About 30 years ago, in 1977, Kenya-based Associated Vehicle
Assemblers (AVA) Ltd introduced its
first line of passenger vehicles, the Toyota Hilux. The vehicle became one of the success stories in Kenya’s vehicle assembly industry.
first line of passenger vehicles, the Toyota Hilux. The vehicle became one of the success stories in Kenya’s vehicle assembly industry.
But all this took a
turn for the worse in 1993, when the government relaxed rules on
importation of used vehicles, sending sales of Toyota Hilux south. By
1998, and with the market flooded with cheaper imports from Japan,
production stopped.
Not so many have witnessed this
rise and fall as has Dave Williamson, the AVA factory manager, who
welcomed Kenya’s founding president Jomo Kenyatta when he opened the
assembly in 1977.
“I have seen the auto assembly sector
grow. I have seen the sector prosper. I have seen us struggle to stay
afloat,” Mr Williamson told The EastAfrican at his offices in Miritini, Mombasa.
“At
its peak, our plant in Mombasa would produce 10,000 units. At the time,
the country had strict controls on the importation of motor vehicles,
with those seeking to bring in vehicles requiring permits signed by us,
the vehicles assemblers. We got to a point where we were making more
passenger cars than commercial vehicles. We were headed in the right
direction,” he added.
Falling numbers
Today, the plant produces an average of 6,000 vehicles annually
bogged down by high production costs and lack of incentives from the
government.
When the plant was set up, it was meant to
assemble vehicles for the export market. It thrived while the market
was closed to imports from Japan and the Middle East.
But in recent times, governments in the region have maintained bottlenecks, much to the disadvantage of new vehicle manufacture.
In
Kenya, the region’s biggest market for new vehicles, the sales of new
motor vehicles has dropped by more than 40 per cent in the past three
years, to 11,044 units last year, with major dealers like Isuzu East
Africa and Toyota Kenya recording reduced orders.
According
to data from the Kenya Motor Industry Association, these dealers have
seen the sales fall from a high of 19,966 vehicles in 2015 — the peak
year — to 13,869 units in 2016.
In a recent interview,
KMI’s chairperson Rita Kavashe, who is also the chief executive of Isuzu
East Africa, blamed this decline on the reduced economic activity
brought about by tighter credit markets and political uncertainty in the
recent general election.
“The sales bottomed out last year and are forecast to rise by up to 10 per cent this year,” she said.
Nearly
all the dealers: Isuzu, Toyota Kenya and Simba Corporation — which
sells BMW cars and Mitsubishi trucks and other brands — recorded reduced
orders last year.
Market leader Isuzu’s sales dropped
from 4,858 in 2016 to 3,940 in 2017, while the orders for its top rival
Toyota, including Hino buses and trucks, fell from 2,778 to 2,508 over
the same period.
Simba Motors’ sales declined from 2,343 to 1,785. Toyota, Hino and Mitsubishi trucks are assembled at the AVA plant in Mombasa.
Major auto manufacturers
Despite
the fall in volumes, things are looking up for the region’s vehicle
assembly industry with the recent entry of major auto manufacturers —
Japanese giant Toyota in 2015, Germany’s Volkswagen (2016) and France’s
PSA Group, the maker of Peugeot in 2016.
By the end of
June, Volvo Trucks of Sweden is expected to unveil its $25 million
vehicle assembly plant at the AVA plant in Mombasa, following its
partnership with NECST Motors. India’s Ashok Leyland is also planning to
set up an assembly plant in Kenya.
This new interest
opens up the region to secondary business opportunities, job creation
and technology transfer as these auto makers bring with them spare parts
business, third party supply contracts and dealership opportunities.
This
is supported by friendlier government incentives like the case in
Rwanda, which offered Volkswagen South Africa tax exemptions and
friendlier policies.
“These kinds of investors are
looking for long-term opportunities that are safeguarded by policies.
Commercially, they are not going to move in and invest unless they know
the government is going to support them for the next 10, 20 or even 30
years.
“Otherwise, they’ll head to another market where there isn’t any risk,” Mr. Williamson said.
Govt policy
Sun
Qingzhong, general manager of Foton Motor Kenya, which launched its
first assembled trucks at the AVA plant in January, concurs with this
thought saying they were attracted by the change in government policy,
especially on leasing new vehicles.
“With this new
plant, we will also provide spare parts, after-sales services which will
create more job opportunities, contribute to the development of
regional economy,” Mr Qingzhong.
In January, VW
confirmed it would be investing $20 million in a new vehicle assembly
plant to produce three car models and car rental services in Rwanda,
with the first vehicle expected to come off the assembly line by June.
This
venture, with an installed production capacity of 5,000 units, would
also provide a new avenue for used cars for businesses, through a car
rental business.
“The investment is set to be rolled
out in three phases, with the consequent phases seeing the firm increase
production capacity, car models, employees, scale up the mobility
solutions and possibility of exports,” Thomas Schafer, the chief
executive of Volkswagen South Africa said.
The big
question, however, remains: What strategy will these new entrants
employ? The likes of Isuzu and Toyota Kenya have benefitted from
government contracts which have sustained their models. Volkswagen, on
the other hand, is trying out a car hailing and rental service.
“We
hope to have our locally made cars serve to gradually phase out used
imports in the region. We will also rope in the corporates on our car
renting programme,” Mr Schafer said.
For these
assemblers, government business has been an attractive factor in this
market with Kenya alone leasing more than 4,500 vehicles over the past
six years.
This could get a boost when a new leasing
contract worth $134.7 million comes into effect later next month as
Kenya starts the second phase of the government leasing programme that
will see more than 1,380 units leased to various government departments.
It
is also expected that the now used 2,700 vehicles previously leased
four years ago for $67 million will find their way into the country’s
used car market as Treasury angles to use this a method to push down the
country’s high import bill that has been propelled by the used car
market.
However, Vaell regional managing director Paul
Njeru says that this would be bad idea given that some of these
vehicles from new vehicle dealers and assemblers could be too expensive
for the local market.
“We have also seen most vehicles
having a very low mileage of which if the government extended the lease,
they would save the taxpayers a lot of money. An extension of a few
years would allow the vehicles to be sold at near residual value in
future to a ready market,” Mr Njeru said.
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