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Used trucks, buses import ban revs up flagging auto industry

Financial Standard
 Mechanics at the ISUZU East Africa, General Motors (GM) assemble an ISUZU truck. [Phillip Orwa, Standard]

Kenya has stepped up efforts aimed at developing a robust local auto industry by banning the importation of second-hand buses and trucks.

The ban took effect last Friday and is expected to play a key role in growing the local vehicle assembly industry.

The Kenya Bureau of Standards (Kebs) announced in May plans to roll out new standards aimed at improving safety on Kenyan roads. Other than buses and trucks, Kebs also intends to ban the importation of second-hand tractor heads and prime movers beginning next year.

The standards body gave importers of second-hand tractors and prime movers not older than three years a grace period of up to June 30 next year, after which they too will be banned and only new units can be imported into the country.

Vehicle assemblers and manufacturers of motor vehicle parts hope this will translate into a major boom for their businesses while creating more jobs and expanding the tax revenue base for the government.

Foreign investors

The Kenya Private Sector Alliance (Kepsa) noted that the move could see more foreign investors pump big money into the country’s auto industry.

“In Kenya, the automotive industry has the potential to significantly contribute to the manufacturing sector’s growth. Globally, the automotive industry has been a pillar of industrialisation for many economies and a key driver of macroeconomic growth and technological advancement,” said the lobby’s chief executive Carole Kariuki in a statement last week.

Ms Kariuki noted that a thriving auto assembly sector would benefit not just the vehicle assemblers and parts manufacturers but other industries too that have both forward and backward linkage with the vehicle assembly industry.

“The automotive industry has a long value chain, creating both backward and forward linkages. The backward linkages include design and manufacture for vehicle bodies and other components, not forgetting that the automotive industry consumes steel, iron, aluminium, plastic, glass, carpeting, textiles, computer chips, rubber and much more,” she said.

“The industry creates forward linkages through vehicle dealers, garages, leasing firms, insurance firms and financial institutions, among others.”

Kepsa noted that the new policy could be critical in increasing demand for locally made units and, in turn, attract investors to increase investments in the production of parts and even the assembly of vehicles locally.

“Passing the Kenya Standards 1515… is an important incentive to increase the volume of vehicles produced locally hence attracting investment into the industry. Foreign Direct Investment (FDI) is widely believed to be a catalyst that promotes economic development,” said Ms Kariuki.

“As many countries compete to attract FDI, it becomes important for the policymakers in the country to understand the effect of FDI on productivity. Policies that reduce vehicle importation age are normal for countries that want to develop a sustainable automotive industry like South Africa, Morocco, and Egypt, who are also our competitors when it comes to the African Continent Free Trade Area.”

Vehicle parts manufacturers expect demand for locally made parts to substantially grow as assemblers engage them more. Auto Springs East Africa Chief Executive Nephat Njengwa said the ban will enable the manufacturer to operate at full capacity from the current two-thirds.

“I think over the next couple of years, we will see the demand grow four times,” explained Mr Njengwa.

“That means more employment, more revenue to the government in terms of taxes and whole trickle-down effect to our suppliers and other service providers.”

The Kenya Association of Manufacturers (KAM) in a 2020 report noted that among the major hurdles to growing the local industry are inadequate tax incentives, poor enforcement of provisions of the Public Procurement and Asset Disposal Act that has requirements on procuring locally, lack of a skilled labour force and low thresholds on importation of vehicles, especially second-hand ones.

The Industrialisation Ministry has also recently started implementing the National Automotive Policy.

The policy, through targeted interventions, is expected to increase the number of units assembled locally by 20,000 per year from the current 10,000 units.

But the lobby recently acknowledged efforts by the government to grow the industry.

This, KAM expects, will play a part in growing the industry. “There is an increase in the importation of used vehicles in the Kenyan market, leading to reduced demand for locally manufactured vehicles. This is due to imported second-hand products having an unfair cost-competitive advantage, which inhibits the growth of local producers,” said KAM in the report.

Other than the implementation of the standards that are restricting the importation of second-hand vehicles, KAM in June noted that other measures that have recently been put in place and critical to the growth of the auto industry include enacting regulations on the local assembly as well as the general focus on the Buy Kenya, Build Kenya initiative.

“We remain optimistic that the policy will be fully implemented. In doing so, we shall see a reduction in the over-reliance on imported second-hand vehicles,” said Head of Policy, Research and Advocacy Job Wanjohi.

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