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* Kenyan assembly making come back after slide in 1990s
* Sales of imported used cars still outstrip new sales
* Volkswagen announced return to Kenya last year
By Duncan Miriri
NAIROBI, Feb 7 (Reuters) - French carmaker Peugeot SA's plan to resume car assembly in Kenya after more than a decade will help raise total output by 43 percent in three years to 10,000 vehicles, the motor industry association said.
The East African nation undermined what was a thriving local assembly industry in the 1990s with policies that encouraged cheap secondhand imports. It is now seeking to attract manufacturers back to help create jobs and support growth.
Peugeot, which closed its local plant in 2002, will now put together two models in Kenya after Volkswagen took a similar step last year.
Like others, the Peugeot operations involve bolting together parts from kits to make finished vehicles.
Of the 14,000 new vehicles sold in Kenya last year, about half were assembled locally and most were trucks and light commercial trucks, Rita Kavashe, the chairwoman of the Kenya Vehicle Manufacturers Union (KVMA), told Reuters.
"It could go to 10,000 vehicles in the next two or three years," she said, citing the re-entry of Peugeot and VW.
Those firms will join Kenya's biggest assembler, General Motors, and smaller ones such as Toyota.
However, sales of new vehicles in Kenya are still far outstripped by the import of 70,000 used cars each year.
Kavashe, who is also head of the GM operation in Kenya, said the government could boost local assembly by cutting the maximum age of used cars imports allowed to five years from eight.
"It is not about protectionism here, it is about giving customers value for money," she said.
Officials could not be reached for comment but the government says it wants to boost its score in the World Bank's Ease of Doing Business rankings to attract investment.
Peugeot and VW will both assemble vehicles in Kenya through licensing agreements with local partners. Peugeot said it planned to move from light assembly from kits to intensive operations involving greater content of local materials.
Editing by Edmund Blair/Keith Weir