EAC commissions study on auto industry

The East African Community (EAC) Secretariat has been tasked by the Summit to speed up work on a comprehensive study on the bloc’s automotive industry, a development which will, among others, later create more jobs and reduce pollution from imported used vehicles. The 17th Ordinary EAC leaders Summit held in Arusha, Tanzania, last week directed the Council to expedite the process and report to the 18th Summit. “The background to this is that what the Heads of State have in mind is to nurture the automotive industry in the community, having found out that in East Africa we are able to assemble vehicles,” said Nathan Gashayija, Director in charge of Coordination of EAC affairs at the Ministry of EAC affairs (MINEAC). The envisaged study will help decision makers plan better and put in place modalities that will help similar initiatives currently underway. Gashayija added: “We are still importing motor vehicles which are almost fully depreciated. The Heads of State wanted to start phasing out these old vehicles – the ones known as Dangerous Mechanical Conditions (DMCs) so that we can now look at new vehicles assembled in the region. All this is coupled with fact that we want to mitigate transport costs in the region. We’ve had regional national policies looking at how to reduce costs”. Denis Karera, chairperson the East African Business Council (EABC), the apex body of the Private Sector in the region, is of the view that being a “huge business investment,” the challenges could include finance. “The policy and regulatory framework is going to be assured by the governments but what we are going to do as business operators, now, is to find the finances. Technical know-how is available as long as you have the money. So, we also need to learn the best practices where his is being done,” he said. However, Karera is confident that the challenges can be turned into opportunities as evidenced by promising development elsewhere. “Ethiopia today assembles its vehicles. Cabinet ministers, and all government vehicles, are obliged to travel in vehicles assembled in Addis Ababa. This is the best practice now being emulated,” he noted. Sparking pride in local business, Ethiopia last year opened its first vehicle manufacturing and assembly factory looking to use local labor to produce automobiles for both local consumers and for export. Reports indicate that Ethiopia created an engine and body manufacturing plant, known as the Bushoftu Automative Industry (BAI), at a military base in Mekele, nearly 480 miles north of the capital Addis Ababa, and expected to produce 10,000 to 20,000 vehicles annually and estimated to generate $96 million annually. Before the 18th EAC Summit convenes, wide-ranging consultations and interviews with industry actors and experts in countries including Vietnam, Thailand, Nigeria, Egypt, South-Africa and Ethiopia will be conducted to draw a strategy-policy mix that can be adopted in the region to promote motor-vehicle assembly. Market research on suitable vehicle models that can form the basis of the EAC Motor Vehicle Assembly project is also lined up mid this year. In addition, further analysis on the region’s entry-point in the motor-vehicle assembly industry is deemed crucial. The Secretariat will need to know whether the entry point will be motorcycle or reconditioning – assembling used cars as in Dubai – or if it can be an assembly of new cars, and which type. Answers to these, and other questions, will inform a policy paper that will then be prepared and presented to the next Heads of State Summit. Motor industry in EAC Today, the EAC’s motor industry is largely comprised of imported cars, with no significant manufacturing activities. The average Cost, Insurance and Freight (CIF) of imported motor vehicles in the region in the last three years was about US$2,010 million. The value comprised of about US$900 million for Kenya, US$493 million for Uganda, US$537 million for Tanzania and about US$80 million for both Rwanda and Burundi. Today, Kenya, the region’s leader in motor vehicle assembly boasts a fairly well developed industry – with three assembly plants: Kenya Vehicle Manufactures (KVM), in Thika, Association Vehicle Assemblers (AVA), in Mombasa, and General Motors East Africa Limited (GMEA), in Nairobi. The three plants focus on assembly of pick-ups and heavy commercial vehicles. Uganda too has picked up and its Kiira Motors Corporation (KMC) last month unveiled its Kayoola prototype electric bus in Kampala. The vision, it is reported, is that by 2039 the company can manufacture all the parts and assemble the vehicle in Uganda. As of February 2016, the company has produced three prototypes: Kiira EV, a two-seater electric car; Kiira EV SMACK, a 5-seater sedan hybrid car, which uses lithium batteries and petrol; and the latest, a 35-seater bus, which operates exclusively on solar power. KPMG’s 2014 Manufacturing Africa sector report which explores the key drivers in the manufacturing sector, says very few countries have been able to grow and accumulate wealth without investing in their manufacturing industries, yet a strong and thriving manufacturing sector usually precipitates industrialisation. “The manufacturing sector is widely considered to be the ideal industry to drive Africa’s development. This is due to the labour-intensive, export-focused nature of the industry,” reads part of the report. According to the firm, a strong manufacturing industry contributes to the development of the private sector, which increases an economy’s resilience to external shocks. Furthermore, it adds, domestic manufacturing improves external accounts by both decreasing imports and diversifying exports. “Producing goods to supply the domestic market has a positive impact on the structure of the trade balance, and manufactured exports have a much wider scope and more stable demand than commodity exports.” Source of concern A broad 2014 study by the African Development Bank (AfDB), ‘Eastern Africa’s Manufacturing Sector: Promoting technology, innovation, productivity and linkages,’ indicates that one cause of the new-found attraction of Africa to multinational firms is the emergence of a middle class consumer society as incomes rise. The report says that the limited role that manufacturing currently plays in Eastern Africa is therefore a potential source of concern for policy makers and their development partners. “The contribution of manufacturing to GDP and employment is small in the region, diversification is limited, and the level of technological development is low: much of the activity still consists of minimal processing of agricultural and mineral resources. By and large, a major challenge in the region’s nascent motor vehicle sector is competition from secondhand vehicles as massive importation of the latter affects the output of local vehicle assembly plants. editorial@newtimes.co.rw

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EAC commissions study on auto industry