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Volkswagen makes comeback in Kenya car assembly industry

The logo of car maker Volkswagen at the entrance to a branch in Germany. Kenya's first fully-assembled Vivo is expected to roll out of the Thika plant by December this year. PHOTO | AFP
The logo of car maker Volkswagen at the entrance to a branch in Germany. Kenya's first fully-assembled Vivo is expected to roll out of the Thika plant by December this year. PHOTO | AFP 

Motor dealer DT Dobie is set to start assembling Volkswagen (VW) vehicles including saloon cars and light trucks at the Thika-based Kenya Vehicle Manufacturers plant.

The company, which took over the VW franchise from CMC Holdings, has been importing the German vehicles fully built from markets like South Africa.

Volkswagen South Africa CEO Thomas Schafer said the German multinational will later this year start assembling some of its models at KVM, having stopped local assembly in the 1970s.

“We were in Kenya in the 1960s and 70’s and resuming operations here is part of our Africa strategy,” Mr Schafer said in a statement. “The Volkswagen Group is excited to be here and we will start operations immediately.” Mr Schafer signed an agreement with President Uhuru Kenyatta to launch VW’s local assembly at KVM where the government has a 35 per cent stake.

DT Dobie is a 32.5 per cent shareholder of the Thika assembly plant while CMC Holdings’ stake stands at 32.5 per cent.

Among the VW models to be assembled are light trucks and Vivo, a passenger car which will be the first to be put together locally. “I am happy to welcome back the Volkswagen Group, currently the largest car manufacturer in the world, back to Kenya,” Mr Kenyatta said in a statement.

The German automaker used to operate in Kenya until 1977.

20 per cent excise tax

It used to assemble Volkswagen vans, microbuses and the famous Kombi. Local assembly is largely boosted by the exemption of vehicle parts headed for assembly plants from the 25 per cent import duty levied on fully-built cars, resulting in a price advantage.

Dealers say the recent move by the government to scrap a 20 per cent excise tax on locally assembled vehicles could see an increase in local production.

The Kenya Revenue Authority (KRA) had started collecting excise taxes from KVM, General Motors East Africa (GMEA) and Associated vehicle Assemblers (AVA) for the first time last year at a flat rate of Sh150,000 per vehicle.

The levy was raised to 20 per cent of a vehicle’s value in June, sparking protests from the assemblers who said the move had led to job cuts and reduced sales as prices of pick-ups, buses and trucks went up by between between Sh231,000 and Sh1.2 million. Mr Kenyatta said his administration is committed to growing Kenya’s industrial base through investing in infrastructure and enacting progressive policies.

Kenya, however, still trails major markets like South Africa that has developed a vibrant automotive manufacturing industry on a raft of incentives and a large internal demand for new vehicles.

The incentives in South Africa include a non-taxable cash grant of 20 per cent for assemblers/manufacturers and 25 per cent for component producer and tooling companies on the value of qualifying investment.

An additional non-taxable cash grant of five per cent is given to firms maintaining their base year employment figure. South Africa requires companies to achieve a minimum annual output of 50,000 units or a turnover of R10 million (Sh70 million) to qualify for the incentives.

The incentives have seen South Africa produce more than 600,000 vehicles annually – 60 times Kenya’s output — and sell to the domestic market and tens of other African countries.

Ethiopia has also announced a number of incentives, including tax breaks, in an ambitious plan to build its vehicle assembly industry for internal sales and exports.
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