Peugeot – Is Namibia Industrialising?

SINCE INDEPENDENCE, one administration after another has promised to industrialise the country. None have, but recently Namibia took a major step towards fulfilling that dream.

Namibia is now the proud co-owner of a Peugeot/Opel assembly plant at Walvis Bay, which rolled out its first Peugeot 308 SUV off the production line a couple of weeks ago, and some two dozen workers were seen happily welcoming the first Namibian – produced car.

One can only wish the company well, but there is every reason to fear that we may have just bought a second ‘Ramatex’. The assembly plant is based on kit assembly, which essentially means we get several boxes of parts, and assemble them here in Namibia for sale to the Southern African Customs Union (Sacu) market.

The plant is based on a joint venture with PSA, i.e. Peugeot. Namibia owns 51%, having invested what is reported to be N$141 million, and PSA gets the other 49%, having invested N$50 million. If those figures seem skewed in favour of PSA, it is only because if you want to assemble cars in a remote place like Namibia, you have to offer companies incentives, and this is part of the price that Namibia has to pay to attract this sort of investment.

In the 1960s and 1970s, Peugeot had an assembly plant in South Africa, which it eventually closed in 1976. There was a time when Peugeot was ‘the car for Africa’. But that was in the 1970s when Peugeot produced the justifiably famous Peugeot 404. PSA has similar production facilities in Morocco, Algeria, Nigeria, Ethiopia, Kenya and Tunisia, and so one can imagine that the main target market for the new Namibian facility is Sacu.

Like so many transnational companies, they are here primarily to avoid import tariffs, and they are unlikely to ever allow the Namibian facility to compete for market share with their Nigerian or Kenyan sister company.

PSA has a long history of assembling motor-vehicles mostly from kits in developing countries. The aim of the joint venture is to produce and sell 5 000 cars in Sacu by 2020. Given the state of the market in most Sacu countries then, the only reasonable response is good luck, and we shall see how many they manage to sell.

It is estimated that the N$140 million that Namibia invested in land and buildings will provide 50 jobs i.e. N$2,8 million per job. Now that may appear like a very high price to pay, but if the gamble by the government pays off and we eventually develop a sustainable automobile industry and not just a kit assembler, then it will have been worth every penny. But that is a big ‘if’.

There are many reasons to be cautious about what Namibia has done, and to fear yet another ‘white elephant’ state-owned enterprise. But one very great risk is not failure, but success. We are by no means the first country in Sacu to try to take advantage of the market access rights that it gives Namibia for exports to South Africa.

Botswana tried this 25 years ago by establishing a Hyundai assembly plant in Gaborone to try to export to the South African market. The problem was that that product was a fabulous success, and exports to South Africa boomed beyond expectations. The product was both cheap and reliable. It started giving Toyota a serious headache in South Africa.

So what happened? South Africa saw this as a step too far – it was quite one thing for South African exports to the four BLNS countries to swamp any domestic production in the small states, but the idea that tiny Botswana would produce a product that would start hurting South African producers was too much.

So, South African DTI set about to destroy Botswana’s Hyundai plant. First, they tried to stop exports by arguing that these sort of kit assembly plants violate the Sacu, i.e. South African, rules of origin. When that failed and the Hyundai plant was beefed up, they simply strong-armed Botswana into accepting what is called in trade as ‘voluntary’ export restraints (VER). VERs are illegal under WTO law, but few seem to care.

What South Africa did was set a ‘voluntary’ limit on the number of cars South Africans could import from Botswana a maximum of 1 000 cars per month when the apparent break-even of the plant was monthly sales of 2 000. In an interview in 2014 with Kitso Mokaila, who was in 2000 the general manager of the Hyundai facility, he said: “The business was sunk by the South African quotas. We could have survived with sales of 1 800 cars per month into South Africa, but with a quota of 1 000 units, we would certainly go broke.”

South Africa destroyed Botswana’s best hope for industrialisation. Until then, Botswana’s manufactured exports were rising rapidly. Manufactured exports from Botswana never recovered from the collapse of Hyundai, and it fell back to being a diamond economy.

Fortunately for Namibia, Peugeot’s SUVs are not down-market Hyundai, and so the risk of Peugeot making a big dent in the South African market is very limited. The target level of production is 5 000 units per year by 2020. That is about a quarter of what Hyundai was doing in Botswana 25 years ago.

In the current market in southern Africa, even this sounds optimistic. If production is too low on the other hand, the financial risk of another state-owned enterprise losing money is very real.

The upside of all this is that one day, the planned steel plant at Otavi will provide the steel for a successful Peugeot factory, but that would involve both PSA and the new steel plant –which is also partly state-owned (Otavi town reportedly owns 20%) – making a basic change away from their current business models.

The steel factory is basically interested in producing basic steel for construction, and the PSA facility at Walvis Bay is based on kits which come with their own steel panels.

Last week, president Hage Geingob came to the new plant at Walvis Bay, and said that the company should share its profits with its workers. A truly positive sentiment which one can only endorse, and let us hope that it has profits to share, and that both the PSA factory and the Otavi steel facility are not Air Namibia two and three.

* These are the views of professor Roman Grynberg, and not necessarily those of Unam, where he is employed.

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