New motor vehicle dealers are recording a sales resurgence as the economy recovers from the shocks of the Covid-19 pandemic. Data from the Kenya Motor Vehicle Industry Association (KMI) shows that the formal dealers, including Toyota Kenya, Isuzu East Africa, Simba Corporation, and Transafrica Motors sold 14,250 units last year, marking a six-year high.
The performance also represented a 29.8 percent increase compared to the 10,977 units sold in 2020.
But the sales growth is not evenly spread, with firms assembling vehicles locally benefiting from the rising demand while those relying mostly on fully-built imports recording reduced sales.
The share of locally assembled vehicles rose to a record 70.6 percent of the total sales in 2021, moving 10,054 units compared to 4,195 units of fully-built imported vehicles.
The volume of new imports recorded last year is 57.9 percent down compared to the peak of 9,966 units seen in 2015 while locally assembled vehicles staged an 8.2 percent growth from 9,287 units.
Over the same period, the market share of assembled automobiles has risen from 48.2 percent to 70.6 percent while that of fully-built imports has declined from 51.8 percent to 29.4 percent.
Firms strong in local production have linked their rising fortunes to support by the government, which has enacted favourable policies besides being one of the biggest buyers of new vehicles.
“It’s important to acknowledge the significant role President Uhuru Kenyatta has played since 2013 in growing the auto sector through various policy initiatives,” said Wanjohi Kangangi, sales and marketing director at Isuzu East Africa.
“We are indeed grateful that the sector has enjoyed tremendous gains over the years through the robust support of the Ministry of Industrialisation, Trade and Enterprise Development.”
The government in 2019 banned imports of used trucks with load capacities of 3.5 tonnes and above besides all categories of used buses. Only second-hand minibuses were exempted from the ban.
The import restriction was introduced on the basis that local assemblers have the capacity to churn out such vehicles, which are mostly used in commercial ventures such as public transport, construction, trade and mining.
“We expect the benefits of this law to be felt immediately with the creation of up to 65,000 jobs in the local automotive industry through CKD [completely knocked down] assembly operations and local supply chains while contributing over Sh50 billion in taxes every year,” said Mr Kangangi.
CKD refers to new vehicle parts headed to assembly lines and which enjoy an exemption from 25 percent import duty, one of the major incentives for local production.
Besides the financial incentives and policy changes, the government has also committed to buying and leasing more vehicles from assemblers in acknowledgement of its role as the single largest buyer of goods and services in the country. The State purchases at least a quarter of new vehicles sold per year.
Simba Corporation was the latest to deliver 100 Mahindra Scorpio Cab pick-ups to the National Police Service (NPS) on January 7 in a deal estimated at more than Sh200 million.
Simba, which also assembles Proton cars and Mitsubishi trucks, declined to disclose the value of the contract.
Isuzu, which runs the biggest assembly plant by production volumes, says it has won multiple leasing and outright purchase contracts by the national and county governments.
The company delivered 13 Isuzu D-Max double cabin pickups to the National Hospital Insurance Fund (NHIF) on December 28, 2021, marking the first batch of a total fleet of 29 units.
The National Police Service also took possession of 80 Isuzu mu-X sport utility vehicles in a leasing deal last December.
On September 20, 2021, Kitui County received five specially built Isuzu trucks for transporting cattle.
The trucks, valued at Sh11.7 million each or a total of 58.5 million, are part of the Kitui County Livestock Project initiated to support cattle traders in easing the movement of animals to markets and the three abattoirs in the county.
On September 3, 2021, Laikipia County took delivery of 10 Isuzu FVZ tipper trucks on a lease agreement worth Sh99 million to support county road infrastructural projects.
President Kenyatta on November 3, 2020, handed over 75 double cabin Isuzu D-Max pickups to various counties acquired by the Ministry of Lands & Physical Planning through the Government Leasing Programme under the National Titling Programme.
Isuzu deals exclusively in its namesake models, which are all assembled at its Nairobi plant. Associated Vehicle Assemblers, in Mombasa, is owned and primarily produces automobiles for Simba Corp.
Thika-based Kenya Vehicle Manufacturers is contracted by various dealers and is owned by the government (35 percent), DT Dobie (32.5 percent), and CMC Holdings (32.5 percent).
The plants are currently operating at about a third of their capacity, with dealers saying they are capable of scaling up production to serve the local and regional market given an opportunity.
“Isuzu East Africa achieved procurement success in key government projects such as those in the ministries of Lands and Agriculture,” Mr Kangangi said.
“The Ministry of Interior has also provided opportunities through the National Police Service Leasing programme. This is a strong demonstration of the Buy Kenya, Build Kenya procurement policy at work.”
Other formal dealers including DT Dobie have also won contracts from the government but had not responded to our queries by the time of going to press.
The vehicle deliveries to the NPS last year, with a total target of 2,080 units, were the sixth phase of a leasing programme that commenced in 2013.
Besides vehicle purchases from normal budget allocations, the government in 2020 also supported assemblers during the outbreak of the Covid-19 pandemic through a special Sh600 million allocation that formed part of an overall economic stimulus programme.
Dealers say the government can still do more to further develop the local assembly sector. This includes the full implementation of the approved National Automotive Policy that, among other issues, proposes more incentives for firms engaged in assembly besides gradual reduction of the age of used vehicle imports.
The growth of assembly is seen as providing multiple benefits such as the creation of jobs, skills and technology transfer.
Players note that full implementation of the 25 percent duty on imported vehicles as provided for in the East African Community’s Common External Tariff can be a game-changer for the auto industry in the region.
“The EAC Rules of Origin gazetted on January 23, 2015, grant duty-free market access to all locally assembled CKD vehicles,” said Mr Kangangi.
“However, we have experienced some challenges with NTBs (non-tariff Barriers) where local vehicles have been assessed with duty at some EAC borders.”
He added that the government should lobby for policies that would protect and promote local assemblers in light of developments at EAC and Africa as a whole.
In May 2017, for instance, the second East African Manufacturing Conference held in Kigali resolved to champion a five-year limit on all second-hand vehicle imports in EAC member countries by 2021.
The EAC Committee on Industrialization recommended harmonising the age limits of car imports at eight years. While Kenya already has an eight-year age limit, the other partner states sought more time to consult.
“Beyond the EAC region, 54 African nations in 2018 resolved to create one African market through the African Continental Free Trade Area,” said Mr Kangangi.
“When fully activated, we expect to get tight competition from countries such as South Africa, Egypt and Morocco, which have major incentives for their motor vehicle assemblies compared to Kenya.”
Delayed payments by county governments are another source of frustration for the dealers.
The establishment of the 47 devolved units of government in 2013 created new opportunities for the companies as the local governments set up their structures to drive their development.
The counties receive more than Sh300 billion annually from the central government besides raising their own revenue to fund their budgets, which includes spending on transport, healthcare, and other services.
“Devolution in Kenya has created opportunities for various automotive players to do business with county governments to meet their transport requirements,” said Mr Kangangi.
“Unfortunately, one of the biggest hurdles to sustaining these transactions has been the issue of delayed payments from county governments. More efficient payment modalities are needed to ensure auto suppliers are well resourced and given timely compensation to meet their operational needs.”
The Prompt Payment Bill 2021 before the Senate seeks to compel the national and county governments to settle supplier bills on time as stated in the contracts or within 90 days. Counties have billions of shillings in pending bills.
Dealers say their customers have also encountered costly hurdles to their inter-county movement through road toll stations installed at county boundaries.
“These have introduced time-consuming and expensive processes that risk stifling the growth of inter-county trade,” Mr Kangangi said.
Counties buy a wide range of vehicles from dealers, including buses, pick-ups, and passenger cars. The formal dealers have expanded to cover more counties in a bid to get closer to their clients, including businesses and the devolved units.
The expansion has featured the establishment of showrooms and service centres.