FARM EQUIPMENT SECTOR Quo Vadis : Ranniti

Team Kautilya
Indian Institute of Management Kozhikode Meera Annam Baby Sivaharsh S Monica Pachori

Country Risk Analysis- Parameters Considered

World economic forum RODB
Institutions Infrastructure Macro economic stability Good and market efficiency Financial factors Labor Market Market Size Business Sophistication Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors Paying taxes Trading across Borders Enforcing Contracts Resolving insolvency

Intra trade in Africa

 Intra trade in Africa is relatively low, around 12%  Africa is the largest export market for Kenya and Senegal, and second largest for other countries in the cluster Uganda, Zambia, Mozambique, Cameroon, Ghana, Tanzania  COMESA, the EAC and SADC to be integrated into a FTA by 2013

INDUSTRY ANALYSIS APPLITRACS

Applitrac s Parameters Considered

Agricultural Area Area Equipped for Irrigation

Agricultural value added to GDP

Ease of finance

Getting Credit

Area (km) Population

Selected Countries

AGRICULTURAL EQUIPMENT IMPORTS IN SELECTED COUNTRIES (2008) Based on FAO Statistics Agricultural tractors
Agricultural tractors (Import Quantity 2008) 12282 10627 7994 3266 1063 195 449 872 1569 380 9031 493 1 3 1 20 1021 6 250

Balers
Balers 32416

2430

2362

Combine harvesters - threshers

Combine harvesters - threshers 1388

Manure spreaders and Fert. distributors

Manure spreaders and Fert. distributors 8666

453 4 22 2 47 1 1 4 101 21 238 1112 25 924 678

AGRICULTURAL EQUIPMENT IMPORTS IN SELECTED COUNTRIES (2008) Threshing machines (staking, forage harv.)
Threshing machines(staking,forage harv.) 2113 950 45 1 7 1 8 141 2 7 9 42 22 6 2 82 35 12

Based on FAO Statistics Track-laying tractors

Track-laying tractors 96

Root or tuber harvesting machines

Root or tuber harvesting machines 14827

Seeders
Seeders 11720

4806 52 1 36 32 334 16 2 240 2 1110 22 128 39

AGRICULTURAL EQUIPMENT REGIONAL COMPARISON

Africa has an average of only 13 tractors/100 km-square of arable land, versus the world average of 200 tractors/100 km-square Currently tractor ploughing and use of other modern inputs are confined to areas with high market demand or large-scale farms.

Stake Holders in Farm Mechanization

Demand level
The smallholder farmers Commercial farmers Farming organizations Irrigation groups Crop processors Rural transporters

Supply level
Importers Manufacturers Blacksmiths Distributors Machinery support Service providers Service contractors

Institutional support level

Financiers and financial institutes Government NGOs Extension workers Researchers Trainers Policy makers

Customer Analysis
Only Medium and large-scale commercial farms can afford to purchase and operate agricultural machinery Small farmers may hire machines, as ownership is costly Hire schemes have previously failed to pick up in many parts It is important to educate the customer, as many find it difficult to use advanced equipments Farm equipment machine owners should be encouraged to hire their equipment, when not in use Tractor-based contractors are encouraged Rural credit schemes for farmers under performed in many parts
Interest rates charged vary from 20 to 25% of loaned amount transaction cost is 8% Risk cost due to default 3% Insurance- 3 to 8%

Many governments have reduced tax for importing farm equipment In many cases, government is a customer and corruption an issue Customres are loyal to brand, but more loyal to dealers

Competitor Analysis
Well established dealership of major players in Africa supplying farm equipment to customers Chinese manufactures at times offer cheaper and more appropriate machinery Tractors sourced from India included Escorts, Deere, Mahindra, Tafe,New Holland, and Same. In 2007, Indian tractors held about 21 percent of the market

Market Share
Massey Ferguson (AGCO) 26.9 12.3 14.3 31 New Holland Landini 15.5 Deere Others

Case of CLAAS Company

Companies need to be system consultants more than manufacturers Climatic conditions, water shortages, farm size, finance arrangements, training needs After taking tractor business of Renault agriculture the sales increased New product developed to meet the needs of farmers with smaller land holdings

Learning from CLAAS

Long term partnership between manufacturers and end users in terms of technical assistance, technical training, exchange program and incentive program Possibility of having direct link with national agricultural universities and international development organizations Work closely with donor organizations and finance institutions Fight corruption, and use money in training, technical advice and demonstration

Challenges
Machines need to be developed to suit local climatic conditions
Co-operation from state agricultural R&D organization can be sought

Investment in agriculture low in many countries Water scarcity

For rain fed regions specialized equipments such as direct seeders, subsoilers and chisel ploughs are in demand CLAAS is promoting usage of biodiesel CLAAS is working with renewable energy firms, and is providing subsoliers rippers and direct seeders

Financing difficulties
CLAAS has a joint venture with BNP Paribas in financing called CLAAS Financial Services globally, it may be applicable in Africa as well Farm co-operatives needs to be formed

Farm Size
Farm size of less than 10Ha difficult to manage economically Amalgamation to be encouraged

Machinery training for farmers supported by CLAAS Co-operation with universities and institutes of agriculture

Importance of tractor sales to sale of other equipments

Mahindra can leverage on its tractor business

MAHINDRA APPLITRAC - PRODUCTS

CROP HARVESTING SOLUTIONS Self-propelled wheel harvester Multicrop (cereals, sunflower, pulses) Crawler paddy harvester Tractor-mounted harvesters

RICE FARMING SOLUTIONS Walk-behind rice planter Various types of Harvesters Rice transplanters

SUGARCANE FARMING SOLUTIONS Cane Thumper - multi-use power tiller Sickle Sword attachment to the tractor Detrasher to clean the sugarcane Mulcher

Basic Implements - Matching Implements for tillage Cultivators Disc Plough Mounted Disc Harrow

Advanced Implements : Ploughs Rotovators -Special tillers for rice & potato -Seed-cum-fertilizer drill

Other products: Potato Planters & Harvesters Cotton picker Sprayers of different types to suit all crops & orchards Fertilizer Spreader Mulcher for banana, sugarcane, cotton

MAJOR CROPS IN AFRICA

COUNTRIES Cte d Ivoire Ghana Mali Kenya Ethiopia Zambia Morocco Egypt Tunisia South Africa Namibia

CROPS Coffee, Cocoa Cocoa, Cotton, Rice, Horticulture Cotton, Rice, Horticulture Maize, beans, potatoes, tea, Horticulture Coffee, Corn, Barley Cotton, Sugar, Floriculture Wheat, Plantation crops, sugarcane Cotton, wheat, corn, sugarcane Wheat, barley, olives, Citrus fruits Maize, wheat, fruits, sugarcane Cotton, Maize, Sunflower

MAPPING APPLITRAC PRODUCTS TO REGIONS West Africa

Mali, Ghana, Nigeria etc. Horticulture, cotton, Rice, Groundnuts, Cassava, Cocoa , Coffee Rice Farming Solutions, Horticulture implements

East Africa
Kenya, Ethiopia, Zambia Horticulture, Cotton, Coffee, Cereals Harvesters, Other implements like Fertilizer spreader, sprayers

North Africa
Egypt, Morocco, Tunisia Wheat, cotton, sugarcane Harvesters, Advanced Implements, Cotton tillers etc

South Africa
South Africa, Namibia Cereals, sugarcane, Cotton, Sunflower Harvesters, Advanced Implements, Cotton tillers etc

MARKET POTENTIAL INDIA

Assuming Africa will reach India s levels of agricultural equipment penetration in next decade

Area under rice cultivation in Africa Number of harvesters assumed per 1000 ha Estimated market potential Area under horticulture Number of horticultural tools assumed /1000 ha Estimated market potential for Horticultural implements

Method 1
4.7 million hectares 20 94,000 harvesters 5.5 million hectares 10 55,000 (includes mulchers, sprayers etc.)

Similarly we can estimate the market potential for other AppliTrac equipments

Method 2
Total number of harvesters per tractor Arable land in Africa Assuming 16 tracter / 1000 ha Number of harvesters =3,709,705 .2 (based on Indian statistics)

1159283

Source: IBEF, AfricaRice.org, hortifair.nl, Zinnov Consulting

COUNTRY ANALYSIS

NIGERIA Country Specific Factors Second largest economy in SubSaharan Africa, accounts for 41% of the region s GDP Per capita income rise in last decade large middle class Strong growth in new sectors such as wireless telecommunications, construction and a revival of manufacturing Brand conscious consumers & aspirational lifestyle

GDP: 193.67 Billion Dollars Corporate Tax: 30% FDI: Very High

Political Factors: High Legal Factors: Medium Economic Factors: Medium

Scores low on Doing Business Rating Starting a Business (110), Dealing with Construction Permits (167), Registering Property (179), Trading Across Borders (146) and Enforcing Contracts (97)

REGIONAL TRADE: West Africa is dependent on Nigeria for trade FDI: In 2010, China had set up more than 30 solely funded companies and joint ventures in Nigeria Presence of other multinationals like P&G etc.

NIGERIA AGRICULTURAL SECTOR Major Crops Regulatory Policies Groundnuts, Cassava, Horticulture 2.5 per cent tariff reduction on importation of agricultural inputs Agricultural credit guarantee scheme for small and medium farmers - Commercial Agricultural Credit Scheme (CACS) Priority lending to Agriculture Sector by Commercial banks (10% of the profit before tax) Indians own farms in Nigeria Large scale-farming ventures in rise, particularly for the production of groundnuts, fruits, cassava, yam National Centre for Agricultural Mechanization (NCAM) promotes agricultural mechanization

Other Factors

Equipments: Hand seed planter, Manual seed and fertilizer broadcaster, Tractor mounted groundnut digger Etc.

NIGERIA MODE OF ENTRY

Benefits
Low labour cost Large domestic market Supply of skilled/ unskilled workforce Access to entire West African sub-regional market as region is dependent on Nigeria

Risks POLICIES
Political instability is high Reforms & Infrastructural policies can be changed by new governments Requirements imposed by government regulatory agencies Recruiting and retaining top-notch employees could be a challenge unless the entrant builds a reputation as a high-quality employer Absence of good distribution networks & well-developed market structure Low transparency & high corruption in public agencies Credibility & trustworthiness of Nigerian business partners risk of reputation & losses High monitoring costs for ensuring transparency by partners

HUMAN RESOURCES INSTITUTIONS

SUGGESTED MODE: Green field entry Establish manufacturing plant for AppliTrac

MALI

Political and economic stability Liberalised economy & democracy Access to regional and international markets
borders on seven other countries Access to a market of approximately 73 million consumers living in the West African Economic and Monetary Union (WAEMU) member States and 220 million, in the Economic Community of West African States (ECOWAS) member countries Good cross-border road network

International Trade Agreements

Access to the US market under the African Growth and Opportunity Act (AGOA) since 2002 Full access to the European Union market, free of duties and quotas, under EU s Everything-But-Arms initiative Risks for entry: Low education & literacy level Poor infrastructure & road connectivity to rural areas High cost of electricity

MALI - AGRICULTURAL EQUIPMENT

1.24 million sq km, but only 3.76% of the land is arable, of which around 80,000 hectares are irrigated MAJOR CROPS: Cotton (15% of the GDP) Cereal crops (15% of the GDP), mainly rice Horticulture(mangoes, citrus fruit, green beans, onions, potatoes, tomatoes, cabbages and cucumbers) TRENDS: Policy Focus (LAO) on agricultural credit, irrigation and mechanization Emphasis on irrigation as horticulture & rice is dependent on rain currently Development of Cold Supply Chain for Horticulture exports uses generators Government focusing on increasing rice cultivation: post-harvest activities and marketing of rice, irrigation and water regulation techniques. Recently, Government intervened to pre-finance agricultural equipment which was handed over to producers comprising of mini rice mills, motorized rotary tillers, threshing machines, husking machines and power pumps at a total cost of 1.5 billion FCFA Presence of large rice operators in rice markets Possibility of shift to large scale rice farming

GHANA Country Specific Factors

GDP: Corporate Tax: 25% FDI: $2.1bn in 2008 Population: 250 mn Best country in West Africa according for Doing Business according to World Bank
Trade Market access ECOWAS 220 m COTONOU 456 m AGOA 299 m FDI (1994-2008) Mining: $6.7bn Non-mining: $4.5bn

Political stability Economic growth > 6% for last 5 years Overall investment is one-third of GDP 38% of GDP from agriculture Cocoa accounts for 4.5% of GDP (2007) Horticulture getting more attention Edible fruits, which includes cashew nuts, at US$129mn Cocoa exports were valued at US$1.1bn Arable land 4,185,000 ha (2003)

GHANA AGRICULTURAL SECTOR Major Crops Regulatory Policies Cocoa, Pineapple, Cotton, Tomatoes, Rice, Maize, Cashews Rural roads and irrigation Enabling rural banks to increase credit Providing research services to help diversify crops Setting up chains of value-added industries Mainly small farms, large farms for maize & rice Increased government push for Sugarcane cultivation due to sugar deficits

Other Factors

GHANA MODE OF ENTRY

Benefits

Political stability Low wages Abundant supply of skilled and motivated workers - companies are generally able to fully staff operations with local residents Comfortable standard of living Ghana s seaports allow for inexpensive container shipments to European and US markets Lower lease rates compared to rest of africa
Risks

POLICIES

Policies mainly support agro-processing or horticulture not for agricultural equipment Foreign investors may lease but not own land
Emphasis on science and technology, particuarly ICT in higher education coupled with a strong focus on skills and vocational training schemes

HUMAN RESOURCES

SUGGESTED MODE: Exports

MOROCCO

GDP: $91.2 Billion

One of the more developed farm equipment markets in Africa High potential High in political factors & economic factors

Political stability Monarchy Modern political structures, active civil society Mediterranean-type, semi-arid to arid climate irrigation is a main issue 16% of GDP by agriculture Morocco s trade is overwhelmingly concentrated on the EU market (over two-thirds of exports)

MOROCCO AGRICULTURAL SECTOR Major Crops 40% of the arable land is used for cereal production mainly wheat 7% is devoted to plantation crops like almonds, olives, grapes, dates and citrus. 3% of the land is employed for pulse cultivation. Agriculture in Industial crops like sugarcane, cotton and sugar beets. 2008, established an ambitious strategy to encourage a modern and competitive agriculture over a 10- to 15-year period. Mobilisation of national and international funds (EU, International Agriculture Development Fund, Millennium Development Goals, African Development Bank [AfDB] etc

Regulatory Policies Other Factors

Morocco
Country Specific Factors RODB is moderate, the Macro factors are also moderate

GDP: 91.2 Billion Dollars Corporate Tax: 30% FDI: Decreasing recently

Political Factors: Moderate Legal Factors: Moderate Economic Factors: High

Trade Factors Labor cost is moderate Part of AFT agreement as well as AMU, but not part of any other trade organization

Morocco- Agri Entry Strategy

Agricultural Factors

Country Trends in Agriculture Entry Strategy

Cameroon
Country Specific Factors RODB is Very High, the Macro factors are Low GDP: 22.39 Billion Dollars Corporate Tax: 38.5% FDI: Moderate Political Factors: Moderate Legal Factors: Moderate Economic Factors: Low

Trade Factors Labor cost is High Low in Intra trade, Not part of trade organizations in Africa

Mali
Country Specific Factors RODB is High, the Macro factors are Moderate GDP: 9.25 Billion Dollars Corporate Tax: 35% FDI: Moderate Political Factors: High Legal Factors: Medium Economic Factors: Moderate

Trade Factors Labor cost is Low Part of FTA. The country is Moderate in scope for Intra Trade

Sudan
Country Specific Factors RODB is High, the Macro factors are Moderate GDP: 62.05 Billion Dollars Corporate Tax: 35% FDI: High Political Factors: High Legal Factors: Medium Economic Factors: Medium

Trade Factors Labor cost is Low Part of AFT. The country is Moderate in scope for Intra Trade

Tunisia
Country Specific Factors RODB is Low, the Macro factors are High GDP: 44.29 Billion Dollars Corporate Tax: 30% FDI: Very High Political Factors: Low Legal Factors: Good Economic Factors: High

Trade Factors Labor cost is Low Part of AMU. The country is Moderate in scope for Intra Trade

Zambia
Country Specific Factors RODB is Low, the Macro factors are High GDP: 44.29 Billion Dollars Corporate Tax: 15% FDI: Very High Political Factors: Low Legal Factors: Good Economic Factors: High

Trade Factors Labor cost is Moderate to high Part of AFT, SADC. The country is high in scope for Intra Trade

POWEROL

Index
1 Region Analysis 2 Country Analysis 3 Industry Trends and Challenges 4 Opportunity Capability Mapping 5 Recommended Go-to-market Strategy

INITIAL SELECTION ON THE BASIS OF ECONOMY

The regional leaders as shown in the first map above, are assumed to have major influence on the surrounding smaller players. Hence in the first round of analysis we considered regional giants as well as the top 10 market for genset in Africa as shown below:

Africa Selecting Clusters and Countries Factors Considered in the Industry Model Electricity per capita consumption Electricity Consumption Electricity Production Population Growth Rate GDP Growth Rate Investment Growth Industrial Production Growth Rate Electricity Export Electricity Import Mobile Subscribers Mobile Subscriber CAGR Foreign Direct Investment Factors Considered in the Qualitative Model Business Risks Macro economic Factors Total Import Conditions Power Outages Generator Ownership trends
On the basis of the Industry Model, Following Countries were selected 1. South Africa 2. Nigeria 3. Egypt 4. Ethiopia 5. Malawi 6. Botswana 7. Gambia, The 8. Burundi 9. Burkina Faso 10.Tanzania 11. Chad 12. Zambia 13. Madagascar 14. Zimbabwe 15. Algeria 16. Cape Verde 17. Mauritius 18. Benin 19. Angola 20. Senegal 21. Ghana 22. Rwanda 23. Eq. Guinea 24. Libya 25. Cameroon 26. Uganda 27. Tunisia 28. Mali 29. Kenya 30. Morocco 31. Namibia 32. Lesotho 33. Swaziland

On the basis of above model we got an idea of the priority of analysis. We further narrowed the search on the basis of clusters identified earlier & qualitative model.
Business Risks & Macro economic rankings were as follows 1. South Africa 2. Mauritius 3. Libya 4. Rwanda 5. Tunisia 6. Morocco 7. Namibia 8. Botswana 9. Gambia, The 10. Ghana 11. Egypt 12.Kenya 13.Grenada 14. Zambia 15. Nigeria 16. Uganda 17. Cote d ivoire 18. Mali 19. Ethiopia 20. Malawi 21. Algeria 22. Swaziland 23. Tanzania 24. Cape Verde 25. Guatemala 26. Senegal 27. Lesotho 28. Scychelles 29. Cameroon 30. Madagascar 31. Benin 32. Mozambique 33. Burkina Faso

On Mapping the two scaled rankings, we get 8 countries in the top 20 of both the lists

OTHER FACTORS

OTHER FACTORS

INDUSTRY ANALYSIS

BASIC SEGMENTATION (ON THE BASIS OF END USER)

Power Back Up

Home

Commercial

Small UPS(Below 5KVA) Portable Generator Inverter (6001400VA)

UPS

Generators

Inverters

Medium (530 KVA) Large (30 KVA & above)

Portable

Mid End ( 2.5 KV & 3.5 KVA High End (above 5 KVA)

Stationary

BASIC SEGMENTATION (ON THE BASIS OF PRODUCT)

Power Back Up Generat ors Stationa ry 3-15 KVA 15 125 KVA

>125 KVA Portable (0.5 6 KVA)

UPS

Invertors
Low end (600 1400 VA) Mid End ( 2.5 KV & 3.5 KV) High End (>5KVA)

UPS Medium (5-30 KVA) Large (30 KVA & above)

DRIVERS
Blackouts are a routine occurrence and the load factor i.e. the effective utilization of major generating plant, is well below international standards

Power Shortages & Demand Supply Gap

Do not have the resources, or possibly the know-how, to bring electricity to their people via major power generation and transmission systems

Lack of resources
Demand for diesel powered generating plant of all capacities has been rising at the steady rate of 17.5 per cent per annum for the past ten years

Steady demand
African countries are rich in mineral resources and mining is one of the major contributor to the GDP. The sector requires power in huge quantum

Mining Investment Boom

The liberalization, the extension of services by MNCs and the active competition currently in place in the sector have all contributed to the telecom revolution

Telecom Sector Growth

Industrial Production Index is another key driver due to excessive and continuous power requirements in the manufacturing processes

Growing Industrial Production Index Growth

In many countries with high growth rate, the cost of grid power is high, hence emergency or leased power can be considered as an option

Cost of Grid Electricity

CUSTOMER BEHAVIOR
Countries that report more than 60 days of power outages per year, firms identify power as a major constraint to doing business and are more likely to own backup generators. The size, sector, and export orientation of the firm also influence the likelihood of the firm having its own generation facilities. Larger firms are more likely to own backup generators. Frequent power outages result in forgone sales and damaged equipment for businesses, which result in significant losses. These losses are equivalent to 6 percent of turnover on average for firms in the formal sector and as much as 16 percent of turnover for informal sector enterprises that lack a backup generator

Own generation constitutes a significant proportion of total installed power capacity in the region, as much as 19 percent in West Africa. In the Democratic Republic of Congo, Equatorial Guinea, and Mauritania, backup generators account for half of total installed capacity. The share is much lower in southern Africa, but it is likely to increase as the region experiences further power outages.

COMPETITOR TRENDS IN AFRICA POWEROL

Kirloskar has a subsidiary in South Africa which handles distribution to Mozambique, Zimbabwe and Botswana Cummins has subsidiary in South Africa through which it distributes to 11 countries including Zambia, Namibia, Mozambique, Mauritius, Malawi Cummins has entered West Africa through a Joint Venture in Nigeria with AG Leventis Plc, a local player North Africa : Distribution through subsidiaries in Algeria & Ghana East Africa: Distribution through subsidiary in Kenya In addition, they have access to multiple countries through dealers who span multiple countries like BIA, Matforce etc.
Major Indian competitors like Cummins & Kirloskar has established presence in Africa

International Players typically tend to own subsidiaries for distribution in regional hub

Countries like Nigeria, South Africa etc. offer potential for acquisitions of local players

Partnership with regional groups which has distribution channels in Africa in sectors like Automotive

COUNTRY ANALYSIS

Africa Green field Investment

Advantages Local Sourcing will reduce cost in the long run In Africa, farm equipment is more like agro consulting, with different requirements for different areas, and different soil types In the long run, FTA can be explored to import to other countries The trade tariffs in Africa are 50% higher compared to other regions like Latin America The farmers are cost sensitive, and will demand low cost tractors Disadvantage Political Instability in many parts Only 12% of the total trade is intra trade Currency is different across Africa FTAs are not implemented in parts of Africa

South Africa Country Specific Factors The risk of doing business is Lowest in Africa, it scores high in other macro factors as well GDP: 363.70 Billion Dollars Corporate Tax: 28% FDI: Very High, with many M&A s Trade Factors Africa has FTA with 25 countries, and is the major Hub in the Southern part of Africa Establishing a base in South Africa is critical as the company could leverage on the trade agreements and favorable investment in Africa SADC forms 51% of the Africa s intra trade Scope for Green Field Investment Labor cost is relatively high, but the risk of doing business is lowest A gate way to other countries Labor is expensive and skilled Growing Industrial Production Index at a current rate of 3% Political Factors: Highly Stable Legal Factors: Strong Economic Factors: Strong

South Africa Agricultural Factors

Country Trends in Agriculture

Namibia

South Africa has a strong credit system The Irrigation and tractors in use is also very high compared to other parts Agricultural value added to GDP is relatively low Maize, Sugar Cane and Wheat are the major crops Terrain is dry Is a large exporter of equipments to other regions, and the established trade routes can be exploited Can be a strong center to export to other parts in south as well as areas were agricultural Investment is high

Botswana

South Africa

Swaziland

Lesotho

South Africa Powerol

Genset Market Trends 1.Very less power outages (<20) 2. High economic cost of power outages 3. High healthcare expenditures (8.5) 4. Can be a strong center to export to other parts in south 5. Is a large exporter of equipments to other regions, and the established trade routes can be exploited 6. Second largest genset market in Africa, biggest generator of electricity on the continent and one of the world s top twenty generators, as well as an exporter of power to neighbouring African countries. 7. the load factor of its generating plant is very high 8. Economic growth in recent years has caused demand to outstrip supply, thereby creating a considerable market for generating sets

South Africa consumed an aggregate of 940 megawatts of engine driven generating sets in 2010. Whilst the market had been growing steadily at a rate of 22 per cent per year until 2006, it then grew to an unsustainable level in 2007/08, only to fall back substantially in 2009/10. The underlying growth level is more likely to be in the order of 20 per cent given Eskom s plans for increased generating capacity, some of which has already come on stream. Sixty per cent of demand lies in the range from 75/375 kVA and a further 30 per cent from 375 to 2,000 kVA.

Genset Market Potential

South Africa Entry Strategy

 Low Risk Region, with high potential
 Green Field Investment
 Strategic point for entry  Free trade with other parts  Market Sensing and Product Design key factors for success in Africa  High Labor costs and low potential with in SA are negatives

 Acquisition
 Falcon Equipments in South Africa
 Indigenous Manufacturer of Farm Equipments in SA  Have a large dealer network in SA, and other parts, which Mahindra can leverage  Acquisition seems to be a better option, since the entry is strategic

 Import
 Import from other parts could be an option, considering the low potential and high labor costs

NIGERIA Country Specific Factors Second largest economy in SubSaharan Africa, accounts for 41% of the region s GDP Per capita income rise in last decade large middle class Strong growth in new sectors such as wireless telecommunications, construction and a revival of manufacturing Brand conscious consumers & aspirational lifestyle

GDP: Corporate Tax: FDI: Scores low on Doing Business Rating Starting a Business (110), Dealing with Construction Permits (167), Registering Property (179), Trading Across Borders (146) and Enforcing Contracts (97)

REGIONAL TRADE: West Africa is dependent on Nigeria for trade FDI: In 2010, China had set up more than 30 solely funded companies and joint ventures in Nigeria Presence of other multinationals like P&G etc.

Nigeria Powerol

Genset Market Trends 1.Very high power outages (>60) 2. High GDP growth rate (8.4%) 2. Risk of Doing Business is very high 3. Decent healthcare expenditures (5.8) 4. Decreasing electricity production and increasing consumption 5. 0.75 % of electricity subsidy do not reach poor 6. Intratrade is not good with neighbouring countries 7. Booming Telecom sector(CAGR 109%) 8. The growing confidence of Nigerian banks has been demonstrated by their entry into the eurobond market as well as by their expansion into local regional markets. 9. Small Growth in Mining Sector

By 2005 the country was consuming 8,600 sets a year having a generating capacity of 1,170 MWe. But the market took off in 2007 reaching an unsustainable peak of 31,000 sets in 2008, almost 8,000 of which had an output of less than 7.5 kVA only to fall back in 2009/10 to 20,000 units with an aggregate generating capacity of 1,500 MWe.

Genset Market Potential Good for Home UPS, Telecom Sector Back Up and Hospitals Not Good for generators of high installed capacity for mining and other manufacturing firms as the growth rate is low.

Kenya
Country Specific Factors The risk of doing business is Relatively high in Kenya, But it scores high in other macro factors GDP: 17.597 Billion Dollars Corporate Tax: 30% FDI: High and increasing Political Factors: Moderate Legal Factors: Moderate Economic Factors: Moderate

Trade Factors Kenya has FTA with many countries being part of COMESA, EAC as well as FTA For Kenya Africa is the largest export market, but it is an importer of machinery Kenya, a major exporter of agricultural products Industrialized, but Industry forms only 10% of GDP Labor is relatively cheap and skilled

Kenya
Agricultural Factors

Country Trends in Agriculture

Kenya has a strong credit system It has 75% of population in agriculture Agricultural value added to GDP is moderate Availability of water is not a major issue Tea, Coffee, Banana, Cassava are the major crops Is an exporter of agricultural goods Many agricultural equipment manufacturers like NDUME and Multi Tools Kenya are there as competitors Second Hand imports a major threat Affordability a key issue when it comes to purchase
Tanzania

Uganda

Kenya

Burundi

Rwanda

Kenya Powerol

Genset Market Trends 1.Very high power outages (>80) 2. High Economic cost of power outage (2% of GDP) 3. Good GDP growth rate (5%) 4. Risk of Doing Business is very high 5. Decent healthcare expenditures (12.2% of GDP) 6. Decreasing electricity production 7. Increasing Horticulture and hence cold chains 8. Affordability a key issue when it comes to purchase but strong credit system 9. Booming Telecom sector(CAGR 56.4%) 10. Small Growth in Mining Sector

The underlying growth rate in each of these markets is in excess of 25 per cent per year. Kenya, though a somewhat larger market experienced more steady growth with an emphasis on larger units in the range 750-2,000 kVA.

Genset Market Potential

Kenya Entry Strategy

 Moderate Risk Region, with high potential
Green Field Investment
Strategic point for entry Free trade with many countries

Acquisition or Joint Venture

Multi-Tools Kenya
 Company Source Farm equipments, Gen Sets and other machinery from India and other parts, have a good dealership in Africa  Experience of 25 years

 As the risk is moderate a Joint Venture with a partner would be better than Green Field

Egypt
Country Specific Factors RODB is high, the Macro factors are also not that favorable

GDP: 218.91Billion Dollars Corporate Tax: 20% FDI: Decreasing recently

Political Factors: High Risk Legal Factors: Moderate Economic Factors: High

Trade Factors Labor cost is moderate Part of AFT agreement as well as COMESA, so can import from other countries who are part of African Free Trade Zone FDI has recently decreased due to political instability Importer of Machinery and exporter of Oil

Egypt - Agri Entry Strategy

Agricultural Factors

Country Trends in Agriculture

High Irrigation systems Dry land Agricultural value added to GDP is relatively low, but higher than many other developed parts Rice, Wheat, Cotton, Sugar Cane, Fruits, Vegetables High Irrigation and mechanization compared to other parts

Entry Strategy Moderate Risk , Moderate Potential

EGYPT Powerol

Genset Market Trends 1. High power outages (>20) 2. Increasing electricity Imports (251 mkwh) 3. Good GDP growth rate (5.1%) 4. Risk of Doing Business is was earlier very high but now moderate due to increasing political stability 5. Decent healthcare expenditures (6.4% of GDP) 6. High Corruption 7. Less time required to start a business ( ranked 21/139) 8. One of the most populated country 9. Booming Telecom sector(CAGR 64.5%) 10. Small Growth in Mining Sector

Egypt, the third largest genset market in Africa, having a population of 80 million and consuming 12 per cent of the continents annual genset demand, is also the second highest consumer of electricity in Africa which has grown at a compound rate of 7 per cent per annum for the past ten years.

Genset Market Potential

Entry into Green Field, in large generator sets for hospitals, manufacturing etc.

ANGOLA Powerol

Genset Market Trends 1. Very High power outages (>100) 2. Increasing electricity Consumption (237.88 kwh per capita) 3. High Industrial production growth rate(5%) 4. Risk of Doing Business is very high and also not very good in macro economic factors as well, hence greenfield is not advisable 5. Inadequate Government Bureaucracy, Less access to financing and high corruption 7. Decent demand in all the segments(shown in figure) 8. Rely on imports for more than 50% of demand, good in regional trade due to trade blocs 9. Booming Telecom sector(CAGR 90.1%) 10. High growth in oil production

Demand growth for generating sets has averaged over 35 per cent per year since 2005, Market more than trebled, before flattening off in 2009 and then declining in 2010 due to recession. Whilst the market consumed 15,000 gensets in 2008, and is now averaging 10,000 units per annum with an aggregate output of 500 MWe, it is set to substantial growth in the future.

Genset Market Potential

ANGOLA Powerol

Genset Market Trends 1. Very High power outages (>100) 2. Increasing electricity Consumption (237.88 kwh per capita) 3. High Industrial production growth rate(5%) 4. Risk of Doing Business is very high and also not very good in macro economic factors as well, hence greenfield is not advisable 5. Inadequate Government Bureaucracy, Inadequate infrastructure and high corruption 7. Decent demand in all the segments(shown in figure) 8. Rely on imports for more than 50% of demand, good in regional trade due to trade blocs 9. Booming Telecom sector(CAGR 90.1%) 10. High growth in oil production

Demand growth for generating sets has averaged over 35 per cent per year since 2005, Market more than trebled, before flattening off in 2009 and then declining in 2010 due to recession. Whilst the market consumed 15,000 gensets in 2008, and is now averaging 10,000 units per annum with an aggregate output of 500 MWe, it is set to substantial growth in the future.

Genset Market Potential

Algeria
Country Specific Factors RODB is Very High, the Macro factors are moderate GDP: 159.43 Billion Dollars Corporate Tax: 25% FDI: High Political Factors: Moderate Legal Factors: Moderate Economic Factors: Moderate

Trade Factors Labor cost is moderate Part of AMU only, but not part of any other trade organization So intra trade with low tax is restricted with in AMU

ALGERIA Powerol

Genset Market Trends 1. Very High power outages economic cost(upto $ 155/hour) 2. Increasing electricity Consumption (CAGR 2.7%) 3. High Industrial production growth rate(4%) 4. Risk of Doing Business is very high and also not very good in macro economic factors as well, hence greenfield is not advisable 5. Inadequate Government Bureaucracy, Less access to financing and high corruption 7. Decent demand in all the segments(most in lower end) 8. Algeria, the fifth largest generating set market, is the fourth largest crude oil producer in Africa 9. Booming Telecom sector(CAGR 99.1%) 10. eighth-largest reserves of natural gas in the world and the consumption of electricity continues to grow at a rate of over 5.5 per cent per annum.
The market presently consumes 4,500 gensets each year, down from the peak of 5,700 in 2009 when 70 per cent were of a rating in excess of 375 kVA. Despite this the underlying growth rate at 18.5 per cent is positive, and once political and economic stability have been fully resolved the market should return to a positive pattern of growth.

Genset Market Potential

Libya
Country Specific Factors RODB is High, the Macro factors are Good GDP: 62.36 Billion Dollars Corporate Tax: 40% FDI: High Political Factors: High Legal Factors: Medium Economic Factors: High

Trade Factors Labor cost is Low Part of AMU and AFT. The country is High in Intra Trade

LIBYA Powerol

Genset Market Trends 1. Very High per capita electricity consumption(3337 kwh per capita) 2. Increasing electricity Consumption (22.17 bkwh) 3. Highly positive Industrial production growth rate(2.7%) 4. Risk of Doing Business is very high but very good in macro economic factors as well, hence joint ventures are advisable 5. Inadequate Government Bureaucracy, political stability and high corruption 7. High demand in lower end segment 8. High healthcare expenditure(6.2%) 9. Booming Telecom sector(CAGR 91.96%) 10. Second largest oil producer in Africa and the continent s fourth largest gas supplier, good mining investment High FDI growth rate.
Its generating set market peaked dramatically in 2009, only to fall back in 2010 to 3,000 units with a generating capacity of 320 MWe. When revolution broke out in the Arab world, few expected it to reach Libya, but the effects of the revolution are now affecting trade seriously, so forecasts for 2011 have been seriously scaled back. Still it is the sixth largest potential market for gensets in lower Genset Market Potential to middle end.

Ghana
Country Specific Factors RODB is Moderate, the Macro factors are moderate GDP: 31.3 Billion Dollars Corporate Tax: 30% FDI: Medium Trade Factors Labor cost is Low Part of ECOWAS moderate in Intra trade Political Factors: Moderate Legal Factors: Moderate Economic Factors: Low

Cote d lvoire
Country Specific Factors RODB is High, the Macro factors are Moderate GDP: 22.78 Billion Dollars Corporate Tax: 25% FDI: High Political Factors: High Legal Factors: Moderate Economic Factors: High

Trade Factors Labor cost is low Part of ECOWAS. The country is moderate in scope for Intra Trade

Ghana and Ivory Coast Powerol

Genset Market Trends 1. Very High electricity requirement but underfed(230 kwh per capita) 2. Highly positive Industrial production growth rate(5%) 4. Risk of Doing Business is moderate and moderate in macro economic factors as well, hence green field investment is advisable 5. Inadequate Government Bureaucracy, political stability and high corruption 7. Decent demand in all segments 8. High healthcare expenditure(10.6%) 9. Booming Telecom sector(CAGR 60%) 10. High electricity inports(435 mkwh) 11. High Power outages(>60) 12. Switch to Diesel because of droughts and overdependence on hydroelectric power
Underlying growth rate in each of these markets is in excess of 25 per cent per year. The Ivory Coast in particular grew in 2009, then took-off in 2010, consuming 4,100 gensets having a generating capacity of 150 Mwe

Genset Market Potential

Ethiopia
Country Specific Factors RODB is high, the Macro factors are also not that favorable

GDP: 33.92 Billion Dollars Corporate Tax: 30% FDI: Increasing recently

Political Factors: Moderate Legal Factors: Moderate Economic Factors: Low

Trade Factors Labor cost is relatively low Part of AFT agreement, so can import from other countries who are part of African Free Trade Zone FDI in farming encouraged FDI in power not encouraged

Ethiopia- Agri Entry Strategy

Agricultural Factors

Country Trends in Agriculture

Weak credit system , but many incentives are there for farmers in farm equipment Agricultural value added to GDP is very high Millet, Maize, Sorgum, Wheat and Barlie are the major crops Farmers form a large part of population Equipments are not affordable

Entry Strategy: Moderate Risk , Moderate Potential Direct Import

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 COMESA- Common Market for Eastern and South Africa ECOWAS- Economic community of west African states EAC- East African Community FTA among 5 countries AMU-Arab Magherb Union ECCAS-Economic Community of Central African States SADC- South African Development Community

ECOWAS- Economic community of West African states

Benin Burkina Faso Cape Verde Cte d'Ivoire Gambia Ghana Guinea GuineaBissau Liberia Mali Niger Nigeria Senegal Sierra Leone Togo

FTA Nothing, But in progress

COMESA- Common Market for Eastern and South Africa

Free Trade Agreement

SADC- 50% of Intra Trade. no import tariffs on an estimated 85% of all trade on goods
Angola Botswana DRC Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe

EAC
Republics of Kenya Uganda United Republic of Tanzania Republic of Rwanda Republic of Burundi

AMU
Morocco, Algeria, Tunisia, Libya, and Mauritania Multilateral agreements on Trade

AFT (African Free trade Zone)

Angola, Botswana, Burundi, Comoros, Djibouti, Democratic Republic of Congo, Egypt, Eritrea, Ethiopia, Kenya, Lesotho, Libya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Swaziland, South Africa, Sudan, Tanzania, Uganda, Zambia, and Zimbabwe