Focus on Local Vehicle Assembly Crucial to Reviving Manufacturing Sector

Growth trends for the last few decades have shown that Kenya’s manufacturing sector remains stunted leading to underutilization of the sector’s potential and the intended impact on the economy.

The significance of manufacturing to any economy in the world cannot be understated. Many economic development success stories owe a great deal to the role of the manufacturing sector. However, the story has been less than impressive in Kenya over the last few decades.

According to the Kenya Association of Manufacturers (KAM), the performance of the manufacturing sector has been weak and has failed to keep up with developments in the region and globally. Its share of the GDP was the same in 2015 as it was in 1965, declining since 2010 to a low of 9.2 percent by 2016. Kenya’s GDP stands at more than 70 billion US dollars. On average, apparently, the manufacturing sector contributes an average of up to 7 billion US dollars of the total GDP, an amount that cannot be overlooked.

Efforts to rejuvenate the industry started with the KAM launching a ten-point agenda for industrialization in 2017. The policy acts as a guide for the government on achieving economic goals stated in its manifesto by directing its efforts on the manufacturing sector.

One of the segments in the manufacturing industry that has for a while been overlooked is the local vehicle assembly. The sector plays a tremendous role in terms of transportation of goods and people, and the formulation of intricate value chains that create employment and business opportunities for thousands of Kenyans.

However, compared to other countries, vehicle assembly in Kenya still has a long way to go, to compete at global levels. Other countries that have invested heavily in local vehicle assembly have realized growth opportunities that are immense with an unquestionable return on investment.

Role of the Government in driving Comprehensive Growth

Through the Big 4 agenda, the government has put the growth of the manufacturing sector first. The initiative is exactly what the local motor vehicle assembly needs to strengthen the country’s manufacturing industry and help achieve better growth through favorable industry regulations and policies.

Examples from other markets where the motor industry has achieved great strides continue to demonstrate that government support is a critical component of their success. New investment laws set by governments have favorably influenced the rise of the automotive industry in some countries.

For instance, foreign car companies setting up shop in Morocco today benefit from a variety of incentives, including a five-year corporate tax holiday, VAT exemptions, and land purchase subsidies.

In measures to attract more investors into the motor vehicle sector, the Kenya government in early 2017 announced a reduced corporate tax rate of 15 percent down from 30 percent for the first five years of operation, for new vehicle assemblers. However, it was not made clear how this measure would apply to existing assemblers, who have already made significant investments in the business.    

Currently, as per the Kenya National Bureau of Standards (KNBS), used cars make up about 80 percent of vehicles imported in Kenya on an annual basis. With such high numbers of second-hand cars, the market for locally assembled vehicles is undermined, constraining its growth.

Ironically, Kenya boasts of three automotive plants capable of assembling 30,000 units per year (on a single shift) but they’re operating at just about 33 percent of their capacity. A policy to discourage the importation of second-hand vehicles will go a long way in achieving beneficial impact on local assembly.

It comes as a relief to note that Kenya’s recently formulated automotive policy framework proposes to impose further age limits on second-hand vehicle imports, from eight to five years.