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Volkswagen has signed a deal to use the Kenya Vehicle Manufacturers in Thika to assemble its popular models beginning with the Volkswagen Vivo

Kenya

Kenya jump-starts auto sector with Volkswagen deal as Ethiopia closes in

In 2015, South Africa exported a record 333,802 vehicles, and the total value of exported vehicles and parts increased by nearly 31 percent to R151.5 billion (Sh1 trn).

Major international motor manufacturers like BMW, Daimlerchrysler, General Motors, Fiat, Ford and Nissan now have both completely Built Up (CBUs) and completely knocked down (CKD) units in South Africa.

Four pillars catapulted this multi-billion industry to where it is today; Stable import tariffs, Vehicle Assembly Allowance, Production Incentive, Automotive Investment Scheme (AIS)

Kenya’s motor Industry

The Deloitte Africa report picks out Kenya’s economy, sizeable middle class, progressive business environment, regional market access and history of automotive assembly as factors that position the country strategically to cement its position as the undisputed automotive leader in the region.

According to the Kenya Economic Survey 2016 report released in May, the production of cars, trailers, and semi-trailers increased by 6.8 per cent in 2015.

This is partly attributable to the Government’s 2014 guaranteed agreement on annual car lease contracts of at least 40 percent.

“The number of assembled motor vehicles increased by seven per cent from 9,514 vehicles in 2014 to 10,181 vehicles in 2015. Similarly, production of trailers and semi-trailers increased by 13.2 per cent while that of motor vehicle bodies went up by 1.3 percent,” notes the survey.

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In Kenya, imports of parts used in local assembly are exempted from the 25 percent import duty levied on assembled cars.

In October 2014, Kenya witnessed it’s first locally manufactured vehicle “Success story” hit the showroom trading under the brand name Mobius. The vehicle, which is assembled at the Kenya Vehicle Manufacturers (KVM) plant in Thika hit the show room in 2014 at a price of Sh950,000, making it the cheapest locally manufactured car in Kenya then.

However, Ethiopia is also eyeing a piece of the automotive pie. Deloitte Africa’s reports notes that the Ethiopian charm offensive gives investors in the manufacturing sector, including automotive, an exemption from paying income tax for a period of five years if more than 50 percent of their products or services are exported or if more than 75 percent of their product is supplied to an exporter as a production input.

According to the survey, Ethiopia’s automotive potential is underpinned by the state-driven economy and a government that is geared toward industrialization, which makes it the African economy that is most similar and arguably likely to replicate the development successes of China of the mid-1980s onwards.

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