East Africa Awaits Arrival of Duty-Free EU Vehicles

NAIROBI – Auto dealers in East Africa are welcoming a comprehensive trade deal finalized in mid-October between the European Union and the East African Community as demand in EAC countries grows for European vehicles.

The agreement is designed to boost trade, including automobiles and parts, between the two regions.

Tariffs on EU exports to markets in Burundi, Kenya, Rwanda, Tanzania and Uganda will be phased out under the pact, which aims to see 80% of EU-made goods sold annually to the region duty-free within 15 years.

“East African Community countries will now be able to focus on improving their economic performance without worrying about the potential loss of full duty-free, quota-free access to the European market due to their improving status,” according to a communiqué from the EU executive, the European Commission.

A document from the EC trade directorate general notes that in 2013, the EU already exported €412 million ($512 million) worth of automotive products to the EAC region, including cars, trucks, vans, engines and other parts. EU exports of vehicles and parts to the region currently attract 10% duties, which will be phased out between the seventh and 15th years following ratification.

Rita Kavashe, Nairobi-based managing director of General Motors East Africa, tells WardsAuto that East African auto dealers will seize import opportunities offered by the new agreement: “There has been an upsurge in (demand for) luxury cars and we in the Kenya Motor Industry Assn. intend to import those expensive toys and deliver them to our clients, wherever they may be in East Africa.”

Geoffrey Mulandi, general manager-sales and marketing at GM East Africa, agrees, noting emerging demand in the EAC for European trucks and buses. “This has sparked also the demand of spare parts for Mercedes-Benz, Volvo and Iveco trucks,” he says.

Overall, the number of EU-made cars in the region should rise following the new deal, which is “likely to lower the cost of vehicles and spare parts,” says Professor James Nyang’aya of the University of Nairobi Enterprises and Services business arm.

Car dealerships in Rwanda also expect benefits from the deal. Kigali-based dealership Rwanda Carmart, which sells new and used BMW, Audi and Mercedes luxury vehicles in addition to staples made by Ford and Toyota, tells WardsAuto a reduction in tariffs on European auto goods will benefit the business.

“Until this (agreement) is finalized, we won’t be sure if this will benefit car dealers or end consumers,” Rwanda Carmart owner Jonathan Wong says. “But just based on what EU and EAC have discussed in general, it's pretty much given that everyone will benefit from lower taxes.”

The United Nations Environment Program, also based in Nairobi, estimates there are just 2.5 million vehicles in East Africa, indicating large potential for future sales. “Of these, 48% are in Kenya, 28% in Tanzania, 18% in Uganda, 3% in Rwanda and 2.9% in Burundi,” Jane Akumu, program officer at UNEP’s division of technology, industry and economics, says in a study on vehicle projections in the region.

The population of these countries are 44 million (Kenya); 49 million (Tanzania); 37 million (Uganda); 11 million (Rwanda); and 10 million (Burundi).

East African automotive exports to Europe currently are small. According to the EC, member EU countries imported just €1 million ($1.2 million) worth of automotive products from the EAC in 2013. This volume could rise under the deal, although its auto exports (except for those from Kenya) already are duty-free.

Kinga Malinowska, a spokesperson for the EC’s trade directorate general, says Kenya is the exception because its economy is better developed. However, she notes, the new agreement means “all the products will be duty-free on the day it starts applying.”

The country has significant vehicle-assembly operations such as Kenya Vehicle Mfrs., which makes vehicles for Nissan, Mazda, Land Rover, Mercedes and Iveco.

Janet Wilkinson, a spokeswoman for the U.K.’s Society of Motor Manufacturers and Traders, says British exporters currently targeting East Africa include Jaguar Land Rover and Leyland Trucks. Other global automakers, including Nissan, Toyota and Honda, also export to the region from production facilities in Europe, she adds.

U.K.-based vehicle manufacturers are optimistic the new free-trade agreement will create business opportunities, Wilkinson says.

“We continually monitor international markets to identify opportunities, but at the moment, there are no trade shows in these countries that would beneficial to the U.K. supply chain,” she says.

In 2013, the share of EU car exports to the whole of Africa was 6.5%, according to data provided by ACEA, the European automakers’ association. The main destinations for European car exports on the African continent were Algeria, which received almost 200,000 units, and South Africa, with almost 130,000.

Vehicles are among the top product categories exported by the EU to the EAC countries, alongside machinery and mechanical appliances, equipment and parts and pharmaceutical products.

East Africa has been going through a process of regional integration over the past few years. It established a common external tariff in 2005, made trading between the five countries duty-free and ratified a common-market protocol in 2010. More recently, it took steps toward forging a monetary union.

“The comprehensive partnership agreement we have just reached is the best way in which we can support the EAC’s aspirations,” outgoing EU trade Commissioner Karel De Gucht says.

– with Carmen Paun in Brussels and Hanna Lange-Chenier in Ottawa