Private sector welcomes new automative standard
By PD columnist, June 29, 2022Kenya has registered continuous growth in its Gross Domestic Product in the recent past, thereby creating a promising environment for investments.
Agriculture, manufacturing, wholesale, retail and financial services are the highest contributors to the GDP, and as a result, they have been prioritised under the economic pillars of Kenya Vision 2030, a policy that provides the national development goals in promoting inclusive and sustainable growth to make ours a globally competitive and prosperous country.
Automotives play a very critical role in the economy by facilitating the free movement of goods and people. Therefore, Kenya Private Sector Alliance (Kepsa) fully supports any policy intervention aimed at building the market for local products while lowering the cost of doing business for the global competitiveness of our products and services.
Globally, the automotive industry has been a pillar of industrialisation for many economies and a key driver of macroeconomic growth and technological advancement. The industry has consistently contributed heavily directly and indirectly to the GDP, foreign investment, employment and innovation in developed countries such as Germany, the US, Japan, South Korea, Italy, China and several other emerging economies such as Egypt, Morocco, South Africa, India and Thailand.
If we take a look at a country like the US, the automobile industry is one of its most important and has historically contributed between 3.0 and 3.5 per cent to the overall GDP. According to international estimates, the average annual turnover of the world automobile industry is more than 2.75 trillion.
In Kenya, the industry has the potential to significantly contribute to the manufacturing sector’s growth, and the government target to increase its share of the GDP from the current 9.2 to 15 per cent this year as part of the Big Four agenda. This will also be instrumental in achieving the aspirations of Vision 2030, of creating a globally competitive and prosperous country with a high quality of life.
The automotive industry has a long value chain creating both backward and forward linkages. The backward linkages include design and manufacture for vehicle bodies and other components, not forgetting that the automotive industry consumes steel, iron, aluminum, plastic, glass, carpeting, textiles, computer chips, rubber and much more. The industry creates forward linkages through vehicle dealers, garages, leasing firms, insurance firms and financial institutions among others.
As stated, the private sector is in support of any policy that will drive the growth of local businesses forward. Therefore, we support the Ministry of Industrialisation, Trade, and Enterprise Development’s initiative to develop a National Automotive Policy (NAP) which will help to grow the automotive industry. The policy which gives a regulatory and institutional mechanism to develop the industry is a plus for the country.
Passing the Kenya Standards 1515 which lowers the importation age of trucks, buses and prime movers is, therefore, an important incentive to increase the volume of vehicles produced locally hence attracting investment into the industry.
Foreign Direct Investment (FDI) is widely believed to be a catalyst that promotes economic development. As many countries compete to attract FDI, it becomes important for the policymakers to understand the effect of FDI on productivity. Policies that reduce vehicle importation age are normal for countries that want to develop a sustainable automotive industry such as South Africa, Morocco and Egypt who are also competitors when it comes to the African Continent Free Trade Area.
Automotive Industry has a great potential for creating more jobs than the importation of used vehicles, basically because of the big value chain. The industry can create five to 11 more jobs within its value chain for each job in the assembly plants.
With a total assembly volume of 11,000 units last year, the local industry is barely using 30 per cent of its capacity which is 34,000 units per annum on one shift. In this case, by implementing the Standard, the industry has the potential to grow by more than 50 per cent.
The local automotive industry can grow the country through technology transfer since the industry is one of the fastest adopters of technology.
— The writer is chief executive officer, Kepsa