…Our demands –Stakeholders
Recession, redundancy threatening our investment –Stakeholders cry out
By Uche Usim
What has happened to the 2013 auto policy championed by the Goodluck Jonathan administration? Where are the affordable made-in-Nigeria vehicles? When will Nigerians access vehicle acquisition fund promised by the Federal Government as part of it automotive policy? These are some questions on the lips of many Nigerians who are frustrated by the soaring prices of used and brand new vehicles.
Globally, the automobile industry is reputed for having huge multiplier effects in any economy with unprecedented job creation, high revenue generation, value addition and technological advancement.
That explains why President Barrack Obama, on assumption of office in 2009, injected $80 billion as bailout loan to revive the hitherto prostrate American auto industry where million of direct and indirect jobs were at stake.
The auto bailouts, which were initiated by former President George W. Bush but largely overseen by Obama, were unpopular at the beginning of his administration. But with current records showing the loans have been fully repaid, million of jobs saved and thousands of new ones created, even his critics have come to applaud the policy.
It was, perhaps, with such sentiments that the new automotive policy was introduced in 2013 by the President Goodluck Jonathan administration as part of the economic transformation agenda towards reducing the huge import bills of vehicles, while promoting investments in affordable made-in-Nigeria automobile.
According to the Director General of the National Automotive Council (NAC) Aminu Jalal, more than 10 auto companies, including GM motors, had indicated interest to set up vehicle assembly plants in Nigeria with the introduction of the new auto policy. He added that the new initiative was well intentioned since it does not only seek to stop Nigeria from becoming the cemetery of old and rickety vehicles, but also aims at creating millions of jobs for the army of unemployed youths, while swelling government’s revenue through taxes.
He added that the policy would afford the nation the opportunity of becoming a vehicle manufacturing hub in West and Central Africa, as the continent currently has two auto hubs in (South Africa and Egypt), supplying neighbouring countries.
However, as laudable as the policy seems, Nigerians have expressed worry over the seeming lack of political will by the incumbent administration of President Muhammadu Buhari to pursue its implementation with the seriousness it deserves, a development that leaves the auto blueprint in limbo.
Till date, over 75 per cent of Nigerians cannot dream of owning brand new vehicles, either imported or assembled locally. The development has been worsened with the current economic recession, forex shortages and inflation that have shot up vehicle production costs in Nigeria by over 70 per cent. Auto assembly plant owners like Stallion Group, Innoson Motors and others have been forced to either increase the prices of their vehicles in reaction to increase in production cost, or shut down operations.
Consequently, the prices of used vehicles popularly called Tokunbo, which most middle class Nigerians consoled themselves with, have suddenly skyrocketed and no longer within their reach.
Investigations by Daily Sun reveal that two years ago, a 2014 model Hyundai Elantra, (assembled in Nigeria), sold for N4 million. Just last week, the 2016 model sold for N8 million. Again, a used 1999 model Lexus RX 300 that hitherto sold for N1.3m in 2014, now sells for N2.1 million. The same increase is seen in 1997 model Toyota Camry which sold for N600,000 in January 2015 but has jumped to N1.2 million today and still rising as naira exchange rate fluctuates.
Unfortunately, the frightening increase in price of new and used vehicles is coming at a time nation’s economy is in recession, with many businesses folding up and same state civil servants owed over 10 month salaries.
When the idea of the new auto policy was mooted, global oil prices oscillated between N140-N165 a barrel and naira was exchanging for about N150 to a dollar.
Today, however, with the crash in crude oil price to about 45 dollars a barrel and naira hovering around N385 per dollar, the Central Bank has finally owned up to the fact that the nation’s economy is in dire straits. Unfortunately, the automobile, agriculture and other sectors, which ought to be alternative sources of revenue are almost moribund.
According to an automobile analyst and Principal Consultant, Media Advocate Limited, Manny Philipson, the Federal Government has not properly defined the operating parameters for the vehicle assembly owners who are buffeted by various challenges, especially forex shortages and government’s inertia in driving the policy and taking it to the next level.
For the auto policy to succeed, the Federal Government in 2014, announced a hike in tariff for new and old imported vehicles to make bringing them into the country commercially unattractive. Consequently, the government raised tariff on duty from 10 per cent to 35 per cent. It also raised the levy from 10 per cent to 35 per cent, making it 70 per cent for both duty and levy.
Aside hiking the cost of imported vehicles, the development has also fuelled smuggling of cars through the nation’s porous borders as importers and clearing agents struggle to evade the high clearance costs at seaports and land borders.
According to industry reports, before the hike in duty and levy, about 400,000 units of vehicles were handled annually at Nigerian seaports. This has since dropped to about 95,000 units in 2015, as thousands of vehicles are shipped into Cotonou port weekly from where they are then smuggled into Nigeria, thus robbing government and private sector at the country’s seaports of huge revenue running into billions annually. Worst hit in this regard is the Nigeria Customs Service (NCS), PTML Command, Lagos, whose revenue artery is vehicle import.
More over, vehicle assembly plants, terminal operators, importers and other stakeholders have been forced to sack a sizeable number of their workers following the unfriendly business environment.
But, in the build up to the 2015 presidential elections, Yemi Osinbajo, then Vice Presidential candidate of the All Progressives Congress (APC) assured Nigerians at a town hall meeting of political stakeholders in Ondo State that if his party clinched the Presidency with Muhammadu Buhari at the driver’s seat, it would slash tariffs on imported vehicles.
Regrettably, one year after Buhari mounted the saddle, nothing seems to be happening to the automotive policy, instead prices of vehicles have doubled.
Meanwhile, Vice President Osinbajo at the opening of the 17th Abuja International Motor Fair in October 2015 in Abuja acknowledged the low patronage challenge experienced by domestic vehicle assembly plants.
“In this regard, this administration will lead the campaign of buying made-in-Nigeria vehicles through public procurement to stimulate the industry. We will seek new ways of improving the Automotive Industry Development Policy in order to protect the industry.
“The high cost of importing fully built vehicles and used cars into the country is having serious impact on the economy. This trend would be reversed as quickly as possible”, he stated.
Although, Nigeria’s automobile sector was projected to contribute at least 4.5 per cent of global automobile sales by 2016, current realities have reduced the projection to mere wishful thinking.
Accessing made-in-Nigeria cars
The expectation on the new auto policy was that Nigerians will be able to own brand new vehicles assembled in the country, but that has rather become a tall order in consideration of current realities.
According to Manny Philipson, “For Nigerians to be able to use and enjoy brand new vehicles, the government should introduce soft and single digit loans. We are happy that the Ministry of Trade and Investment is talking with a bank in South Africa in this regard. That is what obtains everywhere. You don’t buy new vehicles by paying fully at a go. Most people go through this vehicle finance scheme. Banks support agriculture, oil and gas sector and all that, so they can also support the automotive sector.
What stakeholders want
According to Philipson, stakeholders in the auto industry want the Federal Government to come all out to explain how it wants to run the policy.
“Government is dilly-dallying. What does government really want to do with this policy? We’ve heard of so many things but things are not working. Stakeholders want the government to extend the tariff and duties charged on fully built up vehicles to imported used vehicles to create a level playing field because right now, dealers in new vehicles pay 70 per cent for duty and levy but used vehicles only pay 35 per cent duty and no levy. This is encouraging importation of used vehicles which government said it wanted to discourage ab initio”, he said.
With Nigeria’s economy in recession and the Central Bank of Nigeria adopting capital control to manage foreign currency, especially the dollars, importers of new and old vehicles are experiencing a drastic reduction in orders because most Nigerians are barely struggling to survive, making vehicle ownership an ostentatious desire rather than a necessity.
Philipson said: “Some local assembly plants started experiencing drop in orders since November last year. The naira was and it’s still not stable and so they couldn’t import the Completely Knocked Downs to assemble here. Most of them have run out of stock. Some had to lay of staff. Some are completely redundant, while some are operating skeletal services. They are all battling to stay afloat in this recession. They’re battling to access forex and this is seriously affecting them. That is also why things are rough. The economy can boom with a robust automobile industry. Why do you think one of the first things President Obama did when he took over power was to bail out the auto industry of the United States? He knew that that sector generates hundreds of thousands of direct and indirect jobs; it also generates huge revenue and ensures technological advancement. That is what our government should also do.
“Unfortunately, our government isn’t proactive. We wait till everything gets really bad before we start applying palliatives. Look at the automotive, construction, housing, capital market, etc are all in shambles. These are avenues we can revive the economy from. Some of the challenges facing the new auto policy and particularly the local assemblers include; lack of skilled labour, government not making pronouncements on what it wants to do with the policy, infrastructure gaps, among others. When the manufacturers are assured of patronage and support, volume of production would increase and prices will crash. It happened in the GSM industry and it can also happen in the automotive industry”, he said.
Also commenting on the new policy, Joel Akhator Odigie of the Human and Trade Union Rights at Africa Regional Organisation of the International Trade Union Confederation (ITUC- Africa), Lome, Togo said: “The new policy initiative of the federal government on local manufacturing of cars looks well intended but the basic fundamentals were left out particularly on the proposed implementation of the new national policy on automotives. The celebration from and within government quarters and to Nigerians suggest that soon, Nigeria will be manufacturing cars, made-in-Nigeria cars for that matter.
“It should not be about the no-more-tokunbo-cars, but about local production and usage, writ, consumption of affordable new cars. Furthermore, the policy also infers, by good measures, that projects such as the Ajaokuta Steel mills, meant to supply iron and still, vital components for manufacturing, will almost never be re-visited. Look at developing countries like China, Brazil, India and South Africa with real intentions to fundamentally define their industrialization aspirations are making serious efforts to undertake and deepen local production through aggressive policies and support programs.
“The National Automotive policy without local content is also a mirage. Virtually all the Technology Incubation Centres meant to build capacity for industrialization have been abandoned and just conduits to siphon money from the public treasury. This government lacks the real vision to birth a made in Nigerian car.
The question now is what is the government’s ambition about a made-in-Nigeria car? Besides, how many jobs will be created by a local car assembly plant with very low downstream activities (production), ditto for upstream activities (marketing) in the value chains?
“Imagine that this policy will only bring about an assembly plant car brands whose parts are never made or fabricated in Nigeria. The sad reality of the policy is that it will grant Nissan and other interested car manufacturing brands all manners of tax concessions to the point of allowing them to engage, practically, in goods dumping.
For instance, the concession that allows Nissan and any other potential car assembly plant to bring in totally knocked down parts at 0% tax tariff is alarming. The other tariffs for the other parts that will be imported enjoy similar incredible knock-down rates.
These so called tax incentives are monies that would have gone into financing government spending on social provisions as part of the fight against poverty and inequality. Furthermore, studies have shown that businesses do not want incentives, but infrastructure. In essence, responsible companies are ready and willing, prefer functional infrastructures (electricity, durable roads, security, portable water, human capacity) rather than be given incentives and left to be a municipal”, he explained.