The manufacturer will from September 30 stop production of Yana brand tyres and allied products at the Sameer Africa factory in Nairobi in what is a big blow to Kenya’s efforts to boost its under-performing manufacturing sector.
According to the manufacturer, the 2005 reduction in customs duties under the EAC Common External Tariff (CET), the high cost of electricity and underutilisation of factory capacity have impacted the business adversely.
The decision, which leaves the jobs of over 500 workers in the balance has already been approved by the Capital Markets Authority.
Sameer Africa Managing Director Allan Walmsley said the board of directors unanimously made the decision that will see the company incur a one-off charge of Sh725 million to possible plant and inventory damage as well as compensation to employees.
As of December 2015 the company had 527 employees. It was not immediately clear how many employees would face the axe, but it is expected the number might be significant.
The firm has also warned that it anticipates that earnings for the current financial year will drop by more than a quarter compared to last year.
“The earnings for the current financial year are therefore expected to be lower by more than 25 per cent of the earnings reported for the same period in 2015,” said Walmsley.
Billionaire Naushad Merali is the majority shareholder of the tyre maker, which has been fighting for survival from fierce competition from cheaper brands.
The firm has been bleeding for the last two years, reporting a net loss of Sh15 million last year compared to Sh66 million loss in 2014.
In 2015, the firm produced tyres worth Sh2.4 billion – down from Sh3 billion in the previous year. This highlights the turmoil the firm is facing.
On the contrary, however, sales generated from imported brands rose by a quarter last year to Sh708 million in testament of a major shift to the down market.
Increased competition from cheap and subsidized tyres has left the high price market segment, where the company’s locally manufactured Yana tyres compete, in bad shape.
Customers, end-users and the supply of the Yana brand to the East African market will however not be affected, the firm assured in a statement.
The company also moved to assure customers that the quality of its products would not be affected by this shift as Yana Tyres will continue to be engineered under the supervision of the company’s own chemists and engineers.
This comes at a time when the Government is putting in place measures to revive the manufacturing sector.
Some of these measures include bringing down the cost of power which adds significantly to the cost of production.