The fall and fall of General Tyre

Arusha. When General Tyre East Africa closed shop in 2009, Phillip Mweta, the state-owned factory’s former sales manager never bothered to look for a job. Like the other 400 workers, he could scarcely fathom the idea that it was the end of the road.

“There was always the belief that the government and Continental AG (another shareholder) would fix the problems bedevilling the factory and get the machines up and running again,” says Mwita.

It’s been seven years now. Despite the huge market for tyres in East Africa, reviving the former giant manufacturer in the region has remained what it is – a pipedream.

“It is very painful this factory has been left to rot. They have locked us out in the cold,” Mweta tells The Citizen. “The majority of my colleagues who worked there are living miserable lives, most of them have not secured another job for seven years.”

Partnership failed

Apparently, the partnership between the State and Continental AG failed. Continental AG, which had a 26 per cent stake in the firm that was one of biggest tyre manufacturers in East and Central Africa, has since 2006 been feuding with the state.

The problem is contractual divergence between the two. The standoff, partly due to a poor supply chain and production level, resulted in the indefinite closure of GTEA in 2009, locking out nearly 400 (now mostly) helpless workers.

In July 2008, the firm attempted to engage the government, which had a 74 per cent stake, for renewal of the contract. But reports say it failed to outline a concrete business plan on how to make GTEA profitable.

Investigations have revealed that Continental AG was asked to explain in detail how GTEA’s debts amounting to $20 million by December 2008 would be settled.

Instead of presenting ideas on this, Continental AG demanded to be paid an outstanding debt of $3.321 million. But the government flatly refused, saying the factory was supposed to settle the debts.

The private investor then made it clear that the claim was a precondition for signing a fresh contract that would enable GTEA to continue using the ‘General’ trademark.

More seriously, Continental AG also demanded that when production resumes, the tyres would be sold only to Uganda, Burundi and Tanzania.

Analysts say these preconditions were clear indicators Continental AG was not keen to revive the tyre factory.

Revival

To revive the factory back then, $28.984 million was required. Out of this, $20.016 million would have covered debts, details from government show.

The breakdown shows that $2.615 million would have been invested in the refurbishment of the factory machinery and $6.353 million would have been injected into factory operations and management.

General Tyre EA had a $4.85 million bad debt from banks.

The banks had already threatened to liquidate the plant as a result of its failure to pay back the debt.

However, in 2005, the National Social Security Fund (NSSF) issued a loan amounting to $10 million to GTEA under state guarantee hoping to enable the factory to service the foreign banks’ loan.

The balance was to be used to purchase raw materials and get the production line working again. Unfortunately, a special financial audit carried out at GTEA a few years later revealed that the NSSF debt funds were misused.

It was discovered that the GTEA paid Debt Advisory International $1million; spent $3,048,186 on raw materials without proper documentation and paid $3, 068,569 to Continental AG in infringement of agreement.

It was also revealed that $531,582 was spent without proper supporting documents and $121,663 was used without explanation.

Sources say that had the NSSF loan been spent properly, the factory would have been revived.

Blueprint

In August 2015, the government finally took back GTEA after purchasing 26 shares owned by the US-based Company, Continental AG, at a price of $1 million, formally ending seven years of a standoff between the two sides.

The then Chief Secretary, Mr Ombeni Sefue, signed the document on behalf of the government, while Mr Chapple Thomas, legal adviser of Continental AG, signed on behalf of Continental AG.

With the government now owning 100 per cent shares, the deal paved the way for the resumption of tyre production in full capacity.

Prior to this, in 2012, the government had assigned the National Development Corporation (NDC) to assess the company’s assets and prepare a business plan to revitalise it since it was the only tyre making factory in East Africa.

Fresh details from the state-run NDC show that three Asian corporations had approached Tanzania, seeking the partnership deal to breathe life into the GTEA.

NDC director Ramson Mwilangali says the three were “major firms” from India, Malaysia and China. There were also firms from America, Europe and South Africa interested in bringing in capital and technology into GTEA.

Several machines at the factory are reportedly still in good condition and can produce at least 250,000 tyres per year, earning the country $63 million if an average price per tyre is pegged at $250.

Available records show that before its closure in 2009, GTEA’s capacity was to produce 320,000 tyres annually.

Already, the firm has its guaranteed and key market in government, before it enters the private sector market in the country and beyond.

Tanzania, East Africa’s second largest economy, has seen vehicle imports rise by nearly 70 per cent in a single year, reflecting an emerging middle class produced by an improved economy and greater social welfare.

The country registered 93,009 cars by the end of 2011, compared with 55,144 in 2010. Official data, which does not include government, police, army and donor funded vehicles, shows that 67 per cent of the registered automobiles were light passenger vehicles with a carrying capacity of less than 12 passengers.

Chinese tyres

The revival of General Tyre would offer 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.

Police reports blame most of these road accidents on reckless driving and tyre bursts.

Yet 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 go-downs in hot places like Dubai for months, which seriously compromise quality.

Dr Gasper Mpehongwa, a lecturer at Tumaini University, says the revival of General Tyre will provide “healthy” competition for the only East African tyre manufacturer, Sameer Africa Ltd, leading to improvement in quality and lower prices.

“General Tyre will make tyres that can withstand our poor roads,” Dr Mpehongwa says.

Former General Tyre sales manager Mweta says the EAC tyre market is so huge that even two local manufacturers will not satisfy it.

“General Tyre would be producing only 250,000 tyres a year, mainly for heavy duty vehicles, but the rough estimated demand for heavy duty tyres in Tanzania alone can hit over two million tyres per year,” Mr Mweta explained.

In the seven years since General Tyre closed shop, Sameer African has dominated the EA market with its Yana and Firestone brands.

General Tyre, which was once the largest industrial plant in the region, started production of tyres in 1971. At its peak it was making 1,200 tyres a day.

In the late 1990s and mid 2000s, the state-owned plant changed ownership several times with the divestiture from public corporations by the government.

Analysts are, however, sceptical that it can bounce back to its production levels of the 1970s and 1980s, citing changes in technology.

They said the machinery is not only outdated, but also the factory is still using the old tyre manufacturing technologies, which have failed to catch up with changing vehicle designs.

They accused the government for having failed to ‘protect’ the factory, which they said produced good quality tyres in the region, from unfair competition with cheap and sub-standard imported tyres.