Latest official data shows that Kenyans import about 8,000 used cars every month compared to 500 new cars sold on average.
This is happening amid concerted efforts by the government to offer heavy protection that includes huge tax exemptions to foreign multinationals, automotive manufacturers, through local assemblers and new motor vehicle franchise holders in the belief that this will spur economic growth, create employment and become a key driver of technological advancement.
But is this approach the right prescription that the sector has all along been waiting for or just another misadventure that the government will live to regret?
To better understand the issue at hand, we should revisit the 1960s and 1970s when Volkswagen pioneered the local motor vehicle assembly by assembling the then very popular Beetle model in Kenya with the government faithfully protecting to the sector.
The sad fact is that all these very attractive incentives did not guarantee the success of the local assembly plants because most of them soon closed down and the few that survived never met the demand for affordable and reliable cars. Vehicle ownership became a rare privilege reserved only for a few wealthy Kenyans, the government and aid agencies.
A lack of adequate capacity among the local assembly companies also saw the few Kenyans who could afford to buy the cars, pay for them and then put on to a waiting list for up to six months before delivery of their cars. This was also the time that the country witnessed a sudden rise in violent carjacking, which I believe was a direct result of a combination of these factors that made owning a car in Kenya almost impossible
To remedy this situation, the government embraced trade liberalisation in the early 1990s.
This included the importation of used cars. This important and eagerly awaited decision suddenly opened the world to Kenyans and enabled them to buy cars of their own choice within their budgets.
After a short period, imported used cars became so popular and the sector’s phenomenal growth soon took on a life of its own creating in its wake a lucrative sector that is today faithfully providing decent livelihoods to millions of Kenyans including importers, clearing agents, matatu and taxi drivers, salespeople and mechanics as well as contributes close to Sh50 billion annually in taxes.
In a move that closely reminisces the 1970s, the government has over the last few years embarked on an aggressive campaign to promote local automotive assembly through huge incentives that include tax exemptions and even directing all State agencies to procure only assembled vehicles.
Although this is commendable, it should not be lost on the government that Kenya has been assembling vehicles since the 1970s but to date, there is no technology that has been transferred to the country. It’s sad to note that in terms of technological growth, the country is still at the same spot it was in, in the 1970s.
The government urgently needs to be reminded that automotive markets in developed countries are today saturated and are characterised with overcapacity and low profitability.
This market has simply achieved full maturity and volumes are either stagnating or falling. The industry also faces stringent regulations on vehicle emission standards aimed at producing environment-friendly and clean cars. That’s why many of these multinational automotive manufacturers are rushing to build assembly plants in developing countries like Kenya and in the process essentially exporting obsolete technology that has been phased out in Europe, Asia and America.
Today, owning a car in our country is no longer a privilege but a basic necessity. However, imported used cars are increasingly being subjected to punitive taxes, making them too expensive for ordinary Kenyans.
The government must be very careful not to destroy the current vibrant market competition and free enterprise by creating a protected market for a few foreign multinational automotive manufacturers through local assemblers and new motor vehicle franchise holders because just like before liberalisation, the ongoing protection of the local automotive assembly sector is a sure disaster in waiting and the consequences of these actions will soon be too dire to even imagine.
Charles G. Munyori Secretary, Kenya Auto BazaarAssociation.