Jordan to Start Manufacturing Cars

Published August 8th, 2018 - 08:29 GMT
SIAG car manufacturing facility in Aqaba will produce SUVs as well as personal vehicles (Photo courtesy of SIAG)
SIAG car manufacturing facility in Aqaba will produce SUVs as well as personal vehicles (Photo courtesy of SIAG)

Since Jordan joined the World Trade Organisation (WTO) in 2000, several efforts to host complex industrial facilities and car assembly operations were launched.

From the Jordanian Badia I and II projects to the Land Rover Aqaba Assembly Plant and the Toyota facility, none have materialised into actual exportable or marketable products.

Last Tuesday, however, SIAG, or Arabian Auto Manufacturing Company, announced its plans to build a car-manufacturing factory in Aqaba and to start actual production in 2021, with a top executive stressing that his company is ready to step in as a rival, and a winner, in an increasingly difficult market.

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Though the company and its official strategic partners and hosts in Jordan are quite certain that they are treading on solid grounds, economists and business specialists raise a number of questions about the feasibility of the project and the very idea that Jordan is ready for such investments.

Naturally, manufacturing cars at this time and age requires immeasurable financial and industrial capabilities, economist Mufleh Akel underlined. “Especially if SIAG intends to compete with international car makers such as Toyota and Hyundai, exporting to EU, USA and South America, a lot of money needs to go into research and development.”

Domestically, SIAG’s journey — from acquiring the electronic appliances factory in Madaba in 2017, to announcing the Aqaba facility last week — was not easy, according to Mosad Rashed, chairman of the company’s board of directors.

“Fortunately”, the Aqaba Special Economic Zone Authority (ASEZA) stepped in, and now the factory will stand over a 700-thousand sq.m. land,with a capacity to produce 200 cars daily, on a two-shift basis, according to Rashed.

If successful, the venture will place Jordan among the world’s top 10 countries with such industrial capabilities, alongside Germany, Japan and other leading industrial economies, the chairman remarked.

Operating in Aqaba means SIAG will only have to pay a 5 per cent tax on profits, he said. This would ensure the carmaker a competitive edge in markets abroad. 

At an added industrial value of 53 per cent in year one, SIAG’s export operation will bring in incomparable benefits for the economy,ASEZA Chief Commissioner Nasser Shraideh noted. Within three years of operation, it is expected to rise by nearly 15 per cent.

“Like ripples in a pond,” he described it. Launching the factory will revitalise a number of secondary and indirect sectors and subsectors of the economy. “The logistical aspect of the operation alone is immense, not to mention employment.”

According to ASEZA, the factory’s export operations should lower the trade deficit with target countries by nearly 3.5 per cent on average. It will also raise the added national value of industrial exports by 27.65 per cent.

Jordan is in a unique position to capitalise on its Free Trade Agreements with these countries, Rashed underlined. 

The standards of the European Union by default means higher quality, Rashed stressed, adding the customs and tax exemptions mean that SIAG vehicles will be sold at 20 per cent lower prices, compared with the mark-up on Japanese car. The same is relatively true in comparison to Korean vehicles.

But even when marketed and sold domestically, where it could get trickier, due to a special sales tax on cars, SIAG vehicles will still be more affordable than other imported vehicles, the chairman said. 

Notably, cars are subject to a special sales tax that sometimes touches on nearly 100 per cent in Jordan, in addition to customs and the standard sales tax.

Whether SIAG’s vehicles will be exempt of the special sales tax or not is unclear at this point, according to Shraideh. “We will cross that bridge when we get to it,” he told The Jordan Times.

However, this very same special tax sank one of Jordan’s most entrepreneurial industrial projects back in 2010: the Applied Engineer Company’s Badia II vehicle.

To compensate for income lost to the concessions of international trade agreements, according to one of the Badia vehicle project founders, Fawwaz Zou’bi, the government imposed the special tax on all vehicle sales, regardless of origin.

This time, with the customs exemptions granted to SIAG, given the scale of production, Rashed said, the company will overcome the costs barrier, even if it is subject to the special sales tax imposed on domestic sales.

Taxes aside, Akel doubts the project will meet success; manufacturing 53 per cent of the vehicle’s components under one roof, or two roofs for that matter, is “not economically feasible”.

“Be realistic; even the world’s biggest car makers outsource non-core operations to minimise costs and maximise core production capabilities,” he claimed.

Besides, “no company can compete with Toyota or Hyundai. Put aside the scale-economic advantage, what about the fault rate? Toyota’s 6-Sigma Quality model is a global benchmark. One faulty car in every 1 million produced? How will SIAG compete with that?”

To business specialist George Ammari, who specialises in business and profit optimisation, SIAG does have a chance.

“If they do their research, they might succeed, barely. But to compete with world-class car makers like Toyota or Hyundai or even TATA, SIAG has a very long way to go, which brings us to the question of financing,” a point both Ammari and Akel agreed on.

“A huge amount of money must go into continuous R&D and marketing to be able to penetrate their target markets,” Ammari highlighted.

Japanese cars are fairly more expensive, but Korean cars are providing top-notch quality for far less. Can SIAG compete with them? Even that is not entirely enough, he noted. “Otherwise, why didn’t the Chinese infiltrate the European and American markets?”

Meanwhile, the fact that there are no special sales taxes or customs in the countries SIAG is targeting, makes mass production cost-effective, and the cost per unit goes down the higher the production rate goes, as Rashed explained.

This will help the company drive its costs down remarkably, especially if they increase their production rate in five years, as Rashed anticipated.

However, there is a reason why the global price index for cars keeps going up, Ammari stipulated; raw material costs are rising, and so are labour costs, Ammari commented. “Is the timing right with everything going on in the world?”

Turkey, Iran, Egypt and Algeria all have manufacturing facilities similar to SIAG’s. Some assemble cars.The others actually manufacture them, noted Akel.

Egypt has had a tyres factory for almost 50 years, he notes, since Abdul Nasser. “How successful were any of those ventures?” He asked.

At one car every 288 seconds, Akel argued, the factory must be automated; robotised. So how does the Jordanian workforce fit into this picture? SIAG is supposed to provide thousands of jobs.

To that, Rashed replied that the factory will provide 7,500 direct and indirect jobs, both in the primary and secondary sectors of the production and logistical operations. 1,114 permanent, in-house jobs will be provided to meet the international benchmark ratio of six employees to every car produced, he reaffirmed. Of those, 400 are administrative staff. “This is not including the construction phase, which is entirely contracted via independent construction companies,” he confirmed

“Personally, I expected the overbearing tide of scepticism, and I do not want to be in the investor’s shoes. But I believe in Jordan and its capabilities, as well as in the investor’s know-hows, expertise and research,” Shraideh said.

The production line is going to be manufactured in China, to produce cars at European quality standards. The exemptions will make these quality cars affordable, at up to 50,000 cars a year, the top executive noted. 

This is very different from other projects in the region, he stressed, and is not an assembly line, as the technologies in place are far more advanced, he confirmed. “A lot of research was put into its development”. 

“SIAG will rival competing car makers overseas.I have no doubt it can achieve the objectives of the project,” ASEZA chief said.

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