A new study conducted by the USAID’s East Africa Investment Hub has concluded that failure to strictly implement regulations set by the member states touching on the rules of origin has had a negative effect on vehicle assembly in Kenya.
The report notes that despite vehicles assembled in Kenya qualifying for a preferential treatment, member states were still charging them high taxes which act as a Non-Tariff Barrier.
The study notes that failure to implement the East African Community’s Rules of Origin (RoO) is a violation of Partner States’ commitment under Article 14 of the EAC Customs Union Protocol and frustrates the realization of EAC Industrialization Strategy.
This study finds that the implementation of the zero-import duty provided for by the RoO will in turn reduce the retail selling price of Kenyan assembled motor vehicles in the Partner States by 14- 20%. In addition, industry players will be able to optimize their industry capacity utilization to at least 30,000 units per annum.
The assemblers project that with more business, they can progressively increase assembly line jobs by 1,000, with the additional knock-on effect of increasing the parts manufacturers to assembly plants employees to approximately 6,000.
Rules of origin are the criteria needed to determine the national source of a product.
In 2014, the EAC ministers revised regulations that prohibited motor vehicles being assembled in member countries from being taxed in a similar manner with motor vehicles from out of the EAC.
Under the revised RoO various products which did not qualify for the Preferential Community Tariff Treatment under the old RoO now qualify. Such products include models of motor vehicles assembled in Partner States.
It was intended that such preferential community tariff treatment will increase the price attractiveness of the locally assembled motor vehicles and therefore increase their market share.
The local motor vehicle assembly in Kenya is growing but still quite small compared to African peers such as the Republic of South Africa and Egypt. In comparison to other EAC Partner States, Kenya’s motor vehicle assembly industry is relatively well developed. Kenya assembled 9,524 vehicles in 2015, according to the Kenya National Bureau of Statistics (KNBS) with total number of employees in the manufacture of motor vehicles industry standing at 3,040 in 2016.
Kenya’s automotive market is largely focused on retail and distribution of vehicles and after-sales support in servicing and spare parts sales. Small-scale assembly of motor vehicles is done at three assembly plants, the General Motors East Africa (GMEA) plant in Nairobi, the Associated Vehicle Assemblers (AVA) plant in Mombasa and the Kenya Vehicle Manufacturers (KVM) plant in Thika.
In 2015 Kenya sold 9,295 locally assembled vehicles of which 921 (close to 10% of assembly) were light commercial vehicles such as pick-up trucks, and the rest of the 8,374 were heavy commercial vehicles such as trucks and buses.