The 43-year-old tyre manufacturing firm, General Tyre East Africa (GTEA) will soon be revived following the Tanzania government decision to place it under the state-owned National Development Corporation, which will team up with the National Social Security Fund in the process.
According to Zitto Kabwe, the chairman of the Parastatal Organisations Accounts Committee, the government stands to lose $20 million if the company is declared bankrupt and will have to pay $28 million to acquire shares of Continental AG.
“It is a wise decision for the government to revive since it means job retention and creation and will also be a source of revenue for the government,” said Kabwe, adding that: “It is vital for the government to revive other companies which are under-performing and those that are about to be declared bankrupt for the sake of the country’s economic future.”
Kabwe also noted that Tanzania needs to have its own manufacturing industries to stimulate the economy and provide for the needs and wants of the local and international market as well.
In the early 1970s to the late 1980s, GTEA was one of the largest tyre maker in East Africa with a production capacity of about 1,000 tyres a day, supplying to the eastern and central African market.
The company was established in 1969 under a partnership between the Tanzania government and General Tyre USA before it sold its shares to Continental AG of German.
Continental AG acquired 38 per cent stake in the company in the mid 1990s leaving the government with a majority shareholding at 62 per cent.
Information shows that productivity at the factory started to decline at the end of the 1990s when imported and second-hand tyres flooded the domestic market.
In the year 2005, the firm acquired a loan of about $10 million from NSSF under the guarantee of the government to revitalise the factory but it failed to do so. The debt is said to have appreciated to $14 million due to accumulated interests.
GTEA stopped production in 2007 when Continental AG demanded yet another $2 million loan from the government, which turned down the request.
Minister for Industry and Trade, Cyril Chami says that Continental AG has apparently refused to discuss with the government on the way forward. “The government cannot therefore let the property remain idle. We have to bring the plant back to operation,” he said.
“NSSF will acquire shares in GTEA as part of compensation for $10 million loan it advanced to the company in 2005,” said Dr Chami.
Tanzania is in talks with six multinational companies over plans for a joint venture to revive General Tyre East Africa, the giant tyre manufacturing plant in Arusha.
The state-run National Development Corporation (NDC) said that three Asian corporations and another three from America, Europe and Africa have approached the government, seeking a partnership to revive General Tyre, which used to supply tyres throughout East and Central Africa.
“We are finalising our due diligence and talks to end a troubled partnership with Continental AG of Germany in a bid to transfer the General Tyre assets to NDC. After that, we will negotiate with prospective companies,” SAID NDC’s acting director of heavy industry Ramson Mwilangali.
Continental AG, with 26 per cent shares, has since 2006 been embroiled in a dispute with the government over a poor supply chain and low production levels, which resulted in the closure of the company in 2009, locking out about 400 workers.
In July 2008, the firm petitioned the Tanzania government, which owns 74 per cent of General Tyre, for a renewal of the contract. But reports said it failed to outline a concrete business plan on how to make General Tyre profitable.
Continental AG was asked to explain how General Tyre’s debts amounting to $20 million by December 2008 would be settled. But Continental AG demanded to be paid an outstanding debt of $3.321 million.
Records show that before its closure in 2009, the factory’s capacity was 320,000 tyres per annum. The firm is expected to employ nearly 400 workers and produce 1,000 quality, heavy-duty tyres a day. This means that, without interruptions, the plant could produce 250,000 tyres a year, earning the country $63 million if an average price per tyre is $250.
General Tyre will first supply tyres for all government vehicles before it markets to the private sector in the country and in East Africa.
Tanzania, East Africa’s second largest economy, has seen vehicle imports increase by nearly 70 per cent in a single year.
Official government data, which does not include government, police, army and donor-funded vehicles, shows that 67 per cent of registered vehicles were light passenger vehicles with a carrying capacity of less than 12 passengers.
The revival of General Tyre offers a much-needed alternative not only for the country, but also for East Africa in general, which imports the bulk of its tyres from China, Japan, India and Dubai.
Many African countries prefer importing low-priced Chinese tyres rather than the expensive European and American brands.
Gasper Mpehongwa, a lecturer at Tumaini University, said the revival of General Tyre will create competition for Sameer Africa Ltd — the only East African tyre manufacturer — leading to better quality at lower prices. Former General Tyre sales manager Phillip Mweta said the EAC tyre market is huge and even having two local manufacturers will not satisfy it.
The state is preparing to pump in over $20 million to breathe life into the defunct General Tyre East Africa, whose production lines stalled in 2009 due to, among other factors, importation of cheap tyres.
Chinese tyres The revival of General Tyre offers a quick fix, not only for the country, but also for East Africa in general, which imports the bulk of its tyres from China, Japan, India and Dubai. The cheap imports have been blamed for the increase in road accidents.
In Tanzania, traffic police reports show that road accidents claimed the lives of 3,582 people last year. During the same period, over 1,000 bus passengers accounting for 18 per cent of the total deaths also perished. Police reports blame most of these road accidents on tyre bursts.
Chinese tyres are gaining popularity in several African markets. Many African countries are price-sensitive markets and prefer to import low-priced Chinese tyres rather than the expensive European and American brands.
As a result, China has emerged as a leading exporter of tyres to African countries like Tanzania.
Analysts say most illegally imported tyres have a quality problem emanating from storage; some are poorly stored in hot godowns for months, which seriously compromises quality.
