Import ban on used trucks and buses accelerates slowdown in auto industry

ISUZU East Africa, General Motors (GM) mechanics assemble an ISUZU truck. [Phillip Orwa, Standard]

Kenya has stepped up its efforts to develop a robust local automotive industry by banning the import of used buses and trucks.

The ban came into effect last Friday and is expected to play a key role in the growth of the local vehicle assembly industry.

The Kenya Bureau of Standards (Kebs) announced plans in May to roll out new standards aimed at improving safety on Kenyan roads. Apart from buses and trucks, Kebs also intends to ban the import of used tractor heads and engines from next year.

The standards body has given importers of used tractors and prime movers less than three years old a grace period of until June 30 next year, after which they will also be banned and only new units may be imported into the country.

Vehicle assemblers and auto parts makers hope this will result in a major boom for their businesses while creating more jobs and broadening the government’s tax revenue base.

Foreign investors

The Kenya Private Sector Alliance (Kepsa) noted that the move could see more foreign investors pouring big money into the country’s auto industry.

“In Kenya, the automotive industry has the potential to contribute significantly to the growth of the manufacturing sector. Globally, the auto industry has been a mainstay of industrialization for many economies and a key driver of macroeconomic growth and technological progress,” said the lobby’s chief executive, Carole Kariuki, in a statement. last week.

Ms. Kariuki noted that a thriving automotive assembly sector would not only benefit vehicle assemblers and parts manufacturers, but also other industries that have backward and forward ties to the automotive industry. vehicle assembly.

“The automotive industry has a long value chain, creating linkages both upstream and downstream. Backward links include the design and manufacture of vehicle bodies and other components, not to mention that the automotive industry consumes steel, iron, aluminum, plastic, glass, carpet , textiles, computer chips, rubber and much more,” she said.

“The industry is creating forward linkages through car dealerships, garages, leasing companies, insurance companies and financial institutions, among others.”

Kepsa noted that the new policy could be key to increasing demand for locally manufactured units and, in turn, attracting investors to increase investment in parts production and even vehicle assembly locally.

“The move to Kenyan 1515 standards…is a significant incentive to increase the volume of locally produced vehicles, thereby attracting investment into the industry. Foreign direct investment (FDI) is widely seen as a catalyst that promotes economic development,” Ms. Kariuki said.

“As many countries compete to attract FDI, it becomes important for policy makers in the country to understand the effect of FDI on productivity. Policies that reduce the import age of vehicles are normal for countries that want to develop a sustainable automotive industry such as South Africa, Morocco and Egypt, which are also our competitors as far as the area of free trade of the African continent.

Auto parts makers expect demand for locally made parts to increase significantly as assemblers engage them more. Auto Springs East Africa managing director Nephat Njengwa said the ban will allow the automaker to operate at full capacity from the current two-thirds.

“I think in the next two years we will see demand grow four times,” Njengwa explained.

“That means more jobs, more revenue for the government in terms of taxes, and a trickle down effect to our suppliers and other service providers.”

The Kenya Association of Manufacturers (KAM) in a 2020 report noted that some of the major impediments to the growth of local industry include inadequate tax incentives, poor enforcement of public procurement law provisions and the disposal of assets which provides for local sourcing requirements, the absence of a skilled workforce and low thresholds for the importation of vehicles, especially second-hand.

The Ministry of Industrialization has also recently started to implement the National Automotive Policy.

The policy, through targeted interventions, is expected to increase the number of locally assembled units by 20,000 per year from the current 10,000 units.

But the lobby has recently acknowledged the government’s efforts to develop the industry.

According to KAM, this will play a role in the growth of the industry. “There is an increase in the importation of used vehicles into the Kenyan market, which is leading to a drop in demand for locally manufactured vehicles. This is because imported second-hand products have an unfair competitive cost advantage, which inhibits the growth of local producers,” KAM said in the report.

In addition to the implementation of standards that restrict the importation of used vehicles, KAM noted in June that other measures recently put in place and essential to the growth of the automotive industry also include the promulgation of regulations on local assembly. as part of the Buy Kenya, Build Kenya initiative.

“We remain optimistic about the full implementation of the policy. By doing so, we will see a reduction in overreliance on imported used vehicles,” said Job Wanjohi, Policy, Research and Advocacy Manager.

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