Joint African Import Tax Causing Harm, Says Sameer

A shared tax threshold for imported products is hampering Sameer Africa’s efforts to expand, the Kenyan company claims. The manufacturer of the Yana brand of tyres says that the common external tariff protocol, agreed upon in 2005 by the East African Community Customs Union, has led to a flood of new and retreaded tyres from markets with lower production costs. This tax, applicable on new commercial vehicle tyres, currently stands at 10 per cent; previously tax rates between 25 and 35 per cent were employed to protect the viability of local manufacturers.

Such import duty reductions have created a market environment in which imported tyres, particularly those from Asia, Egypt and South Africa – countries with lower power costs – enter the Kenyan market cheaply. When the Customs Union agreement was first introduced approximately three years ago, at the time when the Yana tyre brand was first launched, Sameer Africa managing director Eric Kimani declared the company was at risk of closing down. “The Government has failed us on this,” Mr. Kimani said.

“It was the greatest negative hit for Sameer Africa,” he added. “It meant that importers who were bringing truck tyres at 25 per cent duty went down to 10 per cent in Kenya and Uganda, which are our largest markets…..Light trucks tyres are the leading sector of any tyre manufacturing company.”

Sameer Africa currently holds a 40 per cent market share in Kenya, 25 per cent in Uganda and 18 per cent in Tanzania. Mr. Kimani claims the company has increased its production efficiency and its supply chain, but still faces the reality of increasing raw material costs, most of which are oil based. The company anticipates adverse affects from the high cost of transport and electricity, and expected cutbacks to the local power supply. Electricity supplier KenGen has told manufacturers to shift their production from between 6pm to 10.30pm to reduce the load at peak times, in return for a subsidised price, but Mr. Kimani said the offered rebates are too low to compensate for production losses.

According to Sameer, while the cost of power in Kenya is four times that of Egypt, and six times higher than South Africa’s, the two countries are among Kenya’s strategic competitors in the export markets especially within the Common Market for Eastern and Southern Africa (Comesa). Altogether, the company adds, 22 per cent of a tyre’s production cost is accounted for by electricity consumption.

Despite this complication, Sameer reports that light truck tyre sales are increasing by 30 per cent annually. A recently opened production line has increased monthly production to 15,000 units, the extra 2,700 units per month destined mainly to meet additional demand in the East Africa region. The increase in demand for light truck tyres is attributed to the increasing popularity of commuter vehicles and changing transport requirements in the agricultural sector. An official at General Motors is reported as saying demand for such light trucks in the region is increasing by 35 per cent each year.