As COVID-19 continues to affect the global market, it might significantly impact the importation of used cars to the Kenyan market. The pandemic may cause an increase in the cost of second-hand cars by Ksh400000 per car as few ships are docking at the Mombasa port. Apart from this, the pandemic has also caused the weakening of the Kenya shilling against the dollar. Hence, it is expected that car prices will rise by at least 7% in the coming months.
Ships carrying used cars from the Asian region such as Japan have been unable to dock at the port hence reducing monthly car supply by almost 1000 units. Before the pandemic, ships would dock with approximately 7000 cars every month. The weakening shilling exacerbates the situation to levels last witnessed about five years ago. The direct impact is an increase in the cost of importation of automobiles and machinery.
The value of the Kenya shilling against the US dollar was Ksh105.80 on Thursday. The value is higher compared to the February average of Ksh101.37. The February value is the lowest rate at which the Kenya shilling was sold for the past four and a half years. The COVID-19 outbreak plays a significant role in the drop in currency value and inflows.
The Kenya Auto Bazaar Association secretary-general, Charles Munyori, stated that the industry spends Ksh108 to buy dollars from banks. The rate of shilling to dollar ranged between sh100.5 and sh101 last month. Mr. Munyori argues that the prices are expected to rise by ksh50000 to sh40000, based on vehicle capacity. New shipments will reflect the rise in prices.
For example, it would cost ksh30000 more from the current ksh850000 to purchase a new shipment of the Toyota Vitz 2013 model. Similarly, the price of the Toyota V-8 2013 model will rise by sh400000 from the average Ksh 6 million. This increase in prices is a direct indication of the shilling losing its value against the dollar. Mr. Munyori goes ahead to say that there will be an increase of ksh900,00 and ksh110,000 on the cost of Toyota Premio 2013 models with engine capacity of 1500cc and 1800cc, respectively, which are currently sold at Ksh1.6 million to sh1.8 million.
Kenya often registers few car imports in January until March with an upsurge in April. According to Mr. Munyori, the prices of cars may experience significant pressure depending on demand and the behaviour of the shilling.
If car prices increase, it will be the second time the prices went up since November last year. In November, the government imposed new taxes on cars that have engine capacities of more than 1.5litre. There was an increase of excise duty to 35%, which became effective after President Kenya signed the Finance Bill into Law on 7th November. The result was an increase in the prices of new and used vehicles. Besides, taxes make up over half of the retail price of the vehicles. Currently, an import duty of 25%, 25% to 35% excise duty, and 16% VAT, all cumulative paid are imposed on imported cars.
The amendment of the Finance Act 2019 has resulted in 25% excise taxes imposed vehicles running on the petrol engine capacity of more than 1.5-litre. Previously, the excise duty was 20%. The same cars, but diesel-powered, will attract 35% excise duty than the previous 30%. For instance, as outlined by Isuzu East Africa, Isuzu’s double-cabin pickup trucks drew more than sh500000 in taxes.