The only smartphone factory in South Africa

South Africa has only one local smartphone producer, which has posed stiff competition for other imports within the country’s budget market. 

However, a recent initiative to improve smartphone access may bolster the competitiveness of affordable imports.

Launched in 2007 by Polokwane-born Ridwhan Khan, Mobicel operates in South Africa’s budget smartphone market with prices starting from as little as R599.

Khan started his entrepreneurial journey refurbishing and selling second-hand smartphones while spending time abroad in the UK.

Noting the need for affordable devices in South Africa, Khan brought his experience running a refurbishment business back to his home country in 2002, selling second-hand devices in lower-income areas.

By 2005, his used-phone business was booming, reportedly selling 50,000 units per month. However, in a 2015 interview, he noted that building a brand in the informal sector was challenging.

This was primarily due to traders focusing on sales rather than value add-ons like warranties and after-sales support.

“You have spaza shops and small stores, and they are just interested in selling a product, not building a brand,” Khan told Acumen Magazine in 2015.

“We found it difficult to get them to grasp the concept of a warranty and after-sales service. I witnessed it myself; that’s when I decided to change.”

After ordering a custom-made phone to his specifications that he believed would appeal to the South African market and challenge imports, Khan launched Mobicel in 2007.

Soon, the company secured a distribution contract with Edgars, Jet, and CNA owner Edcon. However, the phones were given to Edcon on a consignment basis — a first for the retailer.

This was a significant risk to Mobicel, as there was no guarantee that the devices would sell. However, the gamble paid off, and Edcon sold more devices than expected.

Mobicel devices can be purchased from all four of South Africa’s major mobile networks. Vodacom recently told MyBroadband that the local brand comprises roughly 5% of its total smartphone sales.

Competition and tariffs

However, Mobicel hasn’t always been the only local smartphone producer. In 2019, Dubai-headquartered Mara Phones established an assembly plant in South Africa.

It should be noted that Mobicel does not manufacture its smartphones from scratch; instead, it imports the parts from abroad and assembles them in South Africa.

This is the same as Mara Phones, which invested R1.5 billion into its KwaZulu-Natal assembly plant, a move supported by the government.

At its launch, the company said it would launch two devices, the Mara X and the Mara Z, costing R2,999, and R3,999, respectively.

The company also produced a lower-spec Mara S device, which was 3G-only, while the two higher-spec phones support 4G connectivity.

However, despite expecting to generate roughly 1,500 jobs over a six-year period, Mara Phones only lasted for two. It was put up for auction in early 2022.

Auction documents revealed that the plant and its contents were being sold as a single unit. 

The auction lot included the plant, its manufacturing and testing equipment, smartphone components, and assembled devices sitting in storage.

This was the closest South Africa came to expanding its smartphone production industry since the launch of Mobicel in 2007.

Khan’s business may soon experience increased pressure from budget imports due to the removal of ad valorem duty from all smartphones below R2,500.

The change came thanks to an initiative from communications minister Solly Malatsi, who said the goal is to drive down prices of entry-level 4G and 5G devices.

This is so South African mobile operators can eventually switch off their 2G and 3G networks without leaving anyone behind, and repurpose that spectrum for newer cellular technologies.

Cell C CEO Jorge Mendes confirmed that the ad valorem change for smartphones is already in effect, even though Parliament has not yet passed the new budget.

Ad valorem is Latin for “based on value.” In South Africa, a flat rate of 9% is applied to most technology products.

With ad valorem scrapped on entry-level smartphones, companies like Samsung, Xiaomi, and Tecno should become more affordable, potentially placing pressure on Mobicel.

Minister of Trade, Industry, and Competition, Parks Tau, recently said in a response to a question from Parliament that he could consider tariffs to protect the local digital device industry.

However, he noted that his department has yet to receive applications to amend tariffs on digital device imports, and that there would need to be an industry to protect before they are imposed.

Tau says the Department of Trade, Industry, and Competition (DTIC) and International Trade Administration Commission (ITAC) have discussed the potential of such tariffs.

“The ITAC and DTIC have had some discussions with the necessary line department to better understand the scale and scope of device manufacturing capability,” Tau said.

“It was also discussed where it is desirable to extend tariff support to incubate and grow these capabilities. We remain favourably disposed to doing so.”