Effect of Non-Tariff Barriers on The Financial Performance Of Motor Vehicle Assemblers In Kenya

Abstract

Motor vehicle assemblers in Kenya have reported dismal performance over the past ten years contributing minimally on the economic growth of Kenya. Data from the Kenya Motor Industry Association has shown that performance of motor vehicles assemblers is on a decline as indicated by the fall in volume of sales reported annually. In 2018/2019 financial year, the Kenya’s motor vehicle assembly industry had low operating capacity of 16% and an annual turnover of USD 600 million (including regional dealerships). Further with the collective action problems associated with NTBs, the performance of these firms is highly threatened. However, the available empirical literature provides contrasting and heterogeneous evidence, with most of the studies not being conclusive on the relationship that exists between Non-Tariff Barriers and financial performance. This study sought to determine the effect of NTBs on the financial performance of motor vehicle assemblers in Kenya. The specific objectives of the study were to determine the effects of import ban, import licensing and quality control on financial performance of motor vehicle assemblers in Kenya. The study was anchored on the theory of competitive advantage, upper echelons theory and contingency theory. The study adopted the explanatory research design with the population being all the four car assemblers in Kenya namely; Isuzu East Africa, Associated Vehicle Assemblers (AVA) Mombasa, Kenya Vehicle Manufacturers (KVM) Thika and Trans Africa Motors Mombasa. The target population was 880 departmental employees working in these firms. A sample size of 275 respondents was determined using Slovin’s formula and selected using stratified random sampling. Structured questionnaires were used to collect primary data. Data analysis was done using descriptive and inferential analysis. The findings revealed that jointly, non-tariff barriers explain 67% of the total variations in financial performance of motor vehicle assemblers. Results also indicated import ban (β1 = .410, P = .000), import licensing (β2 = .319, P = .000), and quality control (β3= .198, P = .009) had a positive and significant effect on financial performance of motor vehicle assemblers in Kenya. The study concluded that non-tariff barriers positively and significantly contribute to financial performance of motor vehicle assemblers in Kenya. The study recommends that the government of Kenya should protect local motor vehicle assemblers by formulating regulations that promote local industries. It should initiate training programs aimed at equipping local motor vehicle assemblers with necessary skills. The government should alsoreview import licensing regulations to ensure that they support local motor vehicle assemblers. The government should further subsidize the cost of quality standards to enable the local motor vehicle assemblers to comply. It should also facilitate training programs aimed at equipping the local motor vehicle assemblers with the required quality control knowledge and skills.