The New Peugot Assembly Plant- Is Namibia Industrializing?

Peugot  Assembly Plant  – Is Namibia Industrializing?

Since independence one administration after another has promised to industrialize the country. None have but recently Namibia took a major step towards fulfilling that dream. Namibia is now the proud owner of a Peugot/ Opel assembly plant in Walvis Bay which rolled out its first Peugot 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 SACU i.e. South African market.

The plant is based on a joint venture with PSA i.e. Peugot. Namibia owns 51% having invested what is reported to be N$ 141 million PSA gets the other 49% having invested $50 million.  If those figures seem skewed in favour of PSA its  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 1960’s and 1970’s Peugot had an assembly plant in South Africa which it eventually closed in 1976. There was a time when Peugot was ‘the car for Africa’. But that was in the 1970’s when Peugot produced the justifiably famous Peugot 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 top  ever allow the Namibian facility to compete for market 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 joint venture is to produce and sell 5,000 cars in SACU market 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 $140 million that Namibia invested in the land and building  will provide 50 jobs ie $2.8 million per job. Now that may appear like a very high price to pay but if the gamble of 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 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 ie 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. 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 to a maximum exports 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 on 1,000 units we would certainly go broke’

South Africa destroyed Botswana’s best hope for industrialization. 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  Peugot’s , SUVs are  not down-market Hyundai and so the risk of Peugot 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 up-side of all this is that one day the planned steel plant in Otavi will one day provide the steel for a successful Peugot 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 in Walvis is based on kits  which come with their own steel panel.

Last week President Hage Geingob came to the new plant in 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 the Professor Roman Grynberg and not necessarily thos of UNAM where he is employed.