A fall in motor vehicle imports witnessed over the past two years has eased out, signalling recovery on the back of stabilising exchange rate and improved availability of dollars, analysis of official data shows.
Traders and households spent $267 million to ship in motor vehicles in the first four months of the year, largely unchanged from $268 million in a similar period a year ago.
The 0.37 percent drop is an improvement from the 14.65 percent fall last year from $314 million, according to provisional data from the Central Bank of Kenya and the Kenya Revenue Authority.
Dealers last year complained of the wracking impact of a weakening shilling on businesses amid difficulties in accessing adequate dollars for small traders. They also cited the high cost of bank loans in an environment of high inflation that had eroded the purchasing power of households.
The double-digit drop in expenditure on vehicle imports in the past two years running, however, appears to be improving going by the data.
However, the dealers are cautiously optimistic about an upturn this year, citing a stabilising foreign exchange market.
âThe exchange rate is beginning to turn. It has been difficult to import vehicles and vehicle parts because we needed to buy dollars to get these materials from abroad. Aside from the bad [exchange] rate, it was also hard to get dollars,â Rita Kavashe, managing director at Isuzu East Africa, said in an interview with the Business Daily in March.
The shilling had gained about 15.6 percent between the beginning of the year and April, trading at about 133 units to the dollar compared to 158 at the start of the year, according to CBK statistics. The increased expenditure on vehicle imports will likely be cheered by the Treasury.
Treasury Cabinet Secretary Njuguna Ndungâu had last November in the Budget Review and Outlook Paper (BROP) cited a drop in motor vehicle, cosmetics and alcoholic drinks imports as one of the reasons for the shortfall in excise duty collections.
Motor vehicle imports are among the major sources of taxes and a drop in the imports cuts revenue receipts for the KRA.
Importation of vehicles, which is restricted to units manufactured not more than eight years ago, attracts a duty of 35 percent. The imports also pay excise duty ranging from 25 percent to 35 percent, depending on the size of the engine as the standard 16 VAT also applies. Excise tax is charged on the landed cost of the car and import duty while VAT is on the resultant value.
Last yearâs slide in the value of the shilling made car imports more expensive, prompting some dealers to cut orders at a time demand also dropped. âBusiness [for secondhand car dealers] is very low and banks have become very strict on financing the purchase of cars,â Charles Munyori, the secretary-general for Kenya Auto Bazaar Association, which represents second-hand car dealers, had said late last year. âPurchasing power is also down and, therefore, dealers have been forced to venture into other businesses to survive.â
The automobile market is, however, still grappling with the high cost of credit which has limited purchase of the units, especially new cars.
Banks are charging as much as 25 percent interest for financing the purchase of cars, according to dealers.
The cost of credit has generally remained high after the CBKâs Monetary Policy Committee raised its benchmark interest rate by six percentage points since May 2022 to counter a recent wave of inflationary pressure.
Increasing the central bank rate makes borrowing more expensive as lenders use it as a base on which they load their margins and risk profile of individual borrowers.
The high interest rates and high taxation have depressed local demand for new cars as most of the orders are financed by banks, industry data shows. Sales of new motor vehicles fell 17.66 percent to 2,271 units in the first quarter of the year, according to data tracked by the Kenya Motor Industry Association (KMI).
The KMI data shows Isuzu East Africa and CFAO Motors Kenya, which control about three-quarters of the new vehicle sales on average, were among the hardest hit dealers.
CFAO, which a year ago bucked the industry trend of flagging sales, posted a fall of 21.6 percent, the fastest year-on-year drop among the biggest dealers in the review quarter.
The firm that sells brands such as Toyota, Mercedes, Volkswagen, and Hino under one roof following the merger of Toyota Kenya and DT Dobie operation in May last year processed orders for 755 vehicles compared to 963 units a year earlier.
Market leader Isuzu East Africaâs sales contracted 12.3 percent to 1,030 units from 1,174 units in the prior year. However, the market share of Isuzu, which sells pick-ups, buses, trucks, and sport utility vehicles, increased to 45.4 percent in the review quarter from 42.6 percent the year before.
Simba Corp, which holds multiple franchises including Mitsubishi and Proton brands, however, bucked the trend after growing sales by a modest 2.8 percent to 255 units. This helped raise its share of the market to 11.2 percent in the review quarter from 9.0 percent the year before.
