In the region, Rwanda has proactively led the charge in offering fiscal and non-fiscal incentives to boost the adoption of e-mobility. Starting in 2021, the Rwandan government introduced lower electricity rates for charging electric vehicles, exemptions from import and excise duties on electric vehicles and their components, and incentives for the batteries used in e-mobility.

Additionally, Rwanda has provided free land for the establishment of charging infrastructure and prioritizes electric vehicles when sourcing car rental services. These incentives are available to the entire industry, not just individual companies, which helps build investor confidence and promotes a fair business environment. This supportive approach has allowed successful electric mobility ventures like Ampersand to start in Rwanda before expanding to other countries.

In Kenya, the Finance Act 2023 initially set the stage for the e-mobility sector by offering various incentives, particularly for motorcycles. These included VAT and excise duty exemptions on imported motorcycles, whether fully assembled or as kits. However, the Court of Appeal recently invalidated the 2023 Finance Act, citing constitutional issues. The Supreme Court will now decide its fate.

Despite this legal uncertainty, the 2023 Finance Act has spurred growth in electric vehicle adoption in Kenya, particularly in the motorcycle sector, where most incentives apply. The Electric Mobility Association of Kenya reported that the number of electric motorcycles increased from 366 in 2022 to 2,557 in 2023. Many companies have leveraged these incentives to make their prices more competitive, and microfinance institutions have offered attractive loan packages. Ride-hailing services like Bolt and Uber have introduced more affordable electric options, benefiting end-users and contributing to the industry’s growth.

The e-mobility sector has generated direct and indirect job opportunities and increased electricity consumption, benefiting government-owned utilities. However, recent concerns about potential tax exemptions granted to a single e-mobility company could undermine these gains. Reports suggest that the government might have exempted 10,000 motorcycles and 80,000 batteries from various duties, raising questions about fairness and competition.

The new Cabinet Secretary for Finance should investigate these allegations thoroughly. Kenyans need clarity on the reported exemptions and a stable, predictable tax framework to support the e-mobility industry. Consistency in tax policy is crucial for fostering growth, innovation, and competitiveness.

Global investors have been increasingly concerned about Kenya since late June, when President William Ruto rejected proposed tax hikes that would have generated an additional Sh346 billion in revenue. Moody’s responded quickly by further lowering its rating on Kenya’s sovereign debt due to concerns about the fiscal situation.

Fitch is scheduled to announce its decision on Kenya’s rating at midnight on August 3, while S&P will provide its opinion on August 23.

Investment experts caution that another downgrade could prompt foreign investors to sell off bonds, impacting both stocks and the shilling. Kevin Daly, investment director for emerging markets at Abrdn, noted that ongoing fiscal pressures and deteriorating social conditions could lead to another downgrade. Abrdn, a British firm managing over $650 billion in assets, including Kenyan sovereign debt, might be forced to adjust its investments based on ratings mandates.

Asset managers often require that bonds meet certain ratings criteria from multiple agencies. The recent Moody’s downgrade alone did not trigger significant selling due to the need for multiple agencies to issue similar ratings. However, if Fitch also downgrades Kenya, it could lead to more substantial sell-offs as Kenyan sovereign debt would be downgraded by two of the three major rating agencies.

Kenneth Minjire from AIB-AXYS Africa noted that a Fitch downgrade would have a more pronounced effect compared to Moody’s. Fitch’s last evaluation in February maintained Kenya’s rating at “B” with a negative outlook, citing large funding needs and financing risks.

High-quality or investment-grade debt is typically rated in the “A” range, while more speculative and riskier debt is rated around “B” and below. A Fitch downgrade could exacerbate foreign capital outflows, undermine investor confidence, and put further pressure on the shilling, especially as Kenya approaches a key infrastructure bond auction aimed at stabilizing the currency

Nevertheless, critics argue that the recently implemented and proposed taxes by his administration will elevate the cost of conducting business in Kenya, particularly within the technology sector.

In its initial budget for the year, Ruto’s administration increased the digital service tax to 3%, effectively doubling it. This move was aimed at foreign tech giants utilizing the internet for marketing and product sales. While the government anticipated substantial revenue in Kenyan shillings from this tax adjustment, skeptics expressed concerns that it might deter tech investors.

President Ruto reaffirmed Kenya’s aspiration to become “Africa’s premier business process outsourcing and creative economy hub,” citing factors like high internet penetration and a burgeoning workforce.

It’s worth noting that Kenya has faced previous accusations of lax labor regulations, permitting the exploitation of workers by tech companies, including Meta, which faced lawsuits from former employees over poor working conditions and allegations of low wages for content moderators.