East African states are tightening controls on used car imports in a drive to cut pollution and boost the local manufacturing industry.
Kenya recently announced that it would scale up its used car emissions laws, joining Uganda which has already introduced related taxes.
Cabinet Secretary in Kenya’s Ministry of Transport James Macharia said that the policy would soon be in place and that motorists found to be in breach of the law risk having their cars deregistered.
“By the end of the year, we will require vehicles countrywide to undergo a mandatory inspection to determine their level of toxic emissions,” said Mr Macharia.
The move comes against the backdrop of the East African Community 17th Heads of State Summit in March, which tasked the Secretariat to speed up work on a comprehensive study on the potential of setting up a regional car-making industry.
However, in its 2016/17 budget unveiled on June 8, Kenya scrapped a flat rate duty of Ksh200,000 ($1,982) on cars aged more than three years — which form the bulk of the used-car market — and Ksh150,000 ($1,486) for those aged below three years, and reverted to a 20 per cent levy on the value of the car that was in place before December last year.
Cabinet Secretary for the National Treasury Henry Rotich said that the flat rate was unfair, inequitable and punitive to importers of vehicles commonly bought by low-income earners, but beneficial to importers of luxury vehicles.
On its part, Uganda introduced an environmental levy of up to 50 per cent of Customs duty on the value of cars aged 10 years or more in the past financial year.
The move was meant to discourage the importation of cars that have higher pollution levels. Cars aged between five and 10 years attract a 35 per cent levy.
It is expected that the EAC Secretariat will, at the 18th Heads of State Summit, share a strategy policy paper borrowed from African car makers like South Africa, Nigeria and Ethiopia, with a view to adopting it in the region.
An EAC official privy to the deliberations by the Secretariat committee said that so far, the study is looking at ways to phase out secondhand vehicles — popularly known as Dangerous Mechanical Conditions.
“South Africa for example, has used tax incentives to promote its fledgling auto industry while Ethiopia has a policy that requires the government to use only locally-assembled cars as a way to boost sales,” the official said, adding that end user cost reductions will also be a key element in the policy proposal to be presented at the summit.
The South African auto industry has relied on tax incentives and protectionism for years, becoming the continent’s largest car assembly hub.
“We will be extending the $630 million auto industry incentive scheme to include commercial vehicles and motorbikes when the current support programme ends in 2020,” Trade and Industries Minister Rob Davies said last week.
In Ethiopia, locally-assembled cars receive tax breaks when local input exceeds 10 per cent, making them cheaper than imported cars by a margin of 15 per cent. Nigeria last month announced a partnership with Nissan and a Brazilian auto parts manufacturers to set up a plant in the country by 2018. The agreement is being backed by tax incentives.
Sanjiv Shah, chief executive of RMA East Africa, dealers in Range Rover and Jaguar brands said that the region needs to be outward-looking if it is to achieve its dream of setting up automotive plants.
“We need to look at the numbers critically. Can we afford to host these plants here? Do we have the necessary tax incentives? Can the market be made available? Finally, we need to talk about the cost both to the ultimate users and business,” said Mr Shah.
New vehicles market leader General Motors East Africa (GMEA), also sells its cars in Tanzania, Uganda, Rwanda and Burundi, has announced that it will be investing $7.9 million this year to upgrade its assembly plant in Nairobi, with a view of doubling its output.
“We were doing 10 vehicles daily in 2013, but with several upgrades, that has improved to about 22 vehicles a day. We hope to hit 25 cars per day by mid-2017 with this investment,” said GMEA managing director Rita Kavashe.
A former trade adviser at the EAC Secretariat, Yusuf Abdalla, said that the region has to rethink the auto assembly plants drive, keeping in mind that the industry is largely driven by exports, and is heavily pegged on tax incentives to attract manufacturing giants.
“We need to grow as a region and cultivate the ability to negotiate as governments on what brand we can manufacture exclusively then sell to the rest of the world. We also need an attractive labour policy and a market,” said Mr Abdalla, adding that the region needs to start by attracting parts manufacturers who can win contracts with auto firms in South Africa and Nigeria.
Meanwhile, GM is setting up a car assembly plant in Tanzania while Uganda is setting up one through the Zhong Da Group $600 million investment for light commercial vehicles. The Hyundai Group is also said to be interested in an agreement with Uganda’s Kiira Motors for a new auto assembly plant.
Lessons from South Africa
FOR YEARS, the South African government has offered tax and protectionism incentives to automotive manufactures that have helped boost the industry.
The country boasts an exclusive production agreement for the manufacture of the German model BMW 3 series. South Africa also hosts Volkswagen, Toyota, Ford and General Motors assembly plants.
Under the current government plan, manufacturers like Toyota and Volkswagen receive incentives such as tax rebates aimed at doubling local vehicle production to 1.2 million by 2020.
The auto industry, which employs about 100,000 people, is the third largest contributor to the country’s GDP, and accounts for around 12 per cent of exports.
Last year, South Africa made more than 616,000 vehicles with close to half of them being exported. The country exports mainly to Europe, with Africa being its second largest market.