Underfunding slows Uganda’s Kiira Motors project

Tuesday May 28 2019

A car yard.

A yard with imported cars. East African countries mainly rely on imported used cars. PHOTO | FILE | NATION MEDIA GROUP 

MICHAEL WAKABI
By MICHAEL WAKABI
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Kampala is likely to miss its target of manufacturing vehicles by mid-2021 as its automobile project — Kiira Motors — runs into funding problems.

Alongside Uganda Airlines, Kiira Motors is one of President Yoweri Museveni’s pet projects, which have seen the state focus on sectors the private sector has little appetite for. But while the former passed a turning point with the delivery of the first pair of aircraft last month, Kiira Motors faces little buy-in by government technocrats. This has resulted in a mismatch between project timelines and funding releases by the Treasury.

Construction of the manufacturing facility started in Jinja, 80 kilometres east of Kampala in February with first vehicles expected to roll off the assembly line in July 2021. But project officials now warn that the target may not be attainable unless funding streams become more predictable.

FUNDS

According to KMC executive chairman Prof Tikodri Togboa, the project has been swimming against the tide, with the Treasury failing to release funds as allocated in the budget.

“Up to this point, the funding releases have deviated from the roadmap. The project was allocated seed funding of $38.56 million to be released over a four-year timeline running from 2018 to 2022 as capitalisation to kick-start automobile manufacturing. But we are already dealing with a shortfall of $671,000 in the first year,” said Prof Tikodri.

According to the plan seen by The EastAfrican, the project was supposed to have received $6.44 million during the current financial year. That would be followed by $11.8 million in fiscal 2019/20, $11.54 million in 2020/21 and a final tranche of $8.75 million in 2021/22.

However, only $5.79 million of this year’s allocation has been released so far while the Cabinet has approved only $6.44 million of the $11.8 million that was programmed for 2019/20.

“Unless we keep pace with those figures, there will be a delay in delivering first vehicles to the country,” Prof Tikodri told Dr Elioda Tumwesigye, Minister for Science Technology and Innovation, the majority shareholder in Kiira.

Kiira Motors chief executive Isaac Musasiizi says the funding shortfalls have directly affected the project because the bulk of the money goes directly into core activities.

For instance, $5.635 million of the $6.44 million allocated for fiscal 2018/19, was supposed to go into construction of the assembly plant and the pilot bus project while the remaining $805,000 was supposed to meet the organisational overheads such as salaries and rent.

“At management level, these funding gaps present serious questions. Since you cannot avoid paying salaries and rent, do you stop the construction until more money comes?” he said.

He says stopping construction is not a viable option given the associated costs. The corporation would also have to separately contract and pay another entity to provide security for the work that has already been done.

Mr Musasiizi’s dilemma is getting worse given that the funding gap has expanded nearly tenfold to $5.366 million next financial year where only $6.44 million of the planned $11.8 million has been approved for release.

TIMELINE

Without the $5.366 million coming, construction will be impacted by a deficit of $1.878 million while the plant machinery will be set back by $1.61 million and the vehicle kits by the same amount.

“At this point, we are also supposed to lock in the very detailed specifications of the assembly lines so that this also informs some final integration of the electrical, plumbing and some of the other mechanical designs within the plant.

We also wanted manufacturing to start for the first batch set of vehicles we will be putting the market, but this cannot happen unless the funding gap is addressed,” he explained.

In all, the project has received only $7.782 million of the $41.3 million that was pledged by cabinet way back in 2012, to support the ramp-up to low rate vehicle production by 2018.

Efforts to reach Keith Muhakanizi, Secretary to the Treasury, to answer to the funding shortfalls proved futile. However, Peter Sematimba, a member of Parliament Committee on Science and Technology said the technocrats are not against the motor vehicle manufacturing project as such but simply want to match funding releases to its capacity to absorb.

Early this year, the committee opposed further allocations to KMC, claiming that they had failed to account for earlier allocations that the management said came only in the second quarter, impacting procurement for startup activities.

“The 2021 timeline is incumbent on availability of funding because now we have passed the conceptual stage. The designs are there; the contractor is on site. The only thing missing is the money,” said Mr Musasiizi.

He said KMC has gone way deep into engaging the prospective technology transfer and assembly partner and has crossed the point of no return.

“If you look at the money we are talking about for KMC, it is more about the technocrats buy-in, not money. If indeed there is a national gap in money available to do such things, then we should have a firm revised commitment along which we can move forward,” he says.

Under KMC’s project implementation matrix, buses will be the first vehicles to come off the assembly line in mid-2021. These would be followed by light to medium duty and pickup trucks in 2022 with a line for SUV’s following in 2025.

Executive Sedans which target the elite market will not require an assembly line and will be produced on order under low volume production from 2025 or earlier depending on when orders come in.

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