Toyota’s plans in E. Africa after buying French giant

Japanese conglomerate Toyota Tsusho in December 2016 completed takeover of French conglomerate CFAO for 2.25 euros (about Sh261.89 billion in prevailing forex rates), spreading its interest in Africa to 165 firms in 49 African countries. The resulting giant conglomerate, CFAO Africa, is now Toyota Tsusho’s trading and investment vehicle in Africa. In Kenya, CFAO Africa has interests in automotive, agriculture, infrastructure development and healthcare through seven companies.

Nairobi has been chosen as the hub for CFAO’s expansion into Eastern and Central Africa. Dennis Awori is the country and regional delegate in CFAO’s operations and sits on its global board. He spoke to the Business Daily about the integration process and the group’s investment plans.

TELL US ABOUT THE INTEGRATION OF TOYOTA TSHUSHO’S OPERATIONS IN EAST AFRICA.

It takes time to come up with structures, processes, systems, work on culture and create a new common vision and mission. This is what we have been doing over the last year or so. And it’s still ongoing because integration of this nature takes much longer than just a year. We have seen much, much closer relationship between the companies in the group. We have begun looking at the sharing of services where it does not affect the commitments that we have to manufacturers, the different clients and regulations such as those by the Competition Authority of Kenya. In bringing them together, the first step was to initiate the shared services, basically the back-office functions not for all companies, but for those that complement each other. For example, we had the companies within the Toyota Tsusho companies, those were easy to create one back-office and corporate function for them.

SPECULATION HAS BEEN THERE SINCE 2013 THAT YOU’LL EVENTUALLY MERGE TOYOTA KENYA WITH DT DOBIE?

We have very strong firewalls between the competing needs of Toyota Kenya and DT Dobie. They follow different mid-term plans. We are not looking at integrating them into say a multi-player company. We will maintain separation.

INTEGRATION OF THIS NATURE OFTEN RESULTS IN LAYOFFS. IS THIS ON THE CARDS?

We are integrating, but we are also expanding. So we still don’t have enough people. We are not offloading people per se. With integration, some people will leave, but on a whole we are going to end up with a lot more people. This integration is not like company A buys company B and looks for the best people, and offloads the rest.

TELL US ABOUT THE AUTOMOTIVE INDUSTRY WHICH IS PERHAPS YOUR CORE BUSINESS THROUGH THE TOYOTA BRAND, KENYA VEHICLE MANUFACTURERS (KVM) ASSEMBLY PLANT IN THIKA AND TOYOTA KENYA’S PLANT IN MOMBASA.

The industry volumes have dropped drastically over the past two years. In 2015, we had a very good year at nearly 20,000 units for the industry. 2016, we had a 30 per cent drop on the back of interest-capping law and attendant tightening of credit especially to SMEs who form a large portion of our clients.In 2017, we had another 20 per cent drop, and therefore over the past two years the drop has been nearly 50 per cent.2018 has seen a rebound especially after the handshake (political rapprochement between President Uhuru Kenyatta and Opposition Leader Raila Odinga). We are sure that as the Kenyan economy grows, the industry will also grow.

IS THE POLICY ENVIRONMENT SUPPORTIVE FOR THE AUTOMOTIVE INDUSTRY?

We have been consulted and we have put in a strong input as an industry into the new automotive industry policy by the government. This will see rapid increase in local assembly leading, with time, to manufacturing of components towards increasing local content. That will bring exciting times to the industry. It does encourage the going into local assembly so we put additional models into assembly so we get the tax benefit which is zero per cent duty. So we are bullish.

WHAT’S YOUR STRATEGY IN FERTILISER BLENDING THROUGH YOUR PLANT IN ELDORET?

Our first step in our strategy is to sell as much as possible under the government subsidy. The second and more sustainable part of our strategy is to sensitise the farmers, demonstrating to the farmers that our blended soil and crop-specific fertilizer will give them a much bigger yield. On average it’s 30 per cent better yield.

WHAT MAKES YOUR FERTILISER BETTER?

We start by testing the soil, knowing the crop that is going to be grown and coming up with a formulation that’s specific to your area. So you are not just using a generic fertiliser which, in some cases, has very strong side-effects, including making the soil acidic as has been the case in some parts of the North Rift. The plant has formulation for maize, rice based on specifications in Mwea and potato which based on conditions in Laikipia.

HOW HAVE YOU BENEFITTED FROM GOVERNMENT FERTILISER SUBSIDY?

The government subsidy subsidy is on a limited amount of fertilizer about 150,000 metric tonnes against a total demand of about 600,000 tonnes. None of the volume we supplied through NCBP (National Cereals and Produce Board) sat on the shelves.We were very pleased from that reaction because it will mean from the rains that we are about to have, we are likely to get much more increased demand. But we sold nearly twice as much in the open market as under the government subsidy.

AT WHAT CAPACITY IS THE FERTILISER PLANT OPERATING?

The capacity is 150,000 tonnes but current production is 20,000 tonnes. We don’t expect to expand that plant, but we are certainly looking at putting up other plants in other growing areas because one of the expensive things in Kenya is the cost of logistics. We will possibly put up another plant in Naivasha to focus on wheat, rice, Irish potatoes and vegetables farming in Central Kenya in in medium term (three years). When the one million-acre Galana Kulalu scheme fully takes off as well as other schemes at the Coast, we will be looking to put another plant there but that’s in the long-term.

WHAT THEN ARE YOUR PROSPECTS IN AGRICULTURE?

Our strategy and plan in agriculture is three-phase. First was distribution of tractors. Second, was to set up fertilizer blending plant and begin sensitizing the farmers in partnership with international research agencies. Phase three will be to go through post-harvest initiatives such as storage, processing and even growing crops. We have, for example, invested in a large scale farm in Zambia to test the waters.Ours is not just to sell but get involved in agriculture.

WHAT ARE YOUR PLANS IN INFASTRUCTURE DEVELOPMENT?

We bid for unsolicited feasibility study not just for Lokichar-Lamu, but two pipelines meeting in Juba and another one from Hoima (western Uganda) to Lokichar and another one from South Ethiopia to Isiolo. The study has shown it is viable and it will be very transformative in helping the whole region export oil. But this was rocked by decision by Uganda to head southwards (connect to Tanga port in Tanzania), while South Sudan also went to a civil war that cut output.

We are very happy that Kenya is now ready to do the Lokichar-Lamu pipeline and because the companies exploiting Kenyan oil are the same as Uganda, there may still come a time when that network that we did the feasibility study for will become a reality. Besides the feasibility study, we did a Pre-FEED (Preliminary Front End Engineering Design).

TELL US ABOUT YOUR FORAYS INTO RENEWABLE ENERGY

We have built two geothermal plants in Olkaria (Naivasha) with capacity of 140MW each. We are going to bid for more projects, and go all the way to be an independent power producer. We are also looking at going into solar power on a B2B (business to business) basis because solar power is also taking off. We are looking at it from the point of view of being a supplier of solar power. The initial plan is to use roof-tops of our premises, a model that has worked in South Africa.

WHAT’S THE OUTLOOK FOR CFAO?

Toyota chose East Africa as the focal point for its diversification strategy in Africa, with Kenya as the hub. The strategy is diversify into oil and gas, infrastructure development, agriculture and renewable energy.