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Kenya wants countries in the East African Community to give preferential treatment to local motor vehicle manufacturers in procurement.
Kenya wants countries in the East African Community to give preferential treatment to local motor vehicle manufacturers in procurement.

The proposal was made at a meeting of the region’s trade, investment, finance and industry ministers in Arusha last week.

“To support the local producers/assemblers, it is proposed that the partner states, state corporations and all publicly funded agencies, give preference and priority to locally-assembled motor vehicles,” read a report at the meeting.

Kenya had previously written to the EAC, saying its motor vehicle assemblers were unduly disadvantaged by the region’s regulatory framework.

Kenya also wants the five countries to develop harmonised standards and regulations for motor vehicle assembly in the region.

In addition to procurement, the country also asked partner States to address taxation. Motor vehicles are supposed to be subjected to the Common External Tariff (CET) of up to 25 per cent.

However, some partner States have sought, and been granted, a stay on the CET on trucks and buses. This means that they can bring motor vehicles into the Community at reduced or no duty. The situation, Kenya argues, hurts local assemblers.

Raise duty

“They persistently ask for waivers on taxes. The outcome is that the local player is not given an opportunity to grow. It is a big issue,” said General Motors East Africa managing director Rita Kavashe.

The situation persists even though finance ministers from the five EAC partner States last year agreed to scrap stays on the CET and to raise duty from zero per cent to 25 per cent for Uganda and Tanzania. Kenya was already applying the 25 per cent tariff.

In implementing the higher tariff, the secretariat of the EAC has been directed to develop a schedule that will gradually see the duties increased.

Getting their finished products into partner States’ markets has also been problematic for Kenyan assemblers. The motor vehicles are charged duty which they argue ought not to exist given that the products are manufactured within the Community.

Some of the partner States have always held the position that these motor vehicles cannot be considered to be of EAC origin given that the assemblers import parts used to build them.

Ms Kavashe said companies were restricted in market access to a few products where the value-addition is insignificant, such as buses. The Community is currently amending its rules of origin and regulations on locally assembled motor vehicles.

Under the new regulations, “substantial transformation” of a motor-vehicle would be considered in granting manufacturers lower duty.

The new rules are expected to be adopted by the Council of Ministers during its next meeting in July.

The region is also planning to begin issuing electronic rules of origin certificates. The assembly of motor vehicles, trailers and semi-trailers in Kenya grew 3.2 per cent last year. The sector has grown by more than 30 per cent between 2009 and 2013.

However, motor vehicles are far from being among Kenya’s key exports to the region. Currently major exports are cement and fabricated construction materials.

The region now wants to carry out a study on the motor vehicle industry and the challenges that players in the sector face during the 2014/2015 financial year.