Hefty State incentives fail to reignite carmakers’ fortunes

Car manufacturers Peugeot and Volkswagen (VW) have failed to impress two years since they made a grand return to Kenya despite heavy government incentives, latest official data shows.

After the much-hyped re-entry of the two automakers into the Kenyan market, production of assembled vehicles in the first 10 months of last year remained a far cry from the peak of 2015 when 8,713 vehicles were produced in the same period.

Instead, a paltry 110 additional vehicles were made from January to October last year, bringing the total to 4,308, according to data from the Kenya National Bureau of Statistics (KNBS).

This was a marginal increase of 2.6 per cent from the 4,198 vehicles assembled in the same period in 2017.

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This even as the car assemblers enjoyed tax relief and assurance of a ready market by the Government.

Early last year, Volkswagen said it would double production in Kenya and introduce a new model at its Thika plant.

As a result, the Government offered new assemblers some tax reliefs, including 15 per cent corporate tax rate from January 1, last year for the first five years. This was aimed at promoting the assembly of motor vehicles in Kenya.

“The reduced rate of 15 per cent is extended for an additional five years where at least 50 per cent of the ex-factory value of the motor vehicles is attributable to local materials,” said audit firm Deloitte in an analysis of the Finance Bill of 2018.

While relaunching its operations, Peugeot for its part had said it would assemble at least 1,000 vehicles every month, bringing its total annual production to 12,000.

But according to the KNBS data, the highest number of vehicles all the local assemblers combined had ever produced in a year was 10,181 in 2015.

At the start of 2017, Peugeot signed a Sh1.2 billion supply deal with the Government.

The move came a month after President Uhuru Kenyatta had inaugurated an assembly facility in Thika for VW. The German firm assembled 25 vehicles in its first week of operation.

Peugeot and VW joined Toyota, General Motors East Africa, Simba Colt, CMC, DT Dobie, Crown and Tata which have been the main players in the local car assembly market.

President Kenyatta had pegged his hopes on return of the two European carmakers to boost the moribund manufacturing sector even as it helped reduce unemployment while enabling Kenyans to own new cars.

“From Wrigley, which will invest 5.8 billion in a plant in Machakos, to the Volkswagen plant which opened in Thika last year, to the Pan Paper plant which we revived just a few months ago, industry and investment in Kenya are on the move,” said President Kenyatta.

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PeugeotVolkswagenCar manufacturerstax relief