Kenya is lobbying its neighbours to apply East African Community taxes ratified five years ago to support its vehicle assembly lines, whose first low cost car is to go on display in showrooms with an eye on East Africa’s rural transport market.
Mobius, a product of Kenya Vehicle Manufacturers (KVM), is now on sale at a starting price of $10,620, half that of its nearest imported competitor, but significant barriers need to be brought down for it to penetrate the regional market.
EAC member states in 2009 imposed a common external tariff (CET) of 25 per cent on motor vehicles imported into the region in a bid to promote local assembly. However, Community members have time and again asked for a stay on its implementation. The members also continue to impose import duties on vehicles assembled in Kenya.
“The EAC has been suspending CET for some member states and this has given importers an advantage over local manufacturers,” Kenya said in a letter to the EAC Secretariat in April. Although EAC experts agreed that there was enough transformation in the motor assembly process starting from CKD (completely knocked down kits) for cars to qualify as Community goods, Burundi was in July allowed to maintain a stay on the CET until next year.
“This rendered locally produced vehicles uncompetitive. The suspension has hurt the industry,” General Motors East Africa general manager Rita Kavashe told The EastAfrican. She added that Kenya’s installed capacity of 30,000 units per year was adequate to meet the regional new vehicle demand, making the suspension unnecessary.
KVM has sold 10 of the 50 units it has assembled so far and has scheduled production of Mobius III for 2016. The company is financing the project through a convertible debt from American billionaire Ronald Lauder, through Pan African Investment Company.
The Mobius, the assembler says, is suited to Africa’s tough terrain and comes with modern conveniences like air conditioning and power steering. However, its transmission is manual. It has a seating capacity of eight, can carry 625 kilogrammes of cargo and reach a top speed of 160 kilometres. It was designed by computer engineer Joel Jackson.
The EAC export market is currently dominated by General Motors, with statistics from the Kenya Motor Industry association (KMI) showing that it controlled a 39 per cent market share as at 2012, followed by the now defunct CMC at 21 per cent and Toyota at 20 per cent.
Futon and Tata Motors are among other assemblers affected by the suspension of CET by Burundi, Rwanda, Uganda and Tanzania, which forces buses and trucks assembled in Kenya to compete for the regional market with imported varieties.
Currently, there are no common standards in the motor vehicle assembly sector, leaving most players exposed to double taxation especially on imports of already manufactured parts. A May assessment by the EAC Sectoral Council on Trade, Industry, Finance and Investment showed that the EAC members are still locked in disputes regarding local vehicle assembly plants, with double taxation and prohibitive tax laws in various countries poising as a challenge.
In 2012, Kenya protested a move by the EAC Sectoral Council on Trade, Industry, Finance and Investment to collapse tariff lines for the unassembled motor vehicles under Chapter 87 of the EAC Common External Tariff.
Betty Maina, chief executive officer of the Kenya Association of Manufactures said that there are glaring administrative and operational deficiencies in the duty remission scheme in the importation of motor vehicle within the region.
“We believe that the duty remission scheme is too broad; it cannot accommodate importation of completely knocked down (CKD) kits under the individual tariff lines. This is due to the fact that the level of breakdown of CKD for motor vehicles to be imported has not been defined,” Ms Maina said.
Some of the issues KAM has raised concerning the industry include the non-recognition of certificates of origin under East African Rules of Origin, which is a potential barrier to entry of new investors, and the unprofitable operations of existing operators.
Data from the Kenya National Bureau of Statistics shows that 3,611 vehicles were assembled in Kenya in the period to June this year, accounting for 40 per cent of the new units sold as at June 2014.
Kenya is also the largest motor vehicle assembler in East Africa with KNBS data showing that 7,667 vehicles were assembled in the country in 2013, representing 52.7 per cent of the 14,542 new cars sold during that period.