Macroeconomic impacts of African transport transitions: on the case of electric two-wheelers in Kenya

Abstract

The impact of the e-mobility transition on a national economy will depend strongly on that nation's set of fiscal policies regarding vehicle, fuel and electricity taxation. Here, we present a framework and online open-access tool to evaluate the macroeconomic impacts of vehicle electrification in any national context. By applying the framework to the booming electric two-wheeler sector in Kenya, we provide a set of context-specific recommendations regarding the impacts of transport electrification on Kenya's fiscal position, given a set of scenarios relating to vehicle market size and fiscal policy. It was found that in the Kenyan case, the e-mobility transition is unlikely to result in a significant black hole in government finances: for a given two-wheeler market size, it is predicted that the loss in revenue resulting from a business-as-usual shift to electric two-wheelers would result in the loss of only 3% of government revenue from the sector by 2040, totalling approx. KSh1.4bn (under 0.1% of Kenyan GDP in 2023). However, carbon taxation is a significant source of government revenue when applied to polluting technologies such as petrol-powered two-wheelers, potentially doubling the revenue returned from the Kenyan two-wheeler sector by the mid-2030s, relative to what it would be without carbon taxation, if IMF recommendations regarding carbon tax are followed. However, revenue from carbon taxation will dry up as the transition to e-mobility hastens. Of course, any intervention regarding taxation, including carbon tax, must be subject to careful policy analysis. Taxation policy should direct consumers towards desired behaviours (in this case, the uptake of electric over internal combustion-powered two-wheelers) and allow the redistribution of wealth to those most affected by transport poverty.