Car dealers rev up local assembly on reduced tax burden
General Motors employees work on the body of a truck at its plant in Industrial Area, Nairobi. Lower taxes have encouraged local assemblers of new cars File
New auto dealers are stepping up production of their locally assembled vehicles as they seek to give their brands a pricing advantage from lower taxes.
Data from the Kenya National Bureau of Statistics show that assembly of new vehicles stood at 4,861 units in the 10 months to October, up from 4,247 and 4,729 units in a similar period in 2009 and 2010 respectively.
Imports of parts used in assembly are exempted from the 25 per cent import duty levied on fully built cars — giving room to the assemblers to produce cheaper vehicles.
The increased activity in the assembly business look set rev up jobs creation in the auto sector and enhance Kenya’s profile in its quest to industrialise its economy.
“Local assembly costs about 10 per cent of a vehicle’s value. This result in a net tax saving of 15 per cent, which is huge,” said Sanjiv Shah, the chief executive of Marshalls East Africa, which owns half of Mombasa-based Associated Vehicle Assemblers (AVA). Other assemblers are Thika-based Kenya Vehicle Manufacturers (KVM) and General Motors East Africa. Toyota Kenya and Simba Colt Motors assemble their pick-ups and light commercial trucks at AVA in which Marshalls and Simba Colt each have a 50 per cent stake. CMC Motors and DT Dobie assemble their buses and pick-ups at KVM in which they each control 32.5 per cent stake while the government has 35 per cent. General Motors assembles its Isuzu pick-ups, buses, and light commercial trucks at its plant in Nairobi.
The import tax exemptions are attracting more global vehicle firms that now have an expanded market within the East African Community.
Tata Motors, Foton East Africa, Chery Automobile, and Toyota Kenya are expected to start assembling more than 6,000 units of their vehicles annually in the medium term.
Assembly of vehicles peaked at 5,447 units in 2007 before slumping to 5,010 and 4,247 units in 2008 and 2009 respectively.
The slump has been linked to the economic downturns brought by the 2008 post-election violence and high oil prices that weighed down growth.
The economy grew to a record 7.1 per cent in 2007, fuelling demand for buses, pick-ups, and light commercial trucks which are mostly assembled locally. But the 2008 post-election violence disrupted production in the first half of the year and led a sharp drop in economic growth in that year at 1.7 per cent.
The economy, however, grew to 2.6 and 5.6 per cent in 2009 and 2010 respectively on cessation of the violence and easing of the global financial crisis, lifting demand for the locally assembled units that now account for 47.8 per cent of all new vehicle sales.
This is, however, lower than last year when they accounted for a record 49.9 per cent of new vehicle sales.
Dealers, however, worry that the high interest rates –at above 24 per cent — could hurt new vehicle assembly in the coming months.
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