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Safaricom unveils plan to build a smartphone factory
Wednesday, May 24, 2023
Safaricom has revealed plans to set up a smartphone assembly line in Kenya to produce cheaper devices. file image | Swimming pool
Safaricom has revealed that it is setting up a factory in Kenya, which will collect between 1.2 million and 1.4 million smartphones annually, making it one of the biggest players lining up to implement President William Ruto’s plan to produce the cheapest devices in Africa.
Before the National Assembly’s Finance and Planning Committee on Tuesday, the telecom company waged a spirited fight against new taxes on mobile phones as contained in the 2023 Finance Act, arguing that it would be impossible to achieve the $50 price target. Smartphone (6,850 shillings) since the proposed taxes would bring the cost of locally assembled smartphones to 11,500 shillings.
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“If we want to work with the president’s vision on a $50 phone, we need to address the VAT (Value Added Tax) issue on import, tax and output for me to save Sh4,000 and reduce the cost of Sh11, from Sh500 to Sh7,500,” Mr. Karanya said. Gichery, chairman of Safaricom, told MPs during public hearings on the Finance Act.
He said the telecom company, which imports four million phones each year, was working on an assembly line, but the taxes would make the project unviable.
“Today we have one local assembly line that started recently. The most expensive part of a phone is the microchip that runs the 4G network inside the phone. We’ve been sourcing and the right base for a good phone is $40 paid for chip and components.”
“Then it will cost 300 shillings to assemble the phone including factory profit margins. We want to pass the cost and return on to the consumer.
On top of these costs, after assembly, the Safaricom executive said, the company would have to deal with last-mile connectivity, for which it would be required to give up another Sh1,400 while the output tax for the device would be Sh1,500.
“This brings the final price to Sh11,500 with the manufacturer taking only Sh300,” said Mr Gachiri.
He said other drivers charged are tolls for transporting phones to the port of Mombasa. He said Safaricom was spending an extra Sh2,300 on a Sh5,000 phone largely paid for by import duties and excise taxes.
He said that when Dr. Ruto advertised locally assembled smartphones worth Sh5,000, the exchange rate was about Sh118 to the dollar, but that is now at Sh135.
“We estimate that 120 million new subscribers in Africa will need phones and benefiting from the African Continental Free Trade Agreement (AfCFTA), we will be a leader in Africa and the world in mobile phones,” said Mr. Jacheri.
President Ruto announced last December that Kenya will make the cheapest smartphone in Africa this year costing less than Sh5,000.
Dr Ruto promised to deliver the cheap smartphone within eight to 12 months of this year to ensure all Kenyans have access to digital platforms for business and access to government services.
A forum of representatives of micro, small and medium enterprises (MSMEs) told that the cheapest smartphone ranges between Sh10,000 and Sh15,000.
“We can cut the tax down to Sh3,000 as the final price of a locally assembled smartphone would be between Sh6,500 and Sh7,000.”
In its submissions to the commission, Safaricom said a tax cut would see it assemble the most affordable phone in Africa.
Safaricom has been accompanied by a coalition of telecom operators and device makers who are also pressing the Finance Commission to scrap the zero percent value-added tax on locally assembled or manufactured cellphones.
The consortium informed the committee, which was chaired by MP Correa Kimani, that the law had been amended to exempt consumption tax from the supply of locally assembled or manufactured phones.
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“There was a decline in imports of 13.5 percent due to shortages and inflation in the fourth quarter of 2022,” Job Capucci, partner at PricewaterhouseCoopers (PwC) told MPs on behalf of the consortium.
“We propose to amend the Value Added Tax Law and the Value Added Tax Law to insert a new paragraph in Part A of the Second Schedule of the Value Added Tax Law to include the supply of locally assembled and manufactured mobile phones and to introduce a new paragraph in Part A of the Second Schedule of the Excise Tax Law to include disassembled/unassembled sets For local assembly or mobile phone manufacturing.
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