An earthmover loads lorries at a construction site: Many companies in East Africa are now leasing assets as it is relatively cheaper than purchasing them. Photo/ANTHONY KAMAU
Leasing companies in Kenya are calling on the government to enact laws conducive to the sector to enhance their competitiveness in East Africa.
They say their counterparts in East African have the advantage of a friendlier national legal and taxation environment.
Tanzania is the only country in the region that has reviewed its leasing laws comprehensively.
The epic move started in 2007 and came into effect mid last year.
But enactment of the new laws is seen as narrow as it does not address the actual market challenges. It focuses only on financial leases.
Critics say the Tanzanian government should have expended more time on operating leases as it is the hot cake in the market.
The managing director of Vehicle and Equipment Leasing Ltd (Vaell), Paul Njeru, says the move taken by Tanzania should be replicated by other countries in East Africa if the leasing sector is to compete favourably with international companies.
In an interview with The EastAfrican, Mr Njeru said the region’s leasing laws framework should be reviewed thoroughly to enable the players compete with South African firms that have entered the East African market.
Analysts say the repeal in April this year of stamp duty payable on leases of at least five years has had a major impact on the sector in South Africa.
The re-examination of leasing laws also saw the country scrapping statutory restrictions limiting the maximum term of lease.
Despite the Leasing Association of the Kenya forwarding its proposals to the Finance Ministry for consideration in last year’s budget, no amendment was effected.
Currently, the sector is governed by a combination laws — the Income Tax Act Leasing Rules (2002), the Common Law and the Value Added Tax Act due to lack of a specific Leasing Act.
Despite the challenging environment, Mr Njeru says Vaell’s operations in the region have been outstanding.
“One of the greatest hindrances to corporate growth has been the provision of non-core, but necessary, assets for its operations.
“We ease the convenience wherever the clients are based, to enable them focus their resources on their core business. Our group has provided and managed vehicles for local and international companies.
“We also provide machinery and equipment, including earth movers and heavy machinery, for both short and long term lease,” he said.
Recently, Vaell launched a Truck Leasing Scheme for its clients.
Under this scheme, companies in need of new trucks will access them without sourcing large capital to purchase them.
This is the first such scheme in the region. It will enable companies to acquire trucks and have the accompanying fleet logistics managed on their behalf.
While launching the scheme, the managing director said the company had responded to demands by clients who needed certain trucks dedicated to them but who also wanted to concentrate on their core production activities.
“Some companies want the leased trucks to be maintained and insured on their behalf, so we have tailored a scheme that will address this,” he said.
There are two types of truck lease options.
The first, the Lease and Management Scheme, will include a monthly lease payment that will cover insurance and maintenance of the vehicle.
If a company so requests, drivers will be provided.
The second one, known as a Dry Truck Lease, will be available for companies that intend to insure, manage and maintain their fleets.
Bitten by the current financial crisis, many companies in East Africa are now leasing assets as it is relatively cheaper than purchasing them.
A company seeking to buy a 30-tonne truck will now save more than Ksh500,000 under leasing.
Mr Njeru says the purchase price of such a truck is Ksh5 million.
“Leasing is advantageous because there is no upfront capital investment. Instead of using your capital to purchase a truck, we buy the truck for you and you pay monthly instalments. If you require five trucks, instead of sinking Ksh25 million to purchase them you can lease them at a minimal monthly payment.”
Currently, Vaell is engaging leading commercial banks in East Africa, as well as the Kenyan government, to adopt leasing to avoid unnecessary maintenance costs and redundancy of their fixed assets.
“Legal ownership rests with Vaell during the leasing period, thus allowing a lighter balance sheet for our clients. In addition, wear and tear rest with us throughout the period of lease,” Mr Njeru said.
The company hopes to set foot in Zambia, Ethiopian and Rwanda soon, because of the increasing demand for its services. Already, it is operating in Uganda and Tanzania.
“Though Kenya has a massive potential for growth, Uganda and Tanzania have even more because of mining. We hope to exploit this opportunity fully,” he said.
Companies with lease agreements with Vaell in the region include Athi River Mining, Nakumatt Holdings, East African Breweries, Magadi Soda, Zain Kenya, Coca Cola East Africa, East African Cables and Tiomin Kenya.
