Sameer closes tyre plant, moves machinery to India

Sameer Africa Chairman Eng. Erastus Mwongera (left) and Managing Director Allan Walmsley peruse through the group’s 2015 annual report. [Photo: Wilberforce Okwiri/Standard]

Workers at Sameer Africa have started dismantling the Nairobi tyre manufacturing factory ahead of its relocation to India. The plant has been idle for months following a decision made last year to stop making tyres at the Mombasa Road-based plant.

Already hundreds of employees have been sacked and the management is blaming cheap imports for the closure.

“Yes, they are transferring the machinery to India,” said an employee at the Naushad Merali-owned company. He could not give more details on whether the owners have set up a plant in India or they are selling the machinery.

Only a fraction of employees such as marketers have been retained. The decision, which leaves the jobs of more than 500 workers in the balance was approved by the Capital Markets Authority. Sameer Africa is listed on the Nairobi Securities Exchange (NSE).

The tyre manufacturer slid into a Sh652 million loss on account of high re-organisation expenses following the decision to shut-down its Nairobi plant. For the year ended December 31, 2016, the company announced the loss after incurring Sh877 million to close the factory, impair its assets and compensate workers who lost their jobs.

Short-term borrowing

“The company’s full year results therefore reflect this significant decision. This cost is a one-off cost and is not expected to recur in future,” said the firm in a statement accompanying the results. The one-off expense saw the group record an operating loss of Sh821 million compared to a profit of Sh55.5 million in previous financial year.

To fund the closure, the company also had to draw down its cash reserves as well as make short-term borrowing of Sh282 million. Also, cash and cash equivalents dropped by Sh654 million, while retained earnings dropped by 52 per cent to Sh598 million.

The shutting down of the factory is a big blow to Kenya’s efforts to boost its under-performing manufacturing sector. The decision by Sameer Africa, the makers of Yana tyres to relocate was informed by the influx of cheaper imported tyres from China and India which heavily ate into its market share, leaving it with little option.

According to the manufacturer, the 2005 reduction in customs duties under the EAC Common External Tariff (CET), the high cost of electricity and under-utilisation of factory capacity impacted the business adversely. The firm says that it wants to roll out new offshore manufactured tyres and continue to expand its retail footprint in Kenya, Uganda and Tanzania.

Dwindling sales

Billionaire Merali is the majority shareholder in the firm, which has been struggling to stay afloat due to fierce competition from cheaper brands. The firm has been bleeding for the last two years, reporting a net loss of Sh15 million in 2015 compared to Sh66 million loss in 2014. In 2015, the firm produced tyres worth Sh2.4 billion – down from Sh3 billion in the previous year.

This highlights the turmoil the firm is facing. Sameer Africa Managing Director Allan Walmsley in a past interview said the firm had been forced to hake a relook at its manufacturing business in the face of dwindling sales at home and all the regional markets of Burundi, Tanzania and Uganda.

A tough economic environment has forced a number of manufacturers to relocate to countries where the cost of doing business is relatively better. In 2014, battery manufacturer Eveready shut down its Nakuru plant and relocated to Egypt. About 100 jobs were lost when the plant was closed.

Eveready, just as Sameer, was a victim of cheaper imports. The company outsourced its flagship D-sized dry-cell battery manufacturing to an Egyptian firm to concentrate on sales and distribution in the region through partnerships.

Cadbury Kenya shut its Nairobi plant, shedding off another 300 jobs as it opted to import its products, including Cadbury Drinking Chocolate, Oreo biscuits, Cocoa and Trident chewing gum, from Cairo.

In 2007, personal care giant Reckitt Benckiser stopped direct manufacturing in Kenya because of “costs and economy of scale issues.” About 50 permanent employees and hundreds of casual labourers were rendered jobless as the manufacturer of Harpic and Jik chose another country as its base.

Other manufacturing firms that have since exported jobs from Kenya, leaving thousands without a place to eke out a living, include Procter & Gamble, Bridgestone, Colgate Palmolive, Johnson & Johnson and Unilever.