News / National
Local motor industry being 'sabotaged' by Govt deal
04 Aug 2014 at 08:25hrs | Views
Zimbabwe's motor industry, reeling from a debilitating economic meltdown like the rest of the economy, is an underworld run by a few individuals with government buyers behaving like a Mafia-style cartel that circumvents strict provisions intended to promote local vehicle assembly businesses.
An investigation into the ownership patterns within the country's motor industry reveals an elite group of vehicle franchise owners who compete among themselves for government tenders.
Under the country's indigenisation laws, the motor industry is a reserved sector and only indigenous Zimbabweans can participate in it. But, like all other sections of the economy, there is little clarity when it comes to the ownership pattern with foreign owners apparently still very much involved.
In 2011, President Robert Mugabe gave a directive that all government institutions should buy their vehicles locally in order to support the local industry and conserve scarce foreign reserves.
In a circular published in the Government Gazette on October 11 2002, then secretary to the president and cabinet, Charles Utete, declared: "It is hereby notified that in terms of Section 20 of the Procurement Act chapter (22:14), the president has given the following directions to the SPB (State Procurement Board) to conserve the nation's scarce foreign currency resources; (and) promote development of the domestic automotive industry and provide support thereto at a time of considerable challenge for that industry.
"(The president) has directed that with immediate effect all vehicles purchased by government and by other public institutions (including parastatals) shall be procured from local vehicle assembly plants. Exceptions to that above be – special types of vehicles required by government which are not assembled locally."
It added: "Vehicles for which an exemption may be sought upon justification being furnished to the ministry of Transport and Communications and subject to clearance by the office of the president and cabinet and vehicles yet to be delivered, but which have already been contracted or paid for as of the date of this circular and donated vehicles from whatever source.
"Normal tender rules and regulations shall, as required by law, apply as regards the procurement of the locally assembled vehicles referred to in this circular. Tender specifications in respect of motor vehicle purchases shall, where applicable, be aligned to those motor vehicle models available from the domestic automotive assembly plants."
When contacted for comment about this policy statement recently, Willowvale Mazda Motor Industries managing director Dawson Mareya complained about the failure by state institutions to comply with this directive and other government policies introduced to protect jobs and local industry viability.
"Unfortunately, the presidential directive of 2002 has been rendered ineffective over the past few years, as the public sector has continued to apply for exemptions that are not even in line with the provisions of the directive," Mareya said. "In addition, the absence of an SI (statutory instrument) to operationalise the relevant aspects of the Indigenisation Act, the prescribed 50% quota for local products, has been largely ignored as well."
Under the Indigenisation and Economic Empowerment Act, parastatals, local authorities and all other government-related institutions and departments are supposed to ensure that 50% of their purchases are composed of local products.
Mareya said public sector institutions are also flouting the regulations.
"After having been given authority to purchase motor vehicles other than those locally assembled, the public sector institutions then go to SPB for authority to purchase these vehicles. In a number of cases, the SPB puts out tenders that are brand/model-specific in favour of foreign products, thereby preventing local assemblers from bidding for such tenders anyway," Mareya said. "This is done in direct contravention of laid down processes in the current procurement Act. In many cases, private players are able to offer much lower prices and after-sales service conditions."
A motor industry insider, who requested anonymity, agreed with Mareya, accusing government institutions and departments of demanding specific vehicles not produced by local assemblers, even for pool cars.
"They are supposed to specify models, horsepower and engine capacity and such other specifications. For years, state entities and governmental bodies have been specifying either that they want Fords or Nissan Navaras for example, and that they only want to deal with authorised dealers, which by extension, disqualifies other bidders in tenders through mandatory requirements that are against the law," said the source.
He said according to the policy directives from Mugabe's office, government policy was to support local assembly plants such as Willowvale Mazda Motor Industries (WMMI), Quest Motor Corporation and Deven Engineering for certain trucks and buses.
Mareya said: "In cases where local assembly plants are unable to meet the requirements, we tender among registered vehicle suppliers. We are told that, in certain cases, locally assembled vehicles do not meet the required specifications. In those circumstances, we insist on neutral specifications (that are not brand-specific) for the vehicles to allow competition among suppliers of different makes and models."
Mareya said the existence of foreign and locally owned franchise holders has crowded out the market against local assemblers due to subsidies, in particular accorded to South African motor industry players.
"They (registered motor vehicle suppliers and franchise holders) source their products mostly from South Africa where these products are heavily discounted due to the Motor Industry Development Policy (recently modified to benefit production-based quotas), thereby rendering our products less competitive even after duty.
"These dealers get cheap financing off-shore from their principals to finance consignment stock in the country," he said.
The WMMI chief said his company does not have any real problems with any franchise holders except that they must be coerced into bringing their products in CKD (kits) form "to allow local assembly to add value and create employment. This can only be done through fiscal policy interventions."
Information gathered by The Zimbabwe Mail shows that the shareholding structure in the motor dealership business, despite the law specifying this area as a reserved sector, still has a significant foreign ownership, while the few that are locally owned are concentrated on a clique of individuals who have turned it into a caste system and compete on their own.
Although details were sketchy with officials unwilling to talk, sources in the industry claim that the Zimbabwe franchise for Japanese automaker Toyota is foreign owned, while a family of lawyers own the majority shares in the Hyundai franchise through Nissan Clover Leaf, which also holds the local Nissan as well as Mazda dealerships.
Moses Chingwena, the proprietor of Croco Motors, wholly owns Dulys, the company that owns the Ford franchise in Zimbabwe. Chingwena also owns the Range Rover, Land Rover and Jaguar franchises in the country.
The Mutare-based local vehicle assembly company, Quest Motor Corporation, is owned by an Indian family represented by Tarik Adam, the company's director.
Indigenous companies involved in the motor industry try to fulfil government-set guidelines and legal provisions to supply vehicles by creating strategic partnerships to validate warrants with authorised dealers.
These provisions were meant to guarantee product support, but insiders allege that the government vehicle buyer, the Central Mechanical Equipment Department (CMED) Pvt Ltd, has rejected these arrangements thereby stifling competition and killing emerging players.
Adam said Quest had embarked on a new project of assembling cars after spending three years without production in line with government's "Look East Policy".
"The project involved the assembling by a Chinese automaker's Cherry Tiggo in kit form (CKD). This was followed in early 2012 by the JMC and Foton vehicle projects.
"All stakeholders from the employees, government and the Mutare communities, enthusiastically received the new projects. It signaled a revival of one of the biggest companies in Mutare and one of the key strategic industries in the country," Adam said in a statement.
He said the re-opening of the plant was expected to benefit the downstream industries in the country.
"Local companies which used to supply the assembly plant with paints, solvents, tyres, batteries, carpets, fuel and oils were all encouraged by this new development, as was the labour market. By the time the first vehicle rolled off the production line, the company had already recruited more than 50 new employees, mostly from the local community.
"But government, our traditionally reliable market, has shunned our products preferring to import built-up vehicles, mainly from South Africa and abroad. The State Procurement Board also snubbed our proposals, preferring to award tenders to imported vehicles ignoring the plight of our industry and the entire supply chain of this industrial sector," Adam said.
According to Adam, the first batch of Tiggo vehicles was ready for the market between July/August 2012. The JMC pick-up followed on the market in July 2012, while the last model, the Foton pick-up and double cab, came on the market in September 2012.
Quest spent thousands of dollars on a high profile launch and an advertising campaign was undertaken to announce the arrival of these products on the Zimbabwean market to woo key potential buyers, such as government, parastatals, local authorities, government-employed medical practitioners and chief executives of big companies in Zimbabwe.
"But now we find ourselves caught between a rock and hard place where our biggest customer (the government) is resisting our products, while at the same time, they are setting impossible conditions for us to export," Adam said.
"To compound the situation the government has reduced duty on imported medium-to-heavy vehicles that is killing the local industry, which is still trying to recover from a 10-year recession.
"We tried on numerous times to persuade and lobby government to at least create an enabling environment for the local motor industry so that we could compete on favourable terms with South Africa, which is dumping new vehicles on the local market at the expense of our own industry."
The general manager of the economic lobby group, Buy Zimbabwe, Munyaradzi Hwengwere, accused the government of "economic sabotage".
"Given the behaviour of seemingly shooting ourselves in the foot and appearing on podiums exalting the virtues of a locally owned economy, is it not ironic that the same government cannot enforce its own statutory instrument and indigenisation policy that demands strict adherence to 50% local purchases by state entities?" queried Hwengwere.
SPB executive chairperson Charles Kuwaza in response to questions from The Zimbabwe Mail argued that his body has worked hard to support local industry.
"We implement government policy to procure general use or operational vehicles for the whole public sector (ministries, parastatals and local authorities) from local assembly plants such as Willowvale Mazda Motor Industries, Quest Motor Corporation and Deven Engineering for buses and trucks," Kuwaza said. "Only where it is considered inappropriate are exceptions made and such decisions are made by authorities such as the ministry of Transport in consultation with other arms of government and not the SPB. In fact, we are at the forefront pushing for further limits to these exceptions. The board continues to support local industry/commerce in many other areas other than vehicles."
Indigenization minister Francis Nhema declined to comment on whether the 2002 presidential directive was still being applied.
"I am not in charge of that. Ask the minister of industry," Nhema said curtly.
Industry minister Mike Bimha said the policy is still operational.
"It is operational and that policy should be adhered to. But my understanding of the situation is that while we as a ministry are not involved in procurement, government is committed to adhering to that policy," said Bimha. "However, there are instances where situations demand that we put that aside because of lack of finance and we go into arrangements with institutions to fund certain purchases. In such situations we cannot be in a position to make demands."
An investigation into the ownership patterns within the country's motor industry reveals an elite group of vehicle franchise owners who compete among themselves for government tenders.
Under the country's indigenisation laws, the motor industry is a reserved sector and only indigenous Zimbabweans can participate in it. But, like all other sections of the economy, there is little clarity when it comes to the ownership pattern with foreign owners apparently still very much involved.
In 2011, President Robert Mugabe gave a directive that all government institutions should buy their vehicles locally in order to support the local industry and conserve scarce foreign reserves.
In a circular published in the Government Gazette on October 11 2002, then secretary to the president and cabinet, Charles Utete, declared: "It is hereby notified that in terms of Section 20 of the Procurement Act chapter (22:14), the president has given the following directions to the SPB (State Procurement Board) to conserve the nation's scarce foreign currency resources; (and) promote development of the domestic automotive industry and provide support thereto at a time of considerable challenge for that industry.
"(The president) has directed that with immediate effect all vehicles purchased by government and by other public institutions (including parastatals) shall be procured from local vehicle assembly plants. Exceptions to that above be – special types of vehicles required by government which are not assembled locally."
It added: "Vehicles for which an exemption may be sought upon justification being furnished to the ministry of Transport and Communications and subject to clearance by the office of the president and cabinet and vehicles yet to be delivered, but which have already been contracted or paid for as of the date of this circular and donated vehicles from whatever source.
"Normal tender rules and regulations shall, as required by law, apply as regards the procurement of the locally assembled vehicles referred to in this circular. Tender specifications in respect of motor vehicle purchases shall, where applicable, be aligned to those motor vehicle models available from the domestic automotive assembly plants."
When contacted for comment about this policy statement recently, Willowvale Mazda Motor Industries managing director Dawson Mareya complained about the failure by state institutions to comply with this directive and other government policies introduced to protect jobs and local industry viability.
"Unfortunately, the presidential directive of 2002 has been rendered ineffective over the past few years, as the public sector has continued to apply for exemptions that are not even in line with the provisions of the directive," Mareya said. "In addition, the absence of an SI (statutory instrument) to operationalise the relevant aspects of the Indigenisation Act, the prescribed 50% quota for local products, has been largely ignored as well."
Under the Indigenisation and Economic Empowerment Act, parastatals, local authorities and all other government-related institutions and departments are supposed to ensure that 50% of their purchases are composed of local products.
Mareya said public sector institutions are also flouting the regulations.
"After having been given authority to purchase motor vehicles other than those locally assembled, the public sector institutions then go to SPB for authority to purchase these vehicles. In a number of cases, the SPB puts out tenders that are brand/model-specific in favour of foreign products, thereby preventing local assemblers from bidding for such tenders anyway," Mareya said. "This is done in direct contravention of laid down processes in the current procurement Act. In many cases, private players are able to offer much lower prices and after-sales service conditions."
A motor industry insider, who requested anonymity, agreed with Mareya, accusing government institutions and departments of demanding specific vehicles not produced by local assemblers, even for pool cars.
"They are supposed to specify models, horsepower and engine capacity and such other specifications. For years, state entities and governmental bodies have been specifying either that they want Fords or Nissan Navaras for example, and that they only want to deal with authorised dealers, which by extension, disqualifies other bidders in tenders through mandatory requirements that are against the law," said the source.
He said according to the policy directives from Mugabe's office, government policy was to support local assembly plants such as Willowvale Mazda Motor Industries (WMMI), Quest Motor Corporation and Deven Engineering for certain trucks and buses.
Mareya said: "In cases where local assembly plants are unable to meet the requirements, we tender among registered vehicle suppliers. We are told that, in certain cases, locally assembled vehicles do not meet the required specifications. In those circumstances, we insist on neutral specifications (that are not brand-specific) for the vehicles to allow competition among suppliers of different makes and models."
Mareya said the existence of foreign and locally owned franchise holders has crowded out the market against local assemblers due to subsidies, in particular accorded to South African motor industry players.
"They (registered motor vehicle suppliers and franchise holders) source their products mostly from South Africa where these products are heavily discounted due to the Motor Industry Development Policy (recently modified to benefit production-based quotas), thereby rendering our products less competitive even after duty.
"These dealers get cheap financing off-shore from their principals to finance consignment stock in the country," he said.
The WMMI chief said his company does not have any real problems with any franchise holders except that they must be coerced into bringing their products in CKD (kits) form "to allow local assembly to add value and create employment. This can only be done through fiscal policy interventions."
Information gathered by The Zimbabwe Mail shows that the shareholding structure in the motor dealership business, despite the law specifying this area as a reserved sector, still has a significant foreign ownership, while the few that are locally owned are concentrated on a clique of individuals who have turned it into a caste system and compete on their own.
Although details were sketchy with officials unwilling to talk, sources in the industry claim that the Zimbabwe franchise for Japanese automaker Toyota is foreign owned, while a family of lawyers own the majority shares in the Hyundai franchise through Nissan Clover Leaf, which also holds the local Nissan as well as Mazda dealerships.
Moses Chingwena, the proprietor of Croco Motors, wholly owns Dulys, the company that owns the Ford franchise in Zimbabwe. Chingwena also owns the Range Rover, Land Rover and Jaguar franchises in the country.
The Mutare-based local vehicle assembly company, Quest Motor Corporation, is owned by an Indian family represented by Tarik Adam, the company's director.
Indigenous companies involved in the motor industry try to fulfil government-set guidelines and legal provisions to supply vehicles by creating strategic partnerships to validate warrants with authorised dealers.
These provisions were meant to guarantee product support, but insiders allege that the government vehicle buyer, the Central Mechanical Equipment Department (CMED) Pvt Ltd, has rejected these arrangements thereby stifling competition and killing emerging players.
Adam said Quest had embarked on a new project of assembling cars after spending three years without production in line with government's "Look East Policy".
"The project involved the assembling by a Chinese automaker's Cherry Tiggo in kit form (CKD). This was followed in early 2012 by the JMC and Foton vehicle projects.
"All stakeholders from the employees, government and the Mutare communities, enthusiastically received the new projects. It signaled a revival of one of the biggest companies in Mutare and one of the key strategic industries in the country," Adam said in a statement.
He said the re-opening of the plant was expected to benefit the downstream industries in the country.
"Local companies which used to supply the assembly plant with paints, solvents, tyres, batteries, carpets, fuel and oils were all encouraged by this new development, as was the labour market. By the time the first vehicle rolled off the production line, the company had already recruited more than 50 new employees, mostly from the local community.
"But government, our traditionally reliable market, has shunned our products preferring to import built-up vehicles, mainly from South Africa and abroad. The State Procurement Board also snubbed our proposals, preferring to award tenders to imported vehicles ignoring the plight of our industry and the entire supply chain of this industrial sector," Adam said.
According to Adam, the first batch of Tiggo vehicles was ready for the market between July/August 2012. The JMC pick-up followed on the market in July 2012, while the last model, the Foton pick-up and double cab, came on the market in September 2012.
Quest spent thousands of dollars on a high profile launch and an advertising campaign was undertaken to announce the arrival of these products on the Zimbabwean market to woo key potential buyers, such as government, parastatals, local authorities, government-employed medical practitioners and chief executives of big companies in Zimbabwe.
"But now we find ourselves caught between a rock and hard place where our biggest customer (the government) is resisting our products, while at the same time, they are setting impossible conditions for us to export," Adam said.
"To compound the situation the government has reduced duty on imported medium-to-heavy vehicles that is killing the local industry, which is still trying to recover from a 10-year recession.
"We tried on numerous times to persuade and lobby government to at least create an enabling environment for the local motor industry so that we could compete on favourable terms with South Africa, which is dumping new vehicles on the local market at the expense of our own industry."
The general manager of the economic lobby group, Buy Zimbabwe, Munyaradzi Hwengwere, accused the government of "economic sabotage".
"Given the behaviour of seemingly shooting ourselves in the foot and appearing on podiums exalting the virtues of a locally owned economy, is it not ironic that the same government cannot enforce its own statutory instrument and indigenisation policy that demands strict adherence to 50% local purchases by state entities?" queried Hwengwere.
SPB executive chairperson Charles Kuwaza in response to questions from The Zimbabwe Mail argued that his body has worked hard to support local industry.
"We implement government policy to procure general use or operational vehicles for the whole public sector (ministries, parastatals and local authorities) from local assembly plants such as Willowvale Mazda Motor Industries, Quest Motor Corporation and Deven Engineering for buses and trucks," Kuwaza said. "Only where it is considered inappropriate are exceptions made and such decisions are made by authorities such as the ministry of Transport in consultation with other arms of government and not the SPB. In fact, we are at the forefront pushing for further limits to these exceptions. The board continues to support local industry/commerce in many other areas other than vehicles."
Indigenization minister Francis Nhema declined to comment on whether the 2002 presidential directive was still being applied.
"I am not in charge of that. Ask the minister of industry," Nhema said curtly.
Industry minister Mike Bimha said the policy is still operational.
"It is operational and that policy should be adhered to. But my understanding of the situation is that while we as a ministry are not involved in procurement, government is committed to adhering to that policy," said Bimha. "However, there are instances where situations demand that we put that aside because of lack of finance and we go into arrangements with institutions to fund certain purchases. In such situations we cannot be in a position to make demands."
Source - The Zim Mail
