Dubai: The Al Futtaim Group’s expansion strategy for East Africa is firmly locked in place as it closes in on the 100 per cent ownership of Kenya’s automotive distributor CMC Holdings Ltd.
A subsidiary, Al Futtaim Auto & Machinery Co. (Famco) already has 91.6 per cent in CMC, but it is bent on mopping up the rest of the free stock available in the market. It was one of the biggest cross-border investment deals in Kenya this year.
“We expect to acquire the remaining shares by end October as per the regulatory requirement and there’s an open offer,” said Mark Kass CEO at CMC. “The CMC acquisition is the catalyst for our entire strategy across East Africa and not limited to Kenya.”
Indeed, CMC holds the distribution rights for key auto brands — Ford, Volkswagen, Mazda, Suzuki, CNH, MAN, Eicher and UD. Better still, most of the infrastructure — in terms of showrooms and service facilities has additional capacity. What it means is that as the new owner, the Al-Futtaim Group does not have commit to major investments by way of additional facilities in order to deliver its volume growth objectives.
But it’s not just the new car market that the Dubai group sees optimum possibilities, heavy commercial vehicles and farm machinery will deliver significant growth. “The Kenyan market accounts for circa 17,000 new vehicles, of which 80 per cent is made up of commercial vehicle types,” said Kass. “Under our stewardship, CMC will not suddenly try and gear the market towards new car ownership — it won’t work even with GDP growth rates of 7 per cent, and more African economies have been witnessing as it’s all about affordability.”
“With the other operating groups in the Group, such as Al Futtaim Finance, we can offer tailor-made structured financing packages for vehicle ownership through partnering with African banks,” said Kass. “This way, we believe we can convince more owners with three- or four-year-old vehicles to purchase new vehicles from CMC given the cost of ownership during the a typical 48-month cycle.”
The Group has also decided against aggressively driving a pre-owned vehicle programme in those markets. This is despite second-hand import sales outgunning those for new ones by a factor of 8:1. “This would have distracted us from aiming for higher growth on the new car side by way of market share with the brands represented,” said Kass. The pre-owned strategy will be incremental and not supplementary.
While this is the Al-Futtaim automotive first venture into East Africa, the group has had considerable exposure in North African markets over the years. “We have multiple businesses in Egypt that have been doing well,” said Kass. “The CMC acquisition gives us a major foothold in East Africa.
“It’s enough to convince us that our top-line numbers in East Africa will double in the midterm. For the Al Futtaim Group, Africa is going to be our China. Apart from East Africa, there could be possibilities in sub-Saharan territories. It’s where we see a substantial part of our growth will come from by 2020 and beyond.”