Import bans can spur growth in manufacturing within the transport sector across Africa

By Fidel Mwaki and Paula Kilusi, ACIArb

The general effect of any import prohibition should be to increase consumer demand for locally produced goods.

Following a ban issued by Kenya Bureau of Standards mid last year, importation of certain vehicles including trucks older than three years or having a gross vehicle mass of 3.5 tons or more into the Kenyan market has been prohibited. While smaller vehicles continue to have a free reign into our border subject to certain restrictions, the ban signals a shift in policy that may pave the way for increased investment in local manufacturing within the transport sector.

The African Continental Free Trade Area (AfCFTA) was established in January 2021 with the aim of boosting intra-African trade, investment and creating a single market for goods and services.

The AfCFTA Agreement contains provisions aimed at supporting the growth of the manufacturing sector, including the transport sector. One such provision allows for the imposition of import restrictions by Member States to promote the establishment of national industries, with a focus on the manufacturing of environmentally friendly and cost-effective vehicles. At the same time, the AfCFTA Agreement seeks to reduce barriers to trade between Member States. By reducing dependence on goods imported from outside the continent and promoting the growth of the manufacturing sector, African states can increase their competitiveness as a manufacturing hub and drive economic growth on the continent.

The AfCFTA Agreement provides a unique opportunity for Member States to encourage the development of African economies and promote sustainable growth in the region. Being a committed member of AfCFTA having already ratified the AFCFTA Agreement, Kenya should take the lead in promoting local manufacturing right from the get-go.

It is with this in mind that we explore two-fold reasons for the recent import ban.

Boost the local automotive industry

The initiative ‘Buy Kenya Build Kenya’ rolled out in 2017 can expect to receive a boost from the recent adoption of the National Automotive Policy by the Kenyan Government. This policy intervention aims to increase the number of locally made cars and trucks from the present 10,000 units to 20,000 annually. This would not only help spur the growth of the automotive industry’s employment sector but also increase the Government’s ability to collect taxes throughout the nation.

According to statistics, around 100,000 used vehicles are imported into Kenya every year, with most vehicles coming from Asian and European markets. You could count on one hand the number of major automakers who have established a physical presence in Kenya to manufacture and assemble their brands.

The new strategy, according to Kenya Private Sector Alliance, will play a significant role in boosting consumer demand for locally produced goods and, in turn, draw investors to raise investments in the local manufacturing of parts and possibly vehicle assembly.

The adoption of the import ban in the same breath, acts as a critical impetus for expanding the number of locally made cars and trucks in order to draw Foreign Direct Investment (FDI), which can foster economic growth. As a result, both the automotive industry's employment sector and the government's ability to collect taxes grow throughout the nation.

Environmental Protection

When you consider present day environmental concerns, nearly 25% of all global emissions of greenhouse gases connected to energy come from the transportation sector. As one of the major contributors to both urban and regional air pollution, the transportation industry mainly relies on the combustion of fossil fuels.

According to United Nations Environment Programme (UNEP), used car exports from affluent nations exacerbate air pollution in underdeveloped regions and obstruct attempts to reduce the effects of climate change in developed markets. Sadly, between1990 to 2013, almost 250,000 deaths in Africa were caused by car pollution from imported vehicles. This has led to the implementation of a variety of import bans on a certain category of vehicles in several African countries ranging from complete bans on the importation of second hand vehicles to bans depending on the age of the vehicle.

By implementing the recent import ban, it may help reduce the effect of old imports on the environment within the country as we look to transition to lower emissions or cut out fossil fuel dependency all together in order to reduce these hazardous emissions.

What impact does the import ban's enforcement have?

The implementation of the import ban will have different effects on stakeholders including manufacturers, consumers, the Government and the East African Community at large.

• Manufacturers

The implementation of the import ban offers opportunities to manufacturers to find new ways to handle the potential increase in demand for locally assembled and manufactured vehicles. The Government can in turn to provide incentives to enable them to build capacity in line with AfCFTA ’s manufacturing goals. A successful manufacturing sector can also benefit businesses across the supply chain including designers, dealers, garages, leasing companies, insurance companies, and financial institutions, among others.

• Consumers

With the implementation of the ban, the consumer will be forced to purchase automobiles at a higher cost compared to imported vehicles due to increased regulation of vehicle manufacturing standards due to environmental concerns and competition with foreign imports from established manufacturing automobile firms in developed countries.

• The Government

Any boost for the local automobile industry and possible attraction of FDI will allow the Government to find a viable revenue stream through fair taxation on locally assembled vehicles. The flipside should lead to increased employment opportunities for skilled local workforce to support such a sector.

• The East African Community

Other landlocked countries such as Uganda, Rwanda, Burundi and Congo still rely on imported vehicles that may have been banned in Kenya, which have to pass through Kenyan territory. In the spirit of AfCFTA, Kenya will continue to allow these vehicles to be imported through its ports though the long term goal should be to promote trade directly with Kenyan-based manufacturers instead.

AfCFTA is the way forward

Kenya's new policy is a promising move toward strengthening local industrialization across the African continent.

Under AfCFTA, this strategy can strengthen the country’s production capacity and give it a competitive advantage of local producers and exporters. As the local automobile industry gains traction, this will open up the East African market to Kenya businesses, which will in turn help realize AfCFTA as a viable regional trading bloc.?

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Please feel free reach out to Fidel Mwaki or Paula Kilusi, ACIArb for more information.