Kenya’s removal of excise duty on locally assembled cars will boost the industry, but the government must make power supplies cheaper and address other concerns to draw more investment, the automobile industry association chief said on Thursday.
With little growth in mature markets, automakers are looking to tap into emerging African markets, but there is plenty of competition on the continent for where they might 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 first four months of this year, the statistics office said.
However Volkswagen said this month it would resume car assembly in Kenya after closing a plant in the 1970s.
Rita Kavashe, the chairwoman of the Kenya Vehicle Manufacturers Association (KVMA), said scrapping excise duty offered an incentive to investors in Kenya, where economic growth of 6 percent a year is helping drive vehicle demand.
“We are anticipating now 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 more 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 also head of General Motors East Africa, a big assembler in Kenya.
Sales of locally assembled cars plunged 30 percent in the first six months of this year, partly due to the excise duty 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 also needed reassurance about next year’s election in Kenya, a nation that has long suffered from political strife.
($1 = 101.1500 Kenyan shillings)
(Editing by Edmund Blair and Mark Potter)
Get the best of CNBC Africa sent straight to your inbox with breaking business news, insights and updates from experts across the continent. Sign up here.