


HOW THE AUTOMOTIVE INDUSTRY HAS SUCCEEDED IN NEW EMERGING MARKETS By Moses Sserwanga Global economic transformation and stability is now largely dependent on the existence of value adding industries such as the automotive industry, which have under the “Asian Miracle” clearly demonstrated that they are capable of driving and reinforcing economic growth. The importance of the automotive industry for emerging markets in Asia and Africa cannot be over emphasized given the fact that it had a global net value of US$1,654 billion by 2015, registering a 30% increase from 1995 to 2015. And yet the automotive industry is both an innovator and investor in technology advancement, investing over US$99.1 billion in research, development and production with a contribution of US$448 billion as government revenues. The realization of these benefits is majorly hinged on the premise of favorable industrialization policies adopted or proposed by governments or business entities in these emerging markets and this article seeks to understand how vehicle production countries have beaten the odds to become successful even with the global economic meltdown of the mid 2000s. In Asia, governments of major vehicle production countries such as China, South Korea, Malaysia, and Japan, have played a virtual role to ensure that their automotive industries, do not only grow and survive the global economic turbulences but that such industries are at the center of growth for these now dubbed economic tigers. In these countries, several policy interventions have been put in place from provision of affordable financing, to infrastructure development, provision of investment incentives, encouragement on innovation at all level of high learning and industry development to local content development programs. In regard to provision of product tailored financial services, the automotive industries have benefited from the provision of liquidity and risk management services. Affordable credit has been made available to allow value chain actors (public sector) to invest beyond their cash on hand and allow customers to purchase vehicles without settling the entire cost in advance. For instance, South Korea and Taiwan have become important hubs of global manufacturing in the automotive industry with protectionism policies being applied by governments as a means to attract foreign direct investment while also fostering growth of the domestic industry which encourages utilization of local content across the value chain. The role of the South Korean government with regards to its automotive industry, is a good example to start with.The South Korean government began by playing an extensive role in nurturing and supporting its automotive industry during its infant stages through a combination of import-substitution and export-promotion policies. Inorder to realize its dream of producing vehicles locally, the South Korean government put in place the Automobile Industry Promotion Policy of 1962, and The Automobile Industry Protection Act to protect the infant industry. This barred foreign automakers from operating in the country, except through joint ventures with local business entities. The same policies were applied by Japan when its corporations began to produce more vehicles in the mid 50s. The Japanese government at the time took deliberate measures to restrict vehicle imports in order to promote the Japanese auto industry. It should be noted that this state-industry-support- approach did not go down well with the already established vehicle production countries like the United States of America which seldom criticized Japan's protectionism policies as being naïve and of little value since the vehicle market in Japan was very small at the time. Later, under the guidance of the Ministry of International Trade and Industry, the Japanese auto industry began to weed out small companies through mergers and eventually reached its current state. Japan's annual vehicle production gradually increased and is now ranked third among the top six vehicle producing countries in world having put on the market 9.3 million vehicle units in 2015. Active promotion of technical education Extensive technical education is bound to raise the general level of technology. It is important to note that the Japanese government’s role in developing the automotive industry was in getting it started and nurturing its development. Policies addressing innovation in the automotive industry are geared towards the creation of network institutions in the public and private sectors whose activities and interactions foster knowledge or information flow between the automotive industry and the attendant enterprises This approach has seen the deliberate promotion of collaborations and joint research activities at universities and public research institutes leading to diffusion of knowledge and technology into other value chain actors. China, the world’s leading vehicle producer today has not been left behind in the state’s sponsorship of the automotive industry either. The China activist government policy has liberalized the Chinese automotive sector in some key respects — permitting foreign investment but also remaining firm that foreign manufacturers undertake joint ventures with local partners in order to obtain market access. The stated goal of the Chinese government over the years has been geared at creating a market dominated by a limited number of internationally competitive joint venture assemblers, supplied by local parts manufacturers, and producing to world standards. The results attained from these policy initiatives have been globally recognized with nearly three decades of rapid economic growth where the domestic Chinese auto industry has made substantial progress. The ripple effects have also been many leading to the emergency of independent domestic automotive manufacturers. Although because of the protectionism policies, the Chinese vehicle producers met some hurdles which included creation of their own designs and meeting world standards in terms of product quality, safety, and environmental features, the domestic manufacturers are expanding their market share and are slowly moving up the value chain. China’s annual vehicle output increased from less than two million vehicles in the late 1990s to over 28 million in 2016. Its auto industry is already a major force propelling the Chinese economy and its workforce, with an annual gross output at US$ 440 billion in 2009 and over 3.7 million workers in automotive production, according to China’s auto industry association and officials. The Stimulus packages that saved the automotive industry from collapse When the global economy mired in an economic slowdown with global vehicle production dropping more than 10 million units in 2009 from the record high of over 72 million units built in 2007, governments of the major vehicle producing countries such as the USA, China, and Japan, put in place radical economic stimulus packages that boosted their failing automotive industries. Again these were government led interventions to support and prevent their automotive industries, which are the engines of their respective economies, from collapsing. It was not long before the positive impact of such initiatives was seen. A clear example is that of China, following the stimulus package from the Chinese government, China’s auto industry registered a rapid growth in 2009 and 2010. In 2009, China produced more than 13.6 million vehicles, overtaking Japan to be the world’s largest producer. In 2010, the growth momentum continued, bringing China’s vehicle production to nearly 18.3 million units, almost doubling its 2008 out registered before the global economic meltdown. The Chinese government had opened up its auto market to international companies but only with the understanding that its domestic manufacturers would not be able to compete with the more sophisticated and experienced foreign rivals. Foreign automakers were allowed to enter the Chinese market only through joint ventures with local partners, often times state-owned companies (SOEs), each with no more than 50% controlled by a major foreign name plate automotive manufacturer. Some of these joint ventures have seen VW joining forces with Shanghai Automotive Industry Corporation (SAIC) and First Automotive Works Corporation (FAW). SAIC is also a joint venture partner of GM, while FAW is also a partner of Toyota. Honda and PSA Peugeot Citroen have both formed partnerships with Dongfeng Motor Corporation. It is the same story with Malaysia which used a state led auto development approach by building national champions before eventually commercializing and privatizing. All this shows that the automotive industry which is going to be a major force for economic emancipation in the East Africa region and on the African continent as a whole will require infant industry policy interventions for sustainability and ultimately competiveness. South Africa doesn’t allow the importation of used vehicles and this has protected its industry. South Africa policy framework is a transition from infant industry protection into a new open global economy i.e. industrial support and industrial competitiveness. The reason why Multinational Companies (MNC’s) take hold of the South African Economy is through an existing gap that is in form of technology and marketing gaps which are deemed the center of focus on attracting FDI to overcome the gaps. By way of their competitive advantage MNC possess technology and marketing capabilities that enable early production and export ability starting a positive trajectory of industrial growth for developing economies. This does not mean high value addition, a challenge South Africa faced, hence the call for black empowerment programs in their latest Automotive Production and Development Program. To overcome this problem small local firms that cannot access big overseas markets can only easily access them through the linkages held with lead OEMs who have access to global value chains. Their alternative is to penetrate and access neighboring emerging markets. South African policy aims to reduce its marketing gap through increased exportation strategy though the policy still faces a high technological gap that should be addressed by existing licensing agreements and joint ventures. In Kenya, you can’t import a vehicle that is more than eight years old. All these policies help protect the industry. Kenya’s automotive industry has grown especially in the passenger bus and truck/trailer categories because of such policies. Research and Development Capabilities The creation of a strong domestic R&D capability as an essential element in the development of a successful indigenous automotive industry enables both the transfer of intellectual property from international companies and the creation of intellectual property that can be the basis for a strong, export-oriented indigenous automotive industry. The key factors that have contributed strongly to the success of South Korea’s auto industry policy were export orientation and policy effectiveness. Export performance provided an objective criterion for government support. Despite the change in policy regime to import substitution in the 1970s, export-oriented development was still the top policy priority and various factors worked to soften the negative effects of distortive intervention. In addition the government went ahead and implemented the policies once the direction was set. As the government undertakes the Kiira Motors Corporation (KMC) investment with strategic outlook for developing the nascent automotive industry, it is interesting to observe key policy interventions benchmarked elsewhere which could engender sustainable realization of a domestic automotive industry value chain. ENDS

Saturday, September 2, 2017

THE KENYA SUPREME COURT DECISION WILL HAVE DIRE CONSEQUENCES

THE KENYA SUPREME COURT DECISION WILL HAVE DIRE CONSEQUENCES The Supreme Court of Kenya has set precedent on the African Continent by overturning a presidential election result throwing the hitherto conservative jurisprudence in disarray. But the justices may have rushed to overturn the results which might lead to dire consequences for the East African nation. In the first place , all parties agree that the elections are determined at the polling stations . And it seems there were no problems at the polling stations . The petitioners’ case just like in the Mbabazi’s case centered around the transmission of the results from the polling stations to the tally center in Nairobi. If that was the focus of the dispute , the justices should then have recalled the results from the polling stations as contained in the tally sheets to verify , isolate those cases where there is a mismatch , and then reach a conclusion as to whether such inconsistencies affected the total overall figure in a substantial manner . Unfortunately the Court did not evaluate that evidence in the tally sheets, they didn't verify and instead rushed to play to the galley and nullified the same. The Courts decision then looked more of a political than a legal one . The court wanted to set a precedent as being the first to do that and get the rave reviews which they are now enjoying at a huge cost that awaits the country . Many jurisdictions not only in Africa but America , South Africa, Nigeria, Canada , India among other , have been very reluctant to overturn presidential elections due to the financial , legal and social political ramifications not forgetting the security and stability of a state . Now, the Kenyan decision has many both positive and negative ramifications but will highlight a few negatives ones . Let me start with the legal ones , the courts are going to.be flooded by a multitude of petitions from the local governors and other constituent elections . Because any smart lawyer will argue that if the Supreme Court has declared that the presidential elections lacked integrity and all, how then can the local elections be clean when.it was the same Electoral Commission that conducted those elections as well. Secondly, basing on the judgment , the commission should be disbanded and the opposition has already filed a suit to that effect. That suit will be appealed up to the Supreme Court and when it is successful , then the electoral commission will have to be disbanded and a new one appointed with new electoral officials across the country . Question then is will the country be in position to hold fresh elections in 60 days as required by law ? Again the answer to that question might be in the negative . That will then mean the parliament will have to amend the constitution to enlarge time . So we don’t see Kenyans getting over this till the new year meanwhile, they won't have an effective government for that period because Uhuru is now a lame duck as we all know it . Lastly, we wait to see the guidelines that will be set by court in its detailed judgment that will have to.be followed to ensure that the next results from the next elections will be accepted by all parties. This is because there cannot be a flawless election anywhere in the world that's why the substantially test was developed and adopted in many jurisdictions. But you can only apply that test if the court is willing to verify the transmitted results . In the case of Kenya , court didn't want to do it because of the time and resources involved and instead took the easy path of throwing it back to the voters and the cost is going to.be much more than if the court had endured to verify the results at the polling stations because that's where the winner is determined and not in the process of transmission .