Reducing tariffs on imported vehicles

The plan by the Federal Government to reduce tariffs on imported vehicles from 70 per cent to 40 per cent has attracted diverse reactions from some stakeholders in the auto industry. While some praised the decision, others kicked against it.  The policy is in compliance with Section 38 of the 2020 Finance Act which proposed a reduction in tariffs on imported vehicles.
According to the Minister of Industry, Trade and Investment, Mr. Niyi Adebayo, the implementation was not a policy summersault but “a review of an existing policy that required adjustment.” The Minister of Finance, Budget and National Planning, Zainab Ahmed, and the Comptroller-General of the Nigerian Customs Service (NCS), Hammed Ali, had previously hinted about the implementation of the proposal. While Ahmed had explained that the reduction is targeted at reducing the cost of transportation, Ali stated that it was designed to decrease the smuggling of vehicles from neighbouring West African countries. The overall objective of the policy review, according to Adebayo, is to address the shortcomings in the plan and introduce measures to enable Nigeria to attain its expectations for the automotive industry. He also stressed that the new tariffs would only affect the automotive sector in the short run, but will eventually change it for the better.
Expectedly, local auto manufacturers have risen against the move saying that it will kill the industry, have spiral effect on the economy and increase unemployment. The manufacturers are also of the view that the reduction of the import tariff will benefit a few individuals. While annual demand for vehicles in the country is about 720,000, only 14,000 are produced locally. A single locally produced car (2000CC) attracts a market price of between N15million – N20million, whereas imported fairly used cars of the same standard and capacity costs between N2million and N3million.  At the current rate of production, it will be difficult to meet national needs. The situation will lead to higher prices of vehicles and greater strain on other sectors of the economy that depend on transportation. The supporters of the new policy also contend that the higher taxes on imported vehicles introduced in 2013, failed to boost local production of automobiles.  The explanation by government that the reduced tariffs will cut down commuting costs at this time of subsidy removal and increase in fuel prices is not quite convincing.
The government’s intention to patronise local auto manufacturers is in order. It will further boost the development of the local auto industry.  As at 2016, available data showed that only two per cent of Nigeria’s population could afford new vehicles. So far, the nation has relied on imports to meet the massive annual demand for vehicles and cover the gaps left by the local automobile industry. In order to bridge this gap, successive governments in the country have come up with different policies to improve local vehicle manufacturing without much success.  Some decades ago, many global vehicle manufacturing plants like Nissan, Peugeot, and Volkswagen, as well as indigenous players like Anambra Motor Manufacturing Company Limited (ANAMMCO) were active. Unfortunately, many others licensed to commence local manufacture of vehicles since 2013 are yet to start. In 2019, the National Automotive Design and Development Council (NADDC) revealed that only nine assembly plants were active.  It is good that the Innoson Vehicle Manufacturing and others have made significant strides. The Jet Motor Company has raised $9million capital towards research and building of electric vehicles. Despite all this, there is upsurge in the importation of vehicles. In 2019, the nation imported about 1.3million vehicles, 56 per cent more than the 734,000 in 2017.
Apart from making Nigeria a dumping ground for all manner of imported vehicles, it will lead to unemployment. In the interim, let the government extend bailouts to the local auto manufacturers to keep them afloat and competitive. We believe that a liberalised auto market will serve the nation better. Let the new policy be implemented in such a way that it does not stifle the local auto industry. At the same time, local manufacturers of vehicles must strive to enhance the quality and durability of their products. If their products are of high quality, Nigerians will indeed patronise them. Good enough, some of their products are being patronised by the government and a few individuals. Since auto industry takes a long time to evolve, there is still need for improvement.