Driving growth: Government leasing program fuels Kenya’s automotive sector

  • 1 Dec 2023
  • 3 Mins Read
  • 〜 by Kennedy Osore

In 2013, the government introduced the leasing program for official government transport, a groundbreaking initiative aimed at providing efficient and cost-effective transport solutions for various government departments. Now in its 7th phase, the program has not only transformed the government’s transport operations but has also significantly impacted the local automotive industry.

The government sought to acquire vehicles for its operations at reduced prices through the leasing program, freeing up funds for essential public expenditures. Additionally, the initiative aimed to position Kenya as a key player in the regional vehicle market in Eastern Africa. This was to be achieved by promoting local vehicle assembly, stimulating the secondary market for leased vehicles, and mitigating the reliance on imported used vehicles. Over the years, the government has engaged in the lease program with various dealerships, including CFAO Motors Kenya Ltd, Simba Corporation Ltd, Isuzu, and Crown Motors Group.

With an annual budget of over KShs 12.3 billion, the leasing program involves a diverse array of stakeholders, including original equipment manufacturers (OEMs), leasing companies, insurance providers, financial institutions, accessory manufacturers, vehicle assemblers, and other service providers. However, despite its scale and impact, the program has faced challenges in terms of monitoring, evaluation, and quality assurance.

An assessment revealed significant shortcomings in the execution, proposing remedies in key areas. It is recommended to operationalise the Government Transport Policy by establishing the Fleet Management Department within the National Treasury to address the need for an effective management structure ensuring operational efficiency. Additionally, the current weak and isolated fleet management landscape can be strengthened by implementing a robust and integrated solution at the National Treasury, facilitating seamless transmission of vehicle data onto a unified platform. The identified weaknesses in monitoring, accountability, and evaluation can be mitigated by engaging a competent Monitoring and Evaluation (M&E) firm to track results, manage risks, and establish effective feedback loops. To tackle the susceptibility to reputational risk, a thorough review of the Master Lease Agreement (MLA) and a redefinition of lessors/OEMs roles are suggested, along with fixing the Lease-Purchase ratio at 1:1. Furthermore, the high number of key cost drivers can be addressed by piloting the local assembly of electric vehicles for non-operational tasks, deploying a universal fuel card to access fuel across multiple stations, and basing lease rentals on differentiated mileage rather than a blanket 160,000kms. Finally, it is recommended to suspend the leasing of Fully Built Units (FBUs) or opt for local assembly alternatives.

Despite these challenges, the leasing program has achieved significant milestones. With over 8,000 vehicles now in circulation, the program has directly created 1,813 jobs and indirectly supported 100,000 jobs. The automotive sector has experienced revitalisation, witnessing the assembly of over 10,000 vehicles and a substantial increase in the percentage of local content from 9% to 38%.

The economic impact of the program extends beyond job creation. It has contributed to the growth of parts and accessory manufacturers, generating business worth KShs 400 million annually. Furthermore, the program has led to an increase in local content in assembly, fostering economic self-sufficiency and saving the government KShs 2.69 billion.

One unexpected yet crucial outcome of the program has been its contribution to the reduction of crime in Kenya. With an estimated 30% reduction in crime attributed to increased surveillance, intensified police patrols, and enhanced visibility from the high number of branded police vehicles, the program has significantly improved public safety.

In May 2022, the National Treasury commissioned a study to identify areas for improvement in the program. The findings emphasised the need for an effective management structure, an integrated fleet management solution, a competent M&E firm for tracking results, and a review of key cost drivers.

The government leasing program for official transport has proven to be a game-changer, not only in enhancing government service delivery but also in driving growth in the local automotive sector. To sustain and amplify these successes, a concerted effort is needed to address the identified challenges, implement the recommended enhancements, and continue advocating for local vehicle assembly.