Bold policy implementation needed to jumpstart Kenya's auto industry

President William Ruto during the launch of the electro-deposition paint plant at Isuzu East Africa, Nairobi. [File, Standard]

Recent statistics indicate that Kenya’s industrial manufacturing sector has been contributing just 7.6 per cent of the gross domestic product (GDP), far short of the government’s target to increase this to 15 per cent by next year. This is because the automotive sub-sector, though central to the transport economy, accounts for only around six per cent of the manufacturing sector’s total contribution.

Deepening local vehicle assembly represents a major opportunity to accelerate this contribution and Kenya’s industrialisation ambition by creating high‐value jobs, increasing local content, reducing reliance on used imports, and reinforcing domestic supply chains. The total size of the motor industry market in Kenya is approximately 100,000 vehicles registered annually. A staggering 83 per cent of these vehicles are used, fully-built imported vehicles. The good news is that more new vehicles under the remaining 17 per cent are being assembled locally rather than being imported whole.

For instance, Completely Knocked Down (CKD) new vehicle sales in Kenya (with zero mileage) rose steadily from 48.2 per cent in 2015 to nearly 90 per cent in 2025, while Completely Built Up (CBU) new vehicle sales decreased from 51.8 per cent to 10.4 per cent over the same period.

This dramatic reversal can be attributed to the Buy Kenya, Build Kenya initiative by the national and county governments’ procurement over the last decade, contributing to the growth of local assembly operations.

To strengthen this further and realise Kenya’s potential as an industrial hub built on partnerships between the government and the private sector, we must implement four critical policy proposals. The first is to finalise and implement the National Automotive Bill. The Bill will establish a clear road map with structures, incentives and rules which will guide the growth of the automotive industry. To deliver this, a framework must be finalised promptly to ensure decisive action.

The motor industry sector of the Kenya Association of Manufacturers (KAM) is actively driving this policy framework, collaborating closely with industry players, the Ministry of Investments, Trade and Industry, the Japanese government and African Export-Import Bank (Afreximbank).

The Japanese government, for instance, is establishing the Samurai bond financing facility. Around ¥15 billion (about Sh13.1 billion) of the Samurai bond facility will be directed to the automotive ecosystem - supporting local vehicle assemblers, spare‐parts manufacturers, and technical training for the green mobility sector. The second proposal is to correct market imbalances through local demand generation. To tackle the 83 per cent market share dominated by used imports, government policies must be engineered to generate a reliable local supply of second-hand, locally produced vehicles.

We propose the sustained continuation and expansion of government leasing programmes. These programmes are crucial because they help the industry generate a “second level of used vehicles” from local production, which can then enter the local consumption market. In addition, vehicle leasing is an excellent solution for organisations operating on tight budgets. It allows these institutions free up funds previously tied to asset purchases and redirect those resources to other priority needs.

It is also imperative that the government makes a case for differentiating incentives based on knock-down levels to support local assembly. Companies engaging in Level three operations (complete knockdown and full local assembly) rely on an ecosystem of close to 100 local suppliers, some of whom have been in business for over 40 years.

Significantly, Level three assembly processes create up to 40 per cent more jobs compared to Level two assembly, while requiring as much as five times the capital investment. This calls for a differentiated and progressive incentive framework that rewards deeper localisation, protects existing investments, and encourages assemblers to move up the value chain.

The third proposal is to ensure reliable partnerships, policy implementation consistency and payment governance. To foster investor confidence and sustain major long-term investment in industrial development, policies and partnerships in the country must remain predictable, supportive, and consistently aligned to national industrial goals.

As such, two administrative areas require immediate attention; firstly, ensuring that public procurement law is followed by giving preference to the locally produced goods and services. This is a critical incentive to local manufacturers, which has been evidenced in the Government motor vehicle leasing program.

We also need to support the implementation of the Local Content Bill 2025, which proposes that foreign-funded infrastructure projects source at least 60 per cent of their goods and services locally. For local vehicle assemblers, compliance towards this requirement is essential to deepen value retention in the economy. A structured audit of such projects would help Kenya secure meaningful industrial growth and maximise the benefits of these investments.

Cross-border harmonisation of these policies is also critical. The Government, through the EAC secretariat, must maintain vigilance against policies enacted by member States that undermine such integration within the region and beyond.

With the African Continental Free Trade Area (AfCFTA) opening up new opportunities, Kenya’s local assembly plants are strategically positioned to serve customers in the region and beyond, with diverse transport solutions.

-The author is the chair of the Board and Managing Director of Isuzu East Africa