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Nairametrics| The Dangote group has decided to buy 30 GAC saloon cars for its operations.  The cars are locally assembled by GAC, a member of the Chinese owned Choice International Group (CIG). This marks the third major transaction Dangote has done with a Chinese firm.

In 2015, the Dangote group signed a $4.3 billion dollar contract with Sinoma International Engineering, a Chinese firm to build cement factories across Africa. Dangote Sinotruck West Africa limited recently commenced operations. The company is a joint venture between Dangote Group and Sinotruck of China.

Decision to purchase the cars

  • The Dangote group is buying the cars because they are cheap. The depreciation of the naira against the dollar has made imported vehicles quite expensive.
  • The deal is a major one for the firm which was established in 2013, as the Dangote group is currently expanding operations with a refinery billed to come on stream in 2017.
  • If the Dangote group is satisfied with the quality of the cars, it could likely purchase more.

Implication for vehicle industry

  • Dangote Group owns some of the largest business in Nigeria in terms of operation and economies of scale
  • If the Chinese make a break through with Dangote, they could seize market share from other more established but expensive local car manufacturers and importers.
  • Chipping into the market share of b2b car sales typically dovetails into the consumer sales, a major threat to established players
  • For example, Hyundai has chipped into the market share of long-established car makers such as Toyota, Honda and Mercedes-Benz, offering cheaper but durable vehicles.

Chinese dominance in the economy

Chinese firms are on an expansion spree in Africa. Africa provides both a source of raw materials and a market to sell their products. The China-Exim bank recently approved a N408 billion loan for as its share of funding for the Lagos-Ibadan Railway line in partnership with the federal government. Chinese firms are also involved in building airport terminals in the country. The Chinese government has encouraged firms to export their goods and services, backing them with cheap funding at single digit interest rates. Chinese base interest rates are currently 4.35%. This enables them to produce goods at a cost lower than Nigerian manufacturers.

Base interest rates in Nigeria are currently 14%. Commercial banks in the country, lend funds to businesses at rates close to 30%.

Manufacturing firms struggle with several challenges such as bad roads, epileptic power supply and illegal fees and levies. The government has however introduced policies that will improve both the ease of doing business and infrastructural bottlenecks in the country through the Economic Recovery and Growth Plan (ERGP).

 

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Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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