BTMU Global Business Insight

Bank of Tokyo-Mitsubishi UFJ

BTMU Global Business Insight

1.Africa: Railway development finally resumes, realizing a dream from the colonial period

Overview 

In Africa, railway infrastructure development projects are being promoted in various places against the background of remarkable economic growth in recent years. Even if we develop abundant underground resources, it is meaningless unless there is a means to efficiently transport them. It also means to accelerate regional integration and aim for revitalization of the local economy. This time we will introduce examples of East Africa and West Africa as projects with regional integration in mind.

As one of the obstacles to Africa’s development, it is always “a lack of infrastructure” to be talked about, but if you look at the railway situation in Africa you can say “I see,”

The railroads that were built during the colonial era have become obsolete, and many people have seen pictures of old people on the aged vehicles. The total length of the sub-Saharan African railway line excluding the Republic of South Africa is 56,000 kilometers. This is only 2% of the world railway network. Rail freight transport in Africa increased by 7% since 2001 (Passenger transportation declined by 7%), and worldwide cargo and passengers recorded 40% growth, which is much less than that. This is also because African countries have given up the development of roads as a transportation infrastructure and postponed the development of railroads that require huge investment.

However, with the remarkable economic growth in recent years, many railway improvement projects are looking at the sun in various places. Among them, China plays a large role in sparing a huge investment in infrastructure development along with the development of abundant resources.

Recently, on May 11, 2014, a contract of 3.8 billion dollars concerning Kenya ‘s railroad construction was concluded at the time of the visit of the four State African countries of Prime Minister Lee Kwang – heon. It plans to lay a railway line of 609.3 kilometers in total length from Mombasa port in Kenya to Nairobi, 90% of the expenses will be contributed by China Eximbank and the remaining 10% will be borne by the Kenya Government. Construction is undertaken by China Road Bridge (CRBC) under China Transportation Construction (CCCC) which also ordered Mombasa Port Expansion, construction started in October 2014, and construction schedule is three and a half year. Approximately 30,000 employment is expected to be generated by railway construction, CRBC said that recruitment will give priority to local people, construction materials related to construction will be locally procured as much as possible, and technology transfer will be actively carried out. The construction project is expected to contribute to the improvement of the local economy and employment situation.

Mombasa and Nairobi are already connected by a railway route built during the colonial period, but due to the aging of the facilities, it takes more than 12 hours to complete. If the new route is completed, this will be shortened to 4 hours. Switching from truck transportation, which is the main cargo transportation means between the two cities to railway transportation, can be expected to greatly reduce the transportation cost which is a factor impeding investment. Therefore, the government is planning to restore existing routes by procuring another source of funding. Mombasa and Nairobi are already connected by a railway route built during the colonial period, but due to the aging of the facilities, it takes more than 12 hours to complete. If the new route is completed, this will be shortened to 4 hours. Switching from truck transportation, which is the main cargo transportation means between the two cities to railway transportation, can be expected to greatly reduce the transportation cost which is a factor impeding investment. Therefore, the government is planning to restore existing routes by procuring another source of funding.

However, Africa’s railway infrastructure has weak points. As one of them, it has been pointed out that the routes of each country are divided, there are technical limitations such as different trajectory widths, and they are not connected to each other.

Regarding this point as well, plans to connect several countries via railway lines as part of regional integration efforts are emerging in various places. Actually, the route connecting Mombasa Port and Nairobi is part of the railway laying project totaling 13.8 billion dollars jointly carried out by Kenya, Uganda and Rwanda with the support of China. The plan is to extend from Nairobi to Kampala in Uganda, Kigali in Rwanda, Bujumbura in Burundi, and there is also a plan to extend the branch line from Kampala to Juba in South Sudan. In addition to this railway project, the three countries of Kenya, Uganda, and Rwanda are jointly promoting large-scale infrastructure projects such as oil pipelines and oil refinery projects, and wide-area efforts to revitalize the regional economy are thriving There.

By the way, East Africa alone is not planning to lay railways to accelerate regional integration. In West Africa, a rail project that connects Cotonou, the harbor city of Benin and the capital Niagar of Niger, has recently started and has greatly made progress toward the realization of the West African annual railway passing through Cote d’Ivoire, Burkina Faso, Niger, Benin and Togo. For inland country Niger, long-term dream of securing access to the sea will come true as Niamey is connected with Cotonou Port by rail line. The President of Isf, Niger, said at the groundbreaking ceremony held on April 7, 2014, “We had been waiting for the railway for 80 years ago! .

Although planning to connect West African countries by railroad existed from the colonial era, the route that had been supposed to extend to near Niameer located near 1,000 kilometers almost true north of Cotonou is Paraku (400 km north of Cotonou) in 1936 The route which was supposed to be extended from Abidjan of Cote d’Ivoire through Capital of Burkina Faso to Niamey was also stopped at Kaya located about 100 kilometers from Ouagadougou. In the project that started this time, we will restore the existing route from Cotonou to Para Koo and newly launch a route of 574 kilometers in total from Paracu to Diazo (Nijar) to Niamey. The total extension of the line is 1,200 kilometers, and the construction cost amounts to a total of 1 billion euros.

Unlike Kenya’s railway projects being made possible by Chinese funding contributions, France’s Borole Group, which became a strategic partner of the project, raises construction costs. Both Niger and Benin governments and Borore establish a joint venture with a capital of 100 million euros in line with the memorandum of signing signed in November 2013 to restore, construct and operate the route. Both Niger and Benin governments will invest 10% each, the private sector of both countries will invest 20%, and the remaining 40% will be owned by the Borore. Completion is the end of 2016. The day the first train station appears in Niamey is near. Niamee station is scheduled to be built in the eastern suburbs of the international airport, and the draft laws and regulations for canceling the protection of land (3 hectares) in the green belt which is the planned site of construction are recently adopted by the Cabinet.

Thus, while the prospect of realizing the Cotonou – Niamee line is established, in order to complete the West African annular railway, it is necessary to extend the west line extending from avid gang via Ouagadugu to Kaya to Niamey. The existing section (extension 1,200 kilometers) is currently in charge of the operation by Borole subsidiary Citarail, but according to a recent report, Borore dismissed the competing UK / Timisu in the bid over the restoration of this section and 400 million It seems that he won a contract for the euro. Although it has not been confirmed by government sources regarding this newsletter, in any case, it can be seen that Borore shows the motivation to drive the project toward realization of the West African annual railway.

Regarding the West African annular railroad, there was a plan to construct a route for an unconstituted section (extension 1,300 km) connecting Paraucus, Niamey, and Kaya with the support of the Indian government nearly ten years ago. Budget was $ 1.5 billion at the time of 2006. The Indian government promised to contribute 500 million dollars as the first phase construction expenses, the rest were to be borne by that country (Benin, Niger, Burkina Faso), but eventually it did not come true.

East African railroads where China funds have realized, and the West African ring rail which aims to be completed with private capital, both reflect “Africa’s Now”.

East African railroads where China funds have realized, and the West African ring rail which aims to be completed with private capital, both reflect “Africa’s Now”.

2. Strong competition and business strategy in the European market under deflation.

European economy in a state of deflation

Looking at recent moves of the Federal Reserve Bank (FB) and the financial markets, the US ended buying financial assets from the market in October 2014, and in the spring of 2015, the former monetary easing It is expected that we will change. Japan is still expected to continue monetary easing.

In contrast, the European Central Bank (ECB) must try to escape from the deflation of the European economy. The ECB lowered the policy interest rate to 0.05% in September 2014. It is thought that low interest rates will continue for the moment, and the euro weakening is expected. GDP (Gross Domestic Product) growth rate in 2015 is forecast to improve from 1.1% in 2014 to 1.5% (International Monetary Fund (IMF): World Economic Outlook / July 2014).

Somewhat recovery is seen in the momentum of the countries of Southern Europe bailed out in the European sovereign crisis but due to the situation in Russia and Ukraine the recession of the economy is seen in Germany and the northern Europe. Germany is expected to be 1.7% in 2015 from 1.9% GDP growth, while Italy is expected to grow from 0.3% to 1.1%, while Spain will grow from 1.2% It is expected to be 1.6% (IMF same report).

Although the UK avoided the Scottish independence crisis, which accounts for about 10% of the nation’s GDP, the economy is uncertain as well as the substantial self-government transfer such as taxation on Scotland and the restriction of the interests of the North Sea oil fields The movement of the pound is also uncertain. The next challenge is the possibility of withdrawal from the European Union (EU) in the UK, which will be decided in 2017 (in case the Conservative Party won in the general election in May 2015).

Business with difficult conditions and reverse wind

What kind of strategy should Japanese companies and Japanese multinational companies choose in Europe, where such low interest rates, deflation and the weak euro are expected? Of course, the strategy differs for each company size and industry, but at such times authors think that internal growth of a company should be enhanced for future external growth.

As for internal growth of companies, we tend to remember that we will review the human resources and fixed costs considerably in order to reduce costs. However, in addition to severe competition, many companies have already cut costs to the very least, including the production method in EU regulation, streamlining of production process and logistics expenses.

Immigration to secure labor force, mobilization of human resources such as migrant work, etc. will also make it difficult for the labor market structure reform to proceed significantly if we look at the inward movement of countries within Europe. The rise in labor productivity is also highly likely to result in further increases in the unemployment rate. In addition, compared to manufacturing bases in emerging countries such as Eastern Europe and Asia, competition for low price and low labor cost due to globalization has made Europe’s competition under intense price competition. The surge in R & D expenses seems to have been forced to struggle due to the shrinking margins in fields such as chemicals and chemistry with high profitability, and resin and construction materials are also struggling due to the recession of the market size due to the economic downturn.

Growth strategy that survived survival

Considering the above, is there a possibility that the argument itself of having a production base in Europe already goes against the economic rationality? Is Europe a market area only as a consumption point? Of course, the senior business in the tourism industry and the aging society in Europe, the nursing care business, the medical business, etc. will have potential growth potential, but here again the policy to obtain success in the manufacturing industry I would like to think about.

Common items of companies that are said to be successful in Europe are strengthening partnerships with suppliers about market information, customer demand trends and information, product development information, promote information exchange and collaboration That is to say. This may be said to be a service-like task related to outsourcing. For example, Toyota Motor is jointly producing with EU registered competitors in Eastern Europe.

Naturally, the ultimate goal is to purchase products to be introduced to the market by customers / customers. If we can not do that, we must think that the value of all processes, information management tools and products will be zero. We should seek to maximize customer value, that is to maximize the utility and value that goods bring to customers.

As speed of delivery is also an important factor of the brand, it is necessary to strengthen the value chain including parts relations, as well as relationships with shipping companies, materials and printing companies. Cooperation with the supply side is essential for matters around production and delivery. In this regard, at least companies in developed countries should be easier to collaborate and improve improvements than suppliers who are geographically distant with different institutions and cultures. Otherwise, we will not be able to differentiate and gain superiority from companies that have bases in geographically remote locations such as emerging countries.

Furthermore, I think that clear differences in compliance (including intellectual property rights), quality of labor and technology, high quality standards should be clearly reflected. Within the European region, it can manage and communicate with computers and IT technologies in real time. In addition, teams capable of responding to equipment failures will also be highly competitive by securing them jointly with outsourcing or suppliers.

Will the author place the most emphasis on strengthening the strength of the product itself that emphasized the above-mentioned customer value, that is, strengthening development capability, technical strength, speed, competitiveness?

Therefore, Europe will not be suitable for the production base of Product 1, which removes the benefits such as being adjacent to the consumer market, accumulates simple tasks, and anyway commoditizes it. It is thought that Europe can not continue sustainable growth in production type business like emerging countries because the asset formation and income growth of European consumers are quite different from those of emerging economies.

For example, it is getting involved in price competition just by causing consumption behavior with the idea that a car should run. Brand and trust, prestige, environmentally conscious, good quality safe parts and comfortable running, and accident (probably) gender is low, but price rises, such as “to prepare for zero event” Consumers think that it is comprehensively good

1 Products that are unclear or uneven in function / quality differences by manufacturers

It will also be related to sophistication of India.

Furthermore, as in Germany, thoroughly analyzing the future economic society, it may be possible to hone up large and small technological capabilities beyond imagination, or towards ultra light weight. On the other hand, there are countries and companies that incorporate sophistication and fashionability of European lifestyle into products. In the era of rapid economic environment with the influence of the United States, it is a company that fits its company, in other words, goes my way, through a way of living that is his own.

Moreover, it is also possible to have a production line for custom-made products that designs and manufactures special design cars, electric products, and life-use items that incorporate design and personality, high class preference (shovel) like Italy Production bases and businesses will survive. It can be said that an advanced combination of production processes incorporating such elements is effective in differentiating them.

In that sense, we should not reconsider services that do not go beyond the extent of non-pricing aspects to consumers, such as strengthening relationships with suppliers within the European region, enhancing after-sales service, stock dividends and shareholder benefits I wonder. From beginning to pursuit of efficiency, it seems that companies and business relationships are unstable and eventually weaken sales force. Otherwise, I believe that the economy will become financially and the importance of production activities will dilute.

Finally

There are problems with the strong economy and the emerging nations, such as the movements of separation and independence against deflationary deepening of Europe and Europe, the uncertainty of the situation in Russia, the situation in the Middle East. However, as for the economy, the sun will rise again. Therefore, I would like to expect the possibility of finding a good route depending on how I think. Is not it now that the Japanese firms engaged in the European business and the business persons are at stake?

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