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Kenyan automakers report inflation-related sales dip in June

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By Steve UMIDHA

New vehicle sales in Kenya fell by 14 percent in June compared to the same period last year, a lobbyist for the formal motor sector has said, as the industry’s difficulties under the weight of a global inflation continue into 2023.

Figures by Kenya Motor Industry Association (KMIA) show that the industry sold a total of 6,492 units in the first half of this year, 813 units less than it managed in a similar period last year, between January and June 2022.

The association attributed the low retail sales numbers to a difficult six-month period in which the sector has borne the brunt of the lingering European war which broke in February 2022, causing supply chain bottlenecks and driving up costs for everything from labor to raw materials.

Similarly, Kenya’s new tax package – a host of which kicked in July 1, have loosen the local labor market, with employers in many sectors confronting a truly tight equilibrium for the first time in decades and face the prospect of salaried employees’ ability to spend on luxury condensed by tough economic times.

The Finance Act 2023 was assented to by President William Ruto on June 26, 2023, with most of the changes took effect beginning of this month, which is the Government’s fiscal year, while a few will be effective from September 1 and January 1, 2024. However, the court suspended the Act on June 30, 2023.

Other factors such as unpaid or pending bills by the National and County Governments have sapped Kenyan auto sales and a recovery will likely be slow, threatening auto workers whose jobs depend on fleet sales.

Coupled with currency fluctuations and wobbly interest rates, auto executives are particularly concerned that continued inability by both sets of governments to pay their suppliers, has already seen most of them ‘write off’ the year.

And so, during a slump auto sales typically fall, often significantly and many buyers tend to back out of the market until the economy recovers.

Automakers’ executives are however hopeful this year’s new vehicle sales — the worst thus far in more than a decade — will mark a bottom for the market, at least in the near term.

“This year is gone,” offered Dinesh Kotecha, the Group CEO of Simba Corporation – sellers of Proton vehicle brands, Mitsubishi, Fuso, Mahindra, and Same Tractors.

In a recent telephone interview, Mr. Kotecha decried the mounting worry in form of pending bills and high interest rates as the most pressing and lingering holdups likely to see the industry perform dismally this year.

Arvinder Reel, the Managing Director of CFAO Group which sells Toyota vehicles and Hino trucks, shares similar worries and is “hoping to do at least what we did last year.”

“Government is the largest buyer and with these challenges we have already seen the market shrink by 13 percent. And with high taxation we have also seen disposable income of would-be buyers limited as a result,” said Mr. Reel in an interview yesterday.

In the short term, both agree that fleet sales are not a major concern for automakers who are now focused on ramping up production to beef up lackluster dealer inventories which has existed since the onset of Covid-19.

Figures by the Controller of Budget (CoB), Margaret Nyakango shows that National and County Governments’ unpaid bills stood at Sh637.91 billion as of February 2023.

As of December, last year, ministries had pending bills of 80.2 billion, State co-operations or parastatals had pending bills worth 400.6 billion, while counties had 157.91 worth of pending bills

Pending bills occur as a result of delayed exchequer releases, supplementary budgets that cut funds already committed elsewhere and variations in costs due to delayed payments, among other reasons.

Similar challenges have also been seen in prices of used vehicles or second-hand cars commonly known as ‘mitumba’ with popular brands like Vitz, and Subaru among other models all increasing prices by hundreds of thousands of shillings on scarcity and weakening the local currency.

Because Kenya’s oil and fuel importers use US dollars to buy fuel, the forex shortage has had a direct impact on the country’s fuel supplies, and by extension, the country’s supply chain. But it has also impacted essential imports such as medicine and food as well as car parts.

This article first appeared on People Daily 

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