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It's a roller coaster ride for local vehicle assemblers

CS Betty Maina (third-left) and Prof. Mutahi Ngunyi inspecting motor vehicle assembly at Associated Vehicles Assemblers Ltd, Mombasa. September 23, 2021. [Kelvin Karani, Standard]

The local motor vehicle assembly industry enjoyed a glorious past.

At its peak in the 1980s, it produced over 80 per cent of the vehicles that were sold in the local market.

It would, however, decline to the point that today, it accounts for under 10 per cent of the vehicles that Kenyans are buying.

The government is now seeking to take the industry back to its glory days in a new plan by the Ministry of Trade and Industrialisation.

In the National Automotive Policy (NAP) tabled in Parliament on May 25 this year, the ministry has an ambition of scaling up “local production and assembly of motor vehicles from the current levels of 7,000 (as of 2020) to 20,000 in the first two years of the policy implementation.”

The policy also proposes a phased ban on the importation of fully built units starting with commercial vehicles - which is already taking place with a recent decision by the Kenya Bureau of Standards (Kebs) to ban the importation of used buses and trucks beginning next month.

Kebs also plans to ban the importation of used tractors in the next one year. The automotive policy is among the key initiatives that the government is putting in place to revive the industry that nearly produced enough vehicles for the market in the past.

AVA mechanics assembling a buse at the firm's Miritini station, January 26, 2018. [Gideon Maundu, Standard]

In 1983, for instance, the local industry produced 87 per cent of all cars sold in the market, leaving imports to cater for the remaining 13 per cent.

For the industry to peak in the 1980s, the automakers had been building capacity since independence, especially in the 1970s when the Associated Vehicle Assemblers, General Motors and Kenya Vehicle Manufacturers set up plants in the country.

Volkswagen had been producing its Beetle in Kenya since the 1960s.

“Kenya’s motor vehicle industry growth reached its peak in the 1980s, by which time the country boasted of three major assembly plants producing about 13,000 vehicles and relatively vibrant parts manufacturing sub-sector,” said the Ministry of Industrialisation in the NAP.

“A memorable milestone to date was the local production of the Nyayo Car in 1987.” The growth of the automotive industry was slowed by the liberalisation of the sector, which allowed cheaper imported second-hand vehicles and parts.

Since then, the vehicle assembly industry has struggled to stay afloat. The opening up to imports saw the government drop local content requirements as long as the importers paid a duty (then seen as a penalty) of 25 per cent.

Many spare parts manufacturers, whose lifeline depended on a protected market, gradually shut down. “By mid-2000s, many local content manufacturers had closed shop,” notes the ministry.

In its bid to revive the industry, the ministry said there is both adequate demand and production capacity to sustain the industry.

Local vehicle assemblers produced 9,989 vehicles in 2021 but can produce 34,000 units over a single shift.

ISUZU East Africa mechanics assembling a truck, May 2019. [Phillip Orwa, Standard]

When producing round the clock over three shifts, they can produce 102,000 annually. This would mean that the local industry has the capacity to cater to the needs of the market, going by the 107,000 vehicles that were registered last year, excluding motorcycles.

President Uhuru Kenyatta has been a champion of local vehicle assembly. This is seen in his 2019 directive to ministries and other government entities to buy locally assembled vehicles and spare parts manufactured in Kenya to boost the ‘Buy Kenya Build Kenya’ initiative.

He welcomed automotive firms setting up production lines in Kenya and even toured the plants or graced the launch of the first units assembled locally by these companies, including Volkswagen in 2016, Peugeot in 2019 and Mahindra in 2020.

The Kenya Association of Manufacturers (KAM) in a 2020 report noted that among the major hurdles to growing the local industry include 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 autos.

“There is an increase in the importation of used vehicles in the Kenyan market leading to reduced demand for locally manufactured vehicles,” said KAM in the report

“This is due to imported second-hand products having an unfair cost competitiveness advantage, which inhibits the growth of local producers.”