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High import duty costs increase demand for Nigerian used cars

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High import duty costs increase demand for Nigerian used cars

Market size for used cars to hit $1.7bn by 2029

 

Amid the foreign exchange crisis which has seen the value of the naira virtually collapse, and spiking astronomical rise in import duty rate, Nigerians are opting for locally used cars, as prices of brand new cars and foreign used cars (Tokunbo) have skyrocketed.

The hike in the Customs duty exchange rate has contributed significantly to the drop in the demand for brand-new cars and imported used cars. Also, this has led to the abandonment of vehicles at the sea ports. Since the new administration assumed office, the Central Bank of Nigeria (CBN) has adjusted the exchange rate for calculating Customs duties several times.

On June 24, 2023, CBN increased the exchange rate from ₦422.30/$ to ₦589/$. On July 6, 2023, it was reviewed upward to ₦770.88/$; On November 14, 2023, it was adjusted to ₦783.17/$; in December, it was raised to ₦951.94/$. On February 2, 2024, it was increased to ₦1,356.88/$; likewise on February 3, it was raised to ₦1,413.62/$, while on Saturday, February 10th, it was reviewed to ₦1,417.635/$.

Again, on February 12 and 14th it increased to ₦1,444.56/$ and₦1,481.48/$ respectively. On February 15th, it was raised to ₦1515.48/$, and on February 16th it dropped to ₦1,472.76/$. It was pegged at ₦1605/$ and ₦1630.16/$ on February 21 and February 29th respectively.

This means that between June 2023 and February 2024, the Customs duty has increased from N422 to N1630, a 300% rise in just six months.

However, due to the recent appreciation of the Naira against the dollar in the FX market, the Custom duty rate has recorded a significant decline in the last two weeks. From ₦1,612/$ on Friday, March 15th, to ₦1,405/$ as of Wednesday, March 27th.

The analysis of the Nigerian Used Car market by Mordor Intelligence stated that the Nigeria used car market size is estimated at USD 1.14 billion in 2024, and is expected to reach USD 1.74 billion by 2029, growing at a CAGR of 8.90% during the forecast period (2024-2029).

Mordor Intelligence pointed out the factors deterring customers from purchasing brand-new vehicles in Nigeria. These factors include the hike in new vehicle prices and high inflation, adding that the rising prices of used cars due to the increase in tariff by the Nigeria Customs Service were a major challenge facing the used car market.

“The spike in new vehicle prices deters some of the customers from purchasing brand-new vehicles, subsequently leading to the surging demand for used cars in Nigeria. Further, consumers’ growing concerns about high inflation, which rose to 24.08% in July 2023 compared to 22.79 % in June 2023 owing to the decline in GDP due to falling oil production, is also acting as a catalyst for the falling demand for new cars in Nigeria. One of the major challenges faced by the used car market is the increasing used car prices across Nigeria, attributed to the hike in tariff by the Nigerian Customs Service in 2022. It is estimated that the price of Tokunbo cars has increased by almost 100% in the Nigerian used car market as of July 2023.

Cars like the Toyota Corolla, Camry, and Honda Accord were priced over one Naira million higher than their old prices before the customs duty for importing used cars in Nigeria was increased. The Nigeria Customs Service (NCS) in June 2023 further increased the import duty on vehicles from 39.45% to 39.62% to reduce the dependency on imported cars while promoting the domestic manufacturing sector.

Following the announcement, it was estimated that a 2005 model of the Toyota Corolla that sold for an average price of Naira 1.9 million (USD 2,519) in 2021 was being sold at N4 million (USD 5,305) in June 2023, while a 2004 Honda Accord of N1.6 million (USD 2,122) on an average was being sold at an average price of N2.9 million (USD 3,846),” the report stated

Lukmon Kadiri, a car dealer in the Magodo area of Lagos state, shared his plight as his car dealership business has been experiencing tough times due to the forex crisis.

“Business has been tough since last year and sales have dropped. We don’t even import cars like before anymore and the reasons are obvious. The forex crisis and high import duties are the major reasons for this. This is a tough time for every car dealer, we are in a dire situation. “Considering the hardship in the economy, buying a car has become a luxury. How many people can even afford to feed properly, let alone buy a Tokunbo car now? These days, most people are selling off their cars. Those who want to buy cars can’t afford brand new ones and tokunbo, and that’s why the demand for Nigerian used cars is high in the market,” he said.

Olusesan Tijani, a 45-year-old businessman shared his experience while car hunting for two weeks on Jiji. ng and Marketplace.

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“I wanted to buy a Nigerian used car as I couldn’t afford a foreign-used one (Tokunbo), so I checked Jiji. ng and marketplace on Facebook. The prices of Nigerian used cars I saw were unbelievable. These prices have increased by 75% compared to the prices in 2022. Despite the upsurge in prices, buying a good car has become a big problem due to high demand. I reached out to about five different people through Jiji and Marketplace, but to my surprise, after negotiating the price and fixing a date to inspect the car. The sellers would call back after some hours telling me the car had been sold. When it happened the first two times, I felt it was normal, based on first come, first served. It happened on three other occasions, then I realized that the demand for Nigerian used cars was high. It took me two weeks to finally buy a car and I had to travel down to Ijebu Ode, Ogun state to meet the seller,” he stated.

Collins Arinze, a 36-year-old engineer, who wanted to sell his Nigerian used car confirmed the increase in the demand for Nigerian used cars as he received calls from more than 10 people in less than 24 hours after he posted his Honda Accord for sale on Jiji.

“Three weeks ago, I wanted to sell my Honda Accord car. I posted the pictures on Jiji, but to my surprise, I received calls from more than 10 people in less than 24 hours. At that point I started suspecting, then I sought advice from my friend, who is a car dealer, he told me If I sold my car now I would run at a loss, he said ‘after receiving the money, will you be able to buy another car in a good condition like the car you are selling, unless you don’t want to use a car for a while’ Instantly. I changed my mind, and decided not to sell again,” he shared.

Bamidele Okedeyi, a 43-year-old businessman, who wanted to buy a Nigerian Used Toyota Camry car to run his cab business, said he had to settle for Hyundai Elantra due to the high prices of Toyota Camry.

“Last month, I wanted to buy a Toyota Camry to run my cab business, but the prices were shocking. How can a Toyota Camry 2004 be ₦3.7 million? The ones within the range of ₦2.5 million- ₦2.8 million were not in good condition at all. I ended up settling for Hyundai Elantra,” he said.

 

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