More than half of the new vehicles sold in Kenya are now assembled locally, driven by dealers’ bid to lower their tax bill and offer competitive pricing.
Data from the Kenya National Bureau of Statistics shows that 5,456 vehicles were assembled in Kenya in the ten months to October 2012, representing 52.3 per cent of the 10,422 new vehicles sold in the same period.
This is up from 5,106 units assembled in the same period the previous year, which accounted for 48.2 per cent of the total 10,578 new vehicle sales.
Imports of parts used in local 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 growing preference for local assembly is expected to create more jobs and reduce idle capacity among the three plants — Kenya Vehicle Manufacturer (KVM), Associated Vehicle Assemblers (AVA) and General Motors East Africa.
The move is set to rev up job creation in the auto sector, which had been hit hard by cheap second-hand imports and concerns over their quality standards.
KVM said that increased interest for local assembly is set to revive the fortunes of vehicle assemblers, but reckoned that Kenya was still far from hitting the peak levels experienced in the 1980s.
“We are currently running at a capacity of about 10 per cent. At KVM alone, we have the capacity to assemble the entire industry’s annual volume in a matter of weeks,” said KVM in an earlier statement.
Dave Williamson, factory manager at AVA, told the Financial Times in April that the assembler is currently making 2,500 units compared to a peak of 10,000 units in 1985.
He blamed the high cost of production and the liberalisation of the auto market in the 1990’s for paving way for the cheaper second-hand imports.
In 2011, a total of 6,049 vehicles were assembled in the country compared to 5,721 units the previous year. The sector has slowly recovered from the 2009 slump that saw it assemble 5,060 units down from 5,747 units.
Increased production of assembled vehicles in the ten-month period to October 2012 was driven by rising demand for buses and commercial trucks, which dealers are keen to price competitively using the tax savings.
General Motors East Africa —which accounts for half of total assembled units — for instance, produced 2,294 units of its Isuzu trucks and buses in the ten-month period. In the same period last year, the firm assembled 2,162 units.
The vehicle assemblers are expected to gain from increased demand for their services by global vehicle manufacturers who want to gain from friendly taxes on locally assembled units.
Hyundai Motor Company and Eicher Motors recently settled on Thika’s Kenya Vehicle Manufacturers to assemble their trucks and buses.
Tata Motors and Hino Motors are also set to begin the assembly of their commercial trucks in Mombasa-based Associated Vehicle Assemblers.