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Honda Kenya newly opened assembling plant. Motor cycles account for over 65 per cent of motor vehicles registrations every month. [PHOTO: GOVEDI ASUTSA/STANDARD] |
By James Anyanzwa
Manufacturers are raising the red flag over a new law requiring motorcycle assemblers to utilise locally generated parts.
The law, which came into force on July 1, stipulates a 25 per cent duty remission on motorcycle assemblers who fail to adhere to the new regulations.
The new law requires motorcycle parts such as seats and seat-frames, mudguards, wheel rims, break-gears, exhaust pipes, tyres, chasis, batteries and shock absorbers to be manufactured within the East African Community (EAC).
Assemblers are however concerned about the capacity of the region to produce the specified parts. They say such a move is likely to compromise safety standards and increase the cost of motorcycles.
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“It is a good law but it should be implemented gradually, otherwise, it is going to kill the employment opportunities and make motorcycles unaffordable,” said Honda Motorcycle Kenya Ltd chairman, Isaac Kalua.
“The EAC region lacks capacity to produce these parts. Currently, there is no particular company that can produce any of these parts.”
Dr Kalua said the law prohibits all assemblers who fail to use local motorcycle parts from accessing a 10 per cent duty remission window.
“If you have not used any of these parts you don’t qualify for the 10 per cent duty remission and you will be subjected to a higher duty of 25 per cent,” he said
The new law crafted by the EAC, seeks to encourage consumption of locally produced materials. Bur it is now causing jitters within the manufacturing fraternity. The Kenya Association of Manufactures (KAM) said it is investigating the capacity of the region to produce the identified parts and advise Government accordingly.
“ We think the decision was a bit premature. We are currently investigating to establish whether there is local capacity to produce those parts in Kenya, Uganda and Tanzania before we advise the Government on the timing of that decision,” KAM Chief Executive Officer Betty Maina, told Business Beat last week.
Motorcycle assemblers want the EAC States to delay implementation of the law by three years to allow the region build capacity to produce motorcycle parts. The Japanese automaker Honda Motors has established a new motorcycle production and sales subsidiary in Kenya, whose operations are expected to begin in October, this year.
In the new plant, Honda Motorcycle Kenya Ltd will focus on production and wholesale business.
The plant with an initial capacity of 25,000 units has already created jobs for 57 professionals with hopes to recruit more as the business expands.
The company said it would establish a system and capability for global parts sourcing as well as efficient production to deliver high quality products at affordable prices. “Honda wants to start production of motorcycles more cost effectively to supply the Kenyan market at affordable prices,” said Kalua.
Honda african plants
The new company in Kenya is the third Honda subsidiary in Africa, following South Africa and Nigeria and the new plant will become the second Honda plant in Africa, after the first plant was established in Nigeria.
By combining the two plants, Honda’s annual motorcycle production capacity in Africa will be 175,000 units.
The annual demand for motorcycles in the country has increased from 16,293 in 2007 to 140,215 in 2011 due to the increased use of motorcycles for public transport.
Honda is seeking a larger share of a motorcycle market that is currently dominated by brands from China and India.
Other players in the market include Yamaha Kenya, which is a unit of Toyota Kenya, and Car and General that deals in the TVS and Suzuki brands.
Besides access to the regional market, Honda will benefit from a lower tax bill through local assembly and offer competitive pricing.
Imports of parts used in local assembly are exempted from the 25 per cent import duty levied on fully built units, giving room to the assemblers to produce cheaper vehicles.