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LG to Set Up Assembly Plant in Kenya
Jul 7, 2004
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LG Electronics, the Korean based electronic goods giant, plans to put up a Sh400 million (approx. U.S.$5 million) assembly plant in Kenya, Africa.

The firm has also set aside a Sh300-million marketing budget to help it capture a sizeable share of the Kenyan and the wider East African market.

Won Woo NA, the group's general manager for East Africa, however, said that the scope of the planned project would depend on Kenya's economic growth prospects and the demand for electronic products.

The plant, he said, will be crafted similarly to one that has already been up and running in Cairo, Egypt. The company says that it expects its revenues in the region to top-up Sh1.6 billion (approx. $20 million) annually, in line with other growing markets in Africa. LG opened its Nairobi office last week.

"The market size is one of the factors that will determine our investment. We should be able to have a demand for the products," Won Woo NA said.

He also said that the 1.8-percent economic growth was not enough for Kenya because other markets were growing at an average of 8 percent. "We should be talking of an economic growth of 5 percent for Kenya because compared to other markets in region, it is more stable and all the factors can be tailored towards this end," Won Woo NA added.

The firm is also concerned that Kenya's list of taxes are not encouraging new investments. "Import duty, VAT, and other taxes add-up to close to 50 percent," he said. "However, we feel that these taxes should be scaled down to create more demand for electronic products."

Mr. NA said that LG's decision to invest in Kenya has also being influenced by the need to penetrate a market that has for long been at the grips of Sony, one of the world's leading electronic brands. "My personal target is to eat into the Sony products. The quality is not different, but our prices are more competitive and we want to strengthen the after-sales services," he said.

The Korean company's products have been in the Kenyan market since 1996, when it was then known as Gold Star. So far, the LG brand in Africa accounts for 7 percent of its sales globally.

The firm has established regional office for sub-Saharan region in Cairo and another one in South Africa, which has an annual revenue of Sh24 billion (apprxo. $300 million). In South Africa, Mr. NA says that LG commands a 35-percent market share in the television and washing machine categories.

The North African markets, which comprises Egypt, Tunisia, Morocco, and Algeria, provide the group with an annual revenues of Sh40 billion (approx. $500 million).

Mr. NA says that even though these two regions have consistently shown the ability to rollout the LG products, Kenya's geographical location makes a good choice for further investments.

"The North African regions are growing and are struggling to meet demands from within themselves. That is good, but we need to have Kenya sorting out the demands in East and Central regions of Africa," he said. "Kenya is very strategic for East and Central Africa and that is why we are looking at growing our influence around here through a new factory that should not only create jobs but also give us an entry point to the entire great lakes region."

Before coming to Kenya, LG had an option of relocating to Sudan, which is a market that has been growing at a rate of 8 percent primarily because of an economic that is driven by oil revenues.

"Despite Sudan's impressive growth patterns, we came to Kenya where we have been reaching double digits figures annually," Mr. NA said, adding that Kenya's strategic location in terms of connecting flights to other regional markets was a major factor behind the decision to open an office in Nairobi. (The Financial Standard)

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