Tuesday, April 03, 2007

I'M BACK.....
Hi bloggers, its great to be back after a couple of weeks of doing nothing but traveling and reading a few books that i wanted to read(will do a review some time).Also watched some great DVDs.
Now on to what i do best(or love).

The market
The NSE has really gyrated around and from reading the papers all manner of experts had all kinds of answers for the Yo-Yo's.I noticed that Globalisation is here with us.i.e. We as a country can no longer afford to MANUFACTURE some products in Kenya.We don't have a low-cost base as a country.My recommendation is that the following companies should cease Manufacturing in the country coz it ain't helping their shareholders.

EVEREADY
Given the high cost of ZInc and other raw materials, no matter how good the manufacturing plant at Nakuru is.It will never produce cheaply either on a volume or cost base to counter overseas imports. The best thing the company can do is to import all the required batteries from low cost sources and sell them over their current marketing and Distribution Network.

Otherwise, with the current strategy all i see are losses and low profits in the medium term.Since, the market for batteries is on price and quality(quality refers to lithium-ion(which aren't manufactured in Kenya)batteries NOT zinc chloride.
The other consumers who have never heard of Lithium ion are more interested in price i.e. if a battery is half EVEREADY's price then its a good battery.

SAMEER TYRES
We don't have the volume of tyre sales to justify a manufacturing plant.We are better off importing from elsewhere in the COMESA read EGYPT) and selling the tyres here.Apparently, this is what BRIDGESTONE had in mind before pulling out of Firestone Tyres.But local shareholders wanted to keep manufacturing here to safeguard jobs.Too bad those 'jobs' had to be axed in a recent restructuring of the tyre firm.

I also think that the YANA brand should be axed unless, its going to be positioned as an ultra cheap tyre.Imagine buying your Range Rover sport and having YANA on your sidewalls.Highly unlikely eh? you most probably will have Pirelli ZEROs or BRIDEGSTONE something on your sidewalls.
Inspite, of all the marketing i dont think YANA will ever have the Brand catchet of PIRELLI or BRIDGESTONE.
But if its cheap matatus and the rest of us can buy the YANA's and fix them on our cars.

The only thing i like is the Real Estate/Business Park plan.it is brilliant.

13 comments:

Odegle said...

welcome back. i look forward to a blog on your travels

pesa tu said...

Thanks odegle

Ssembonge said...

Assuming the cost of raw materials are the same worldwide, Kenya offers the advantage of cheap labor and operational costs. Instead they should increase production to lower the COGS and knock-off overseas competitors.

The government should offer publicly traded companies incentives to boost exports. We did it for Goldenberg, so they can do it again.

As for YANA, I thought they were for matatus. People who drive Range Rovers have no qualms paying 16,000/= a piece for a tyre and another 2,000/= for the tube.

pesa tu said...

@SSembonge:No kenya doesnt have cheap labour.India has cheaper labour costs.e. a job that pays Sh.70,000 in Kenya can be done at the same quality or higher in India at Sh.40,000-50,000.
Our Transport and Energy costs r much higher e.g. it costs more to Freight a 40foot container from Mombasa to Nairobi by road than Dubai to Mombasa by ship.

As for the YANA argument we r on the same page

Benin "Mwangi" said...

Pesa tu:

Good to see you back my friend!

Excellent break down on the fundamentals of Eveready and Yana. I never thought reading market analysis could be so much fun!

mwasjd said...

Welcome back

Nice analysis, but maybe one of the sad facts about globalization is to consider jobs as figures and not humans. That's why there's a lot of protesting about Airbus, the shareholders don't see the human face of it when jobs have to be lost in right sizing exercises, rather the cost involved. I guess that's why no one in employment should ever think about job security, doesn't exist. Govts need job creation as it is indicative of economic growth, so there is the tug of war...

pesa tu said...

@Benin: Thanks, thats how analysis should be-*interesting

@Mwasjd:Yes, the human cost counts thats why u must always be personally savvy.

Kenyanomics said...

Doesn't sugar belong to the same category, i.e, goods we should better import? Our production costs dwarf regional and international averages.

coldtusker said...

Merali firms are generally poor investments...

Anyway, the bigger picture is that doing business in Kenya is expensive...

Egypt does NOT play fair. They subsidise their exports using various means including "cheap" water & electricity.

Note the Egyptians thru a lop-sided agreement prevent Kenya from developing dams (water control/storage & electricity)...

They import sugar from Brazil & re-export it to Kenya!

kudrinketh said...

You forgot to include Mumias sugar. It makes no sense for us to continue producing sugar at extremely high costs yet cheaper imports are available.

pesa tu said...

@Kenyanomics & kudrinketh:Mumias is a political hot potato.Yes, sugar production can be shut down and we import sugar for sale through the Co.s(mumias) distribution network at a profit.
BUT such a move would render hundreds of thousands jobless unlike closing factories, where only thousands are made jobless(NOT that it is any better).Hence, politicians wont touch it.

WE COULD follow the mauritius route: i.e. get quotas to sell our sugar in the WEST at high prices and import cheaper sugar for domestic consumption.

NOTE: that our factories dont produce enough sugar we have to import about 30% of oyr domestic consumption.
AND all industrial sugar is imported i.e. the sugar in Coca cola and sweets.
NO company including Mumias makes industrial sugar

Anonymous said...

Manufacturing as a whole makes very little sense in an economy with as poor and infrastructure as ours. But your analysis fails to appreciate the knock-on effect of all those job-losses.

It will be impossible to replace those jobs anywhere in the long term either. I think a better approach would be to invest to the very hilt in improving our infrastructure and creating special niches for Kenyan products.

On infrastructure, even it bankrupts us, it is most exigent that we lay multiple high-speed tracks between Msa and the larger cities. Absolutely exigent. The cost can be shared with the private sector, but procrastinating will pinch us very hard in the future.

Instead of splashing low quality tea across the world (poor imagery I concede) would we not be better of selling rarer teas that would command loyalty, that would be brandable and that would take our competitors a while to catch up on?

We must also ask ourselves why our industry is so inefficient, why do we keep insisting on the same products over the years, where is the innovation? More difficult than relocating abroad, but the profits are here to be plucked

emmo
kenyaimagine.com

pesa tu said...

@Emmo: True i DONT look at the knock on effects of job losses.My concern is the very short+medium term,coz am a trader.
Agreed, we need to do proper infrastructure connecting all the big towns +border points.Especially MSA-Malaba.Just creating a dual or even triple carriage highway plus a rail network on this can turn us into the Regional equivalent of DUBAI