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Kenya: Incentives to attract investment in Kenya's automotive industry

2016/10/04

Kenya's removal of excise business on locally assembled cars will boost the industry, but the government must make power supplies cheaper and address other concerns to draw additional investment , the automobile industry association chief said on Thursday.

With little increase in mature markets, automakers are looking to tap into emerging African markets, but there is plenty of competition on the continent for where they may invest.

Kenya's East African neighbour Ethiopia, for example, is building an assembly industry and boasts rapidly improving transport links and plentiful, cheap hydro-electric power.

Kenya currently mostly assembles trucks, pick-ups and buses from kits supplied by foreign manufacturers. Some 2,258 vehicles were assembled in the initial four months of this year, the statistics office said.

However Volkswagen said this month it would resume car assembly in Kenya next closing a plant in the 1970s.

Rita Kavashe, the chairwoman of the Kenya Vehicle Manufacturers Association (KVMA), said scrapping excise business offered an incentive to investors in Kenya, where economic increase of 6 % a year is helping drive vehicle request.

"We are anticipating presently an increase in purchases of motor vehicles as a result," she said, although the slow start to the year meant sales of both imported and locally assembled vehicles would be 14,000 in 2016 compared to 19,500 last year.

But she told Reuters the government had to address other issues that deterred manufacturers, by making electricity supplies cheaper and additional reliable and improving efficiency at Mombasa port, a heavily congested regional trade gateway.

"Cost of electricity has not gone down at all ... The cost is still very high in Kenya so that is a real challenge that needs to be addressed," said Kavashe, who is as well chief of General Motors East Africa, a large assembler in Kenya.

Sales of locally assembled cars plunged 30 % in the initial six months of this year, half due to the excise business introduced in January at a flat rate of 150,000 shillings ($1,483) on each assembled vehicle.

The government reversed that decision this month saying it wanted to foster local assembly of vehicles, in which kits supplied by foreign brands are bolted together.

Kavashe said investors as well needed reassurance about next year's election in Kenya, a country that has long suffered from political strife.

($1 = 101.1500 Kenyan shillings)

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