When the administration of former President Goodluck Jonathan introduced the automotive policy in 2013, it was supposed to revolutionise vehicle manufacturing in the country, resuscitate the dying automobile sector and make the country self-sufficient in vehicle production. However, six years down the line, this beautifully conceived policy has remained on the drawing board. Today experts and stakeholders in the automotive industry are calling for a review of the policy. BABAJIDE OKEOWO takes a look at the policy and why it has remained a still birth.
In 2013, former President Goodluck Jonathan reviewed the Nigeria Automobile Policy to encourage local manufacturing of vehicles and discourage importation of cars as well as gradually phase out used ones (popularly known as tokunbo cars). Regrettably and contrary to expectations, the automotive industry has failed to live up to its billing with the government losing huge amounts in revenue.
According to the National Bureau of Statistics, NBS, the failure of the automotive policy is costing Nigeria a whopping $8 billion annually while over 400, 000 vehicles are still being imported into the country. This is aside from the unknown number of vehicles smuggled into the country. This monumental failure has led to the call for the review of the policy.
Early beginning
The automotive industry in Nigeria dates back to the 1950s and consists of the production of passenger cars and commercial trucks. Early production was led by the assembly line of Bedford TJ trucks made by United Africa Company’s subsidiary, Federated Motors Industries and SCOA’s production of Peugeot 404 pickup trucks. Private companies such as BEWAC, CFAO, etc. were mostly engaged in the import of Fully Built Unit, FBUs automobiles but with very marginal assembling operations.
It was Chief Obafemi Awolowo as Nigeria’s Finance Minister working with some technocrats and Nigeria economists including Professor Adebayo Adedeji, Allison Ayida and Phillip Asiodu that made the industry a priority in the Second National Development Plan of 1970-1974. This saw the establishment of two car plants, Volkswagen of Nigeria, Lagos, and Peugeot Automobile Nigeria Limited, in Kaduna.
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The Third National Development Plan ushered in the establishment of four commercial vehicle plants; Styre, Fiat, Mercedes, and Leyland. In the 80s Nigeria had installed capacity to meet nearly all its automotive needs by the listed government joint ventures with Original Equipment Manufacturers, OEMs and some private companies. The plants all had their local content development programs. Peugeot, for instance, had about 68 local content suppliers including paints, windscreen, and all side glass, wire harnesses, batteries, tires, radiators, seats and seat belts, engines sleeves, etc.Towards the end of the 1980s the industry was negatively affected by a downturn in the economy, government’s inconsistency and the higher cost of locally manufactured cars compared to imported counterparts.
By the year 2000, used foreign cars dominated car sales in the country, and the rise of these affordable used cars negatively impacted the development of backward integration in the industry. Some of the assembly plants were privatised, Volkswagen of Nigeria Ltd, VON was sold to Stallion Group, Leyland was sold to Busan, and production has been scaled down from the heights of the 1980s.
Why Nigerians now depend on Tokunbo cars- Expert
In 2017, a shocking statistic came out of the Organisation Internationale des Constructeurs d’Automobiles, OICA.
The association which was founded 1919 in Paris, is an international trade association whose members are 39 national automotive industry trade associations. According to OICA, out of the 1, 195, 765 units of brand new cars sold in Africa in 2017, Nigeria accounted for a paltry 6,999 units an all-time low since 2013. It becomes even worrisome as South Africa accounted for 555,716 units, Egypt accounted for 181, 001 units, Morocco 168, 913 units and Algeria 94,408 units.
Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf explaining the low production figures from the country said the economy has witnessed an increase in the price of vehicles by between 200 to 400 percent over the last five years, as such not many investors and the citizens could pay the outrageous prices. He regretted that even prosperous corporate organisations are now buying used vehicles for official use, noting that the implication of the scenario for operational costs of organisations was worrisome.
Leading the call for a review of the policy, Yusuf said the welfare of the people, government revenue and the capacity of the economy to create jobs has been affected by the policy, besides causing massive trade diversion to neighbouring countries.
“The auto policy was an import substitution industrialisation strategy to reduce importation of vehicles and incentivise domestic vehicle assembly. However, the import substitution strategy would only thrive in the context of high domestic value addition.
“It is within such a framework that the economy could benefit from the inherent values of import substitution, which includes backward integration, economic inclusion, multiplier effects, and conservation of foreign exchange, job creation, and reduction of import bills.”
The LCCI boss maintained that the automotive policy, in its current form, does not align with the Nigeria Industrial Revolution Plan (NIRP), which is the main industrial policy document of this administration.
According to him, the NIRP espouses the strategy of resource-based industrialisation. He regretted that six years into the implementation of the auto policy, not much progress has been made, even though over 50 vehicle assembly plants licenses have been issued with the total yearly assembly of new cars in 2017 and 2018 estimated at less than 10,000 units.
Lucky Amiwero, President of the National Council of Managing Directors of Customs Licensed Agents, NCMDLCA said there was an urgent need to review the nation’s automotive policy in line with international standards, adding that the development was killing businesses and investments in the country.
He lamented that the present automotive policy had resulted in a huge loss of revenue to government that depended on the seven percent collection from import duty. Also, the licensed Customs agent noted that there were massive smuggling, owing to the high demand for motor vehicles in the country as a result of non-availability of affordable domestic production to meet with domestic demand.
“There is a need for the Federal Government to review the automotive policy as a result of its impact on the economy and the campaign promise of the present government. First, there is the issue of the huge loss of the Nigeria Customs Service, NCS revenue to government that depends on the 7% collection from import duty. Then, there is the issue of massive smuggling due to the high demand of motor vehicles in the country as a result of non-availability of affordable domestic production which is not yet in place to meet up with domestic demand” he said.
He noted the issue of the high cost of purchasing vehicles in the country owing to the increase in tariff from previous duty rate of 5%, 10%, 20% and 35% to the present rate of 35%-70% on all imported vehicles as against neighboring West African countries rate.
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Former Director of Policy and Planning Department of National Automotive Design and Development Council (NADDC), Luqman Mamudu lamented the huge loss of revenue accruable to the country due to the failure of the automotive policy.
‘Over $8 billion is lost annually in the auto sector; according to NBS, and we currently import about 400,000 vehicles annually. The sad part is that 89 percent of these are used vehicles. It simply means that we lose not only forex but create job opportunities for countries of origin, while we subject our population to health hazards and joblessness’ he said.
Similarly, former Minister of Finance, Hajia Zainab Ahmed agreed that the auto policy is yet to achieve the optimum result and restore the automotive industry for indigenous vehicle production for Nigerians.
In her words, “we have to do a holistic review of the auto policy to get the optimum result and the target is to restore the automotive industry so that we have assembly plants being set up again that could lead to actively producing vehicles here in Nigeria for use of Nigerians” she said.
On his part, Bambo Adebowale, chairman, Automobile section of the Lagos Chamber of Commerce and Industry, said there is an urgent need to review the policy because the situation in the country now is different from what was obtainable when the policy was introduced.
‘When the auto policy was announced, interest was 12%, Naira was N162/$1 and everyone could access forex. Now, interest rates are at 14%, Naira is N305/$1 and rubber, steel and plastic products are all on the ‘41 item’ list, excluded from buying forex at the CBN rate. As much as the government would argue that it has stopped the pressure put on the naira by stopping the demand for US dollars, a counter-argument is that it has in one fell swoop, almost killed off the very industry that it is trying to develop – an industry that directly supports the economy. In its stead, smuggling has increased, unemployment is rife amongst car dealers and older cars have flooded the market, bringing with it, more technically unsound vehicles and more clandestine methods to avoid duties and levies’ he said.
Signing NAIDP will boost Nigeria’s capacity – Fitch Solutions
Fitch Solution Group, FSG, an affiliate of Fitch Ratings Inc. believes Nigeria has a lot to gain if the National Automotive Industry Development Plan upon which the automotive policy is anchored on is passed.
According to the research group, “We believe that the much-anticipated signing of the National Automotive Industry Development Plan bill into law will considerably boost Nigeria’s underutilised domestic vehicle production capacity. Our 2019 vehicle production growth forecast for Nigeria remains one of the highest not only in the region but also globally at 21% compared to the global average of 1.5% over the same period. Vehicle manufacturers are already making a move back into Nigeria as the automotive policy is in its last stages to get signed into law and the significant rewards offered by the Nigerian market” FSG said.
Buttressing FSG’s position, Mamudu believes that if the automotive industry is well-established, it can account for up to 12 percent of the country’s Gross Domestic Product, GDP.
“The component industry is actually where the jobs and local contents happen. This is why it must be encouraged but you must first achieve good assembling capacity before you can attract components manufacturers to partner with Nigerians just as it is happening at the assembling level now.
The automotive supply chain is global. Once they notice the level of orders for Semi Knocked Down parts, SKD and Completely Knocked Down parts, CKD kits originating from Nigeria in critical mass, they will come and invest. They are already making serious inquiries. The focus of the policy is to create the right environment for existing and potential players in the industry to produce and be competitive in the global automotive industry. The fiscal measures are expected to be moderated as the industry gain traction. In this regard, the NAIDP contains programs to address quality, infrastructure, manpower development, and market and investor confidence,’ he stated.
