Chinese carmaker has ambitious plans to use its new Ethiopian plant to help drive expansion into other East African markets
On open ground, outside a factory in the Eastern Industry Zone of Dukem, about 37 km southeast of Ethiopia's capital Addis Ababa, Alemayehu Gizachew is testing a new micro van.
The deputy plant manager of the Chinese-owned Lifan Motors makes sharp turns, and then hits the brakes. He was happy with the performance, he says.
At the front of the building are several dozen new Lifan models, fresh off the assembly line.
But inside the new $4.5-million plant, inaugurated by Ethiopian president Mulatu Teshome in May, the scene is less busy than expected, with only a dozen or so workers on the assembly line.
Lifan Motors has the capacity to build 3,000 vehicles a year in Ethiopia, based on a single production shift.
Working double shifts could lift that to 5,000 vehicles, according to Liu Jiang, general manager of Lifan Motors Ethiopia, also known as Yangfan Motors PLC.
However, the sluggish Ethiopian auto market means that Lifan won't reach its full capacity until some fundamental changes take place.
About 90 percent of cars sold in Ethiopia each year are second hand, imported from mostly industrialized nations.
Only about 1,500 new vehicles are sold in the country each year, and of those about half are Lifan cars, according to Liu.
But despite this, Liu is optimistic about the company's long-term market prospects, not just here in the second most populous country in Africa, with 94 million people, but also in its neighboring countries, such as Kenya.
Lifan Motors founder Yin Mingshan also expressed the same optimism during the inauguration ceremony in May.
Liu believes that if the Ethiopian government takes steps to curb the market for imported used vehicles, it will provide substantial opportunity for new car producers such as his.
"If we are lucky to have 20, 30 or 40 percent of maybe a 10,000-plus car market each year, that is not bad," he said.
The market potential could be even bigger, he adds, given that the country's GDP has grown at double digits for more than a decade and is still growing about 8 percent.
Listed on the Shanghai Stock Exchange, Lifan says it is poised to expand in Ethiopia and use it as a gateway to other East African markets.
It has an ambitious plan for local production of some 50 to 60 percent of the parts it requires in five years.
Liu compares the mood to just like China during the beginning of its opening-up and early economic reforms of the 1980s.
If more preferential policies are introduced to attract foreign direct investment, and fast economic growth is maintained, the potential is huge, he adds.
Just 32 years old, the ambitious general manager has worked in the company's overseas operations for a decade, including in Brazil, Thailand and Egypt.
He believes that there is also a huge potential dealership market that Lifan Motors can explore in Africa.
However, Ethiopia's rigid tax regime and inadequate infrastructure pose the biggest challenges.
The first railway linking the capital, Addis Ababa, to the nearest port in Djibouti, where 70 percent of the trade comes into landlocked Ethiopia, is still two years away from full operation. Customs clearance still takes ages.
As a result, cheap labor in Ethiopia does not necessarily mean low cost for Lifan cars assembled in the country.
Instead, high tariffs and high consumption taxes have often made assembling cars with imported parts, as in the case of Lifan Motors, more costly than imported cars.
Take, for example, the Lifan X60, a compact SUV. It is sold for about 80,000 yuan ($13,000) in China, but in Ethiopia, the price is driven up to 200,000 yuan due to various tariffs and taxes.
Liu is optimistic the situation will improve because the Ethiopian government is eager to align itself with Chinese automotive industry policy, but he is still unsure how exactly that will be done, or how long it might take.
Discussions about reining in the imported used car market have been going on for at least five years.
Lifan cars have already started winning government procurement bids, the latest for 125 vehicles, and among the 300 taxis servicing Addis Ababa Bole International Airport, 80 are Lifans.
In Ethiopia, the company has 160 employees, including seven from China, assembling and selling 11 models.
Liu admits that despite the relatively good pay, Ethiopia's labor laws, which favor labor more than the Chinese equivalents, have often become a challenge.
"We just have to adapt to it," he says.
At the assembly plant, 36-year-old deputy plant manager Gizachew was an official in the government's automobile maintenance department before joining Lifan Motors five years ago.
He says it is a good company and adds that the cars assembled in Ethiopia are growing in popularity locally.
Ambachew Gebiyes, a 30-year-old team leader in charge of nine workers at the plant, also says the pay is good, as are the company's efforts at corporate citizenship.
For each Lifan car sold in 2013, for example, 300 birr ($15) was donated to charity.
Liu wears looks proud as he talks about how previous Ethiopian President Girma Wolde-Giorgis invited Lifan executives to attend his birthday party at the presidential palace to express his appreciation for the charity work, just before he stepped down in October.
Lifan is also involved in other charity work, such as planting trees, helping build roads and donating educational materials for 400 orphans and senior citizens, all of which underlines its long-term commitment to the Ethiopian market, says Liu.
As President Mulatu Teshome opened the new plant in May he was joined by two underprivileged Ethiopian children who had received help from the company through an Ethiopian charity, the Mary Joy Development Association.
Lifan Motor's early interest in the local market was also underlined by its partnership with Holland Car, a joint venture established in 2005 by engineer Tadesse Tessema, an Ethiopian, and a Dutch company, Trento BV Engineering. The venture assembled the Lifan 520, a midsize family sedan known locally as Abay, meaning Blue Nile.
However, the partnership broke up after two years. Liu, the Lifan Motors Ethiopia general manager, says that was the result of differences of opinion over developing the business.
While Holland Car has filed for bankruptcy this year, Lifan Motors, listed on the Shanghai Stock Exchange, has built its own operation in Ethiopia. It is poised to expand in the country and make Ethiopia a gateway to other East African markets. It has an ambitious plan to localize about 50 to 60 percent of its parts in five years, according to a report.
Meanwhile, several other Chinese automakers, such as BYD, Chery and Geely, have also gained a foothold in Ethiopia.