Kenyans splashed Sh117.6 billion on imported cars last year, highlighting the appetite for luxury goods by the growing middle class.
This marked a 15.6 per cent growth in the value of vehicle imports into the country compared to Sh101.7 in 2014 and Sh83.4 billion a year earlier.
Motor dealers have attributed the jump to a growing appetite among the expanding middle class for cars ranging between Sh600, 000 and Sh1.5 million.
“We have been experiencing rising demand for small cars, popular with the middle class who are driving other sectors as well,” said Charles Munyori, the secretary-general of Kenya Auto Bazaar Association.
He, however, warns of a likely drop in imports this year due to an increase in excise taxes on the popular models last December.
Small used cars account for more than 70 per cent of all vehicles shipped in from markets like Japan and UK.
At Sh117.6 billion, cars were the third largest import items behind industrial machinery (Sh211 billion) and petroleum products at Sh214 billion, which recorded a 26 per cent drop on lower oil prices.
Auto imports account for 7.8 per cent of the country’s total import bill of Sh1.5 trillion last year, according to the Kenya National Bureau of Statistics (KNBS). Imported units grew six per cent to 109,781 in the review period.
The Parliamentary Budget Office (PBO) has raised the alarm over the rising spend on imported products by the middle class, warning that the trend is slowing down economic growth.
The office, which advises MPs on economic and budget issues, said a good number of Kenya’s middle class is not investing its money in ventures like real estate and enterprises that can drive growth and generate jobs.
The middle class is splashing cash on cars, electronic devices and clothing, with increasing taste for trendy fashion attracting luxury brands to set up shop in Nairobi.
The PBO said this type of consumption has had a negative effect on the economy, including putting pressure on the current account deficit which partly contributed to the shilling losing 11 per cent of its value against the dollar last year.
“Given that high investment is generally associated with low consumer spending and vice versa, it is likely that the high consumer spending has crowded out investment and as such, the economy is not growing as fast as it should,” the PBO said in its January report.
“Most of Kenya’s consumer spending is import driven and may therefore not have much impact in terms of boosting economic growth to a sustainable level,” said the budget office.
Mr Munyori says the higher excise tax introduced in December could hurt demand and slow down imports.
Imported vehicles of more than three years old now attracts a tax of Sh200,000 and Sh150,000 for newer ones — a departure from the previous duty of 20 per cent on a vehicle’s value.