Sales volumes in the motor industry may remain subdued until mid-next year, Kenya Vehicle Manufacturers Association (KVMA) Chairperson Rita Kavashe has projected.
Speaking at General Motors East Africa GMEA headquarters in Nairobi, Ms Kavashe said vehicle sales will start rising. She cited a decision by the Government to drop excise duty on vehicle imports and increased projects across counties to support the sector’s growth.
“There was a general slowdown (in motor vehicle sales) and that has peaked into this year. We were projecting the industry to be at the same level as last year, about 20,000 vehicles. But we think this year we are going to close at about 14,000 vehicles which is a major slump,” explained Ms Kavashe.
The slowdown in the auto-industry that started towards the end of last quarter of 2015, Ms Kavashe explained, was significantly caused by a slowdown in Government projects and escalation of interest rates.
This, she said, impacted negatively on sales since most vehicle customers depend on bank financing. “Therefore, a high interest regime is deterrent to customers’ ability to access credit.”
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Ms Kavashe, who is also the GMEA Managing Director said the recent banking crisis that saw three banks put under receivership and the heightened scrutiny that followed posed challenges to the businesses, as banks tightened loan application procedures.
By close of last year, the industry sold 19,966 vehicles, up from 17,299 units that had been sold the previous year. However, the market has since taken a beating, with KVMA report showing that sales are down 31 per cent.
Despite some downward trend on interest rates, the GMEA boss said that the business has been slowed as customers exercise a ‘wait-and-see’ on whether or not President Uhuru Kenyatta will pass into law the bill to cap interest rates.
However, with Government being a key player in stirring up business for the motor industry, Ms Kavashe sees the sales start picking since most counties have now approved their budgets for 2016-17 financial year.
“Money has been allocated to counties and projects are beginning to pick up. We will see increased economic activities in projects implementation and this will drive business for us,” she said.
Speaking on the opportunities that her company perceives in the region, Ms Kavashe reckoned that at current level of exporting only 20 per cent of what is produced, there is still room to do more.
The firm, which currently commands a market share of 34 per cent, is eyeing more markets within Common Market for Eastern and Southern Africa (Comesa). “The demand for commercial vehicles is going to increase because of economic projects that are taking place across Eastern Africa in infrastructure, energy and real estate. There is great opportunity for trade among member states especially as road network increase,” said Ms Kavashe.
Ms Kavashe said her firm’s current production capacity of 32,000 vehicles per year can easily be scaled up to 50,000 to serve other markets with just the introduction of double shift. The firm had encountered challenges in breaking through to East Africa markets with some countries resisting attempt to allow GMEA export at duty free.
“There were challenges but now we can comfortably export into these regional markets on tariff fading transformation system,” explained Ms Kavashe.