Inside Business Africa INSIDE BUSINESS AFRICA APRIL 2019 - Page 7

Innovation of ten sectors targeted for special attention in its "Made in China 2025" policy-do not depend merely on using its size to surpass the West in volume and an increasingly competitive home market to catch up in quality. It wants to use industrial policy to overtake the West on the road to the future. Mark Wakefield of AlixPartners, a consulting fir m, identifies a key component of this as a "strategy to dominate" electric vehicles. The idea has many attractions. Several Western governments have called time on internal- combustion engines which burn fossil fuels. Emission rules in Europe are tightening, Britain and France have said they see no role for cars powered only by internal combustion after 2040. So the market seems there. Carmakers all around world know that this transition is under way. Tesla is built on it; some incumbents, like Volkswagen, are thoroughly on board. But quite a few European, American and Japanese firms are holding back. Some of those concentrating on the mass market think high battery costs mean electric cars will not be profitable for some time. Others simply seem too culturally invested in the fine points of internal-combustion engines-much more complex than electric ones-to break away from them. There is much less such concern in China. The proud engineering tradition that surrounds internal-combustion engines at venerable carmakers is largely absent, as are the sunk costs that add to their perceived value. What is more, because the country's carmakers are not particularly politically powerful, any unease they may feel will not matter much; byd's sway in Beijing is hardly bmw's in Berlin. The industry is thus largely united around abandoning the internal- combustion engine. Electric shock The strategy also fits with China's other industrial strengths. It is a huge producer of batteries and wants to be the biggest in the world, in the same way that it has become the dominant provider of solar panels. Chinese battery-makers are growing rapidly and signing deals with lithium producers around the world. catl, the biggest car-battery maker in China, is building a new plant second only in size to Tesla's gigafactory in Nevada. China's total planned battery-making capacity is three I N S I D E B U S I N E S S A F R I C A times that which the rest of the world will construct. Electric vehicles have attractions that go beyond the benefits to the car industry and synergies with battery-making. As Bill Russo of Automobility, a consulting firm based in Shanghai, points out, China is keen to reduce its oil imports, currently the largest in the world. It also wants to clean its air and cut its carbon-dioxide emissions. Electric vehicles will not make a huge impact in these respects as long as China's grid is largely fired by coal. But reducing the exhaust-pipe emissions on city streets is a plus even if smoke keeps belching from power-plant chimneys. China's government has used several means to increase both the supply of electric vehicles and the demand for them. Carmakers earn tradable credits when they produce "new energy vehicles", which include hybrids and fuel-cell-powered cars as well as electric cars. This year carmakers are required to earn or buy credits equivalent to 10% of their internal- combustion-engine sales. In 2020 the requirement will be 12%. Such rules may disadvantage foreign manufacturers, all the more so when, as it is rumoured, they get to hear of changes later than domestic companies do. The non-Chinese battery- makers with which foreign car companies like to work, such as lg of South Korea and Panasonic of Japan, were until recently restricted in the Chinese market. To stimulate demand, electric vehicles are generously subsidised and exempt from purchase taxes. They are also exempt from the restrictions placed on the purchase of cars with inter nal- combustion engines in six of the biggest cities. Further measures include requiring public-sector bodies to buy electric vehicles-a big boost for buses-and favouring car-sharing businesses that use them. The countr y's charging infrastructure is far ahead of the rest of the world's. Beijing has more public charging points than Germany. Together, these stimuli have created an electric-vehicle boom (see chart 2). Chinese electric-car sales are expected to hit 1.5m this year, compared with 1.1m in 2018. Colin McKerracher, head of advanced transport at Bloomberg New Energy Finance, goes so far as to suggest that the current rapid rate of growth in electric-vehicle sales, coupled with the decline in overall car sales seen last year, may mean that sales of cars powered by 46 u t APRIL1 4 - 28, 2019 THE MAGAZINE 0F THE CORPORATE WORLD internal-combustion engines in China have already peaked. Compared with the thriving home market, Chinese exports of electric cars remain small so far. But its busmakers are showing the way. Almost all of the 400,000 electric buses in circulation around the world were made in China. Most are used at home, easing congestion and pollution, but exports are growing. According to byd, one of China's biggest bus manufacturers, its vehicles are used in more than 300 cities in other countries. Exports are not the only route to global power. The size of the Chinese market will help to "suck the world's [electric-vehicle] supply chain into China," says Mr Russo. Western mass-market carmakers keen to electrify but str ug gling with the investments required may increasingly license technology or buy hardware from Chinese firms. If more of the supply chain for electric vehicles is in China than anywhere else, Chinese-made power trains may become the global standard. The speed with which China is taking the lead in electrification puts it in a good position to profit from its convergence with two other distinct but related big shifts in transport; autonomy and sharing. In the West, companies from the technology world, not the carmaking world, are in the driving seat. The same is true in China, where the "big three" internet giants, Alibaba, Baidu and Tencent, are at the centre of a web of investments in autonomous cars and mobility apps as well as electric vehicles. And unlike its carmakers, China's tech giants are already world class. Mobility, upward China has more internet users that any other country and it generates more data than anywhere else. The ubiquity of digital-payment systems helps to run seamless services for China's burgeoning middle-classes, who are among the keenest in the world to try the latest gadgets and apps. And car ownership is still low by I N S I D E B U S I N E S S A F R I C A THE MAGAZINE 0F THE CORPORATE WORLD But the minister said the government was already taking a number of steps to shore up revenue to fund the 2019 budget. Among other initiatives aimed at expanding the fiscal space, the minister stated that the Federal Government would intensify efforts to improve public financial management through the comprehensive implementation of the Treasury Single Account, the Government Integrated Financial Management Information System and the Integrated Payroll and Personnel Information System. Also, he said the Department of Petroleum Resources had been directed to, within three months, complete the collection of past dues on oil licence and royalty charges, including those due from the Nig erian Petroleum Development Company which it had agreed to pay since 2017. Udoma also said the Ministry of Finance, working with all the relevant agencies, had been authorised to take action to l i q u i d a t e a l l r e c ove r e d , unencumbered assets within six months. Among other revenue generating initiatives, he said the President had directed that work should be immediately concluded on the deployment of the National Trade Window and other technologies to enhance customs collections efficiency from the current 64 per cent to up to 90 per cent over the next few years. He indicated that in spite of the challenges that militated against the realisation of targeted revenues, the revenues generated in 2018 showed a significant improvement over that of 2017. The minister said he expected further improvement this year with the sustained implementation of the Economic Recover y and Growth Plan. The minister explained that the ERGP guided allocations in the Federal Government budget because it sets out the key execution priorities of the government for the growth and development of the economy. The government, he added, was encouraged by the results so far attained after implementing the plan for about two years. He said the economy had exited recession and was on the path of growth, even though it took time for the impact to be fully felt by a significant number of people. “It takes time, and will take some more efforts but we will keep working on it so as to fully realise the objectives of the ERGP. The implementation of the ERGP will create growth and jobs and reduce poverty,” he said. Explaining the basis for some of the assumptions in the MTEF/FSP, the minister said the oil price benchmark was arrived at after extensive u t 7 u APRIL1 4 - 28, 2019 African News consultations with industry experts and consultants. He expressed optimism that the $60 per barrel crude oil benchmark projected for 2019 was achievable as oil was currently trading at about $67 per barrel. On the limitation imposed by OPEC production quota, the minister explained that there was no quota set for condensates by OPEC. Nigeria, he said, could use condensate production to augment its production. “Mr President has directed the NNPC to take all possible measures to achieve the targeted oil production of 2.3 million barrels per day,” he added. He explained that in allocating funds in the 2019 budget proposals, priority was given to critical infrastructure projects.