French automaker Peugeot is set to start local assembly of its brands from next year, becoming the latest multinational to produce vehicles in Kenya.
President Uhuru Kenyatta revealed the Paris-based conglomerate’s plans in his Jamhuri Day speech, indicating that the company has discussed its plans with the government.
The announcement comes ahead of German automaker Volkswagen’s launch of the first passenger car to be assembled locally, the Polo Vivo, next Wednesday under its local franchise holder DT Dobie.
Peugeot’s local dealer Urysia has been importing fully-built models including ambulances, utility and passenger cars but this will change once the local assembly starts production.
Peugeot is weighing options whether to build its own assembly plant or sign a contract with one of the existing assemblers.
Mombasa-based Associated Vehicle Assemblers (AVA) and Thika-based Kenya Vehicle Manufacturers (KVM) are the only facilities that offer contract production, with General Motors East Africa running a facility exclusively for its Isuzu brands.
KVM, in which DT Dobie holds a 32.5 per cent stake, has been contracted to assemble the Polo Vivo vehicle. The car will be priced at below Sh2 million.
Peugeot’s move signals the multinational’s increased confidence that demand for its range of vehicles is rising in the local and regional market.
Urysia does not report its sales of Peugeot vehicles but it has recently won significant government leasing contracts, delivering 300 station wagons, ambulances and other vehicle classes to the government this year alone.
The dealer, which started operations in 2012, became Peugeot’s local franchise holder replacing Marshalls East Africa which lost the contract in 2007.
The move to assemble vehicles in Kenya is part of Peugeot’s long term strategy to grow sales in Africa and the Middle East.
“The group’s strategy in this region consists of gradually building vehicle manufacturing capacity in the centre of the region to serve the whole of Africa and Middle-East, whose potential is estimated at eight million vehicles by 2025,” the multinational said in its latest annual report.
The company, for instance, recently started assembling the Peugeot 301 model in Kaduna, Nigeria, at a facility run jointly with PAN Nigeria Limited.
Peugeot is also building a factory in Kenitra, Morocco, to produce up to 90,000 engines annually once it is completed in 2019. The plant will eventually be scaled up to produce 200,000 engines per year.
Global auto manufacturers’ increased interest in Kenyan assembly is set to benefit the economy through creation of jobs, skills and technology transfer besides lowering the price of new vehicles.
Completely knocked down (CKD) vehicles headed for assembly plants are exempt from import duty (at 25 per cent) and excise tax (20 per cent of a vehicle’s value) levied on fully-built imports.
The local assembly of Volkswagen and Peugeot passenger cars is also set to increase competition against market leader Toyota Kenya which imports its popular models from South Africa and Japan.
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 which has developed a vibrant automotive manufacturing industry on a raft of incentives and large internal demand for new vehicles.