…as local automakers face fresh challenges
By ADEBAYO OBAJEMU
Investors in the automobile sector are divided over the proposed policy contained in the 2020 Finance Bill, which aims at cutting duties and levies on imported vehicles. There is a yawning absence of unanimity over the development.
Many believe the cut in duty will encourage massive importation of vehicles, which will have debilitating, negative effects on local automobile industry; stifling its growth and widening unemployment net in the subsector.
Yet, there are some who see the development as good; as they expressed faith that it will usher in a good era of growth in the economy.
In the midst of this slew of differing opinions on it, the federal government rationalised its decision on the policy move as a way of cushioning the harsh effects of COVID-19 and the attendant worsening economic situation on the populace.
Recall that in the draft 2020 Finance Bill, the Federal Government had put forward a cut in duties on tractors from 35 to 10 per cent; from 35 to 10 per cent on vehicles for transportation of goods; and 35 to five per cent on vehicles for transportation of persons (buses and cars).
Last month, Prof. Yemi Osinbajo, Vice President had said at the opening plenary of the 26th Nigeria Economic Summit (NES#26) in Abuja that the decision to reduce significantly duty on imported vehicles was not in any way meant to kill or stifle the nation’s automobile manufacturing industry but to reduce the cost of transportation in the face of growing economic challenges.
According to him, the nation has a huge shortfall in transportation needs of the people, saying that with an annual demand of about 720,000 vehicles, as against 14,000 local productions, it was only logical to import vehicles in order to bridge the gap.
He argued that the new policy does not tantamount to abandoning the government’s commitment to boosting local production.
Seeing from the similar angle of reducing the stress Nigerians go through daily in the area of transportation, Mrs Zainab Ahmed, Minister of Finance, Budget, and National Planning, argued that the reduction in import duties and levies would bring about a reduction in transportation cost.
“The reason for us is to reduce the cost of transportation which is a major driver of inflation, especially food production,” she told journalists in Abuja last week.
Jelani Aliyu, the Director-General, National Automotive Design and Development Council, Jelani Aliyu, did not respond to phone calls and text messages when BusinessHallmark wanted his reaction to the development.
Recall that Aliyu last year told journalists that about nine automotive manufacturing companies were assembling vehicles in Nigeria.
At that time, Aliyu had mentioned the companies like Nissan Motors, Peugeot Automobile Nigeria, Honda Motors, Innoson Vehicle Manufacturing Company, Hyundai Motor Company, Ford Motor Company, GIC Motor Companies Ltd, JAC Motors and Kia Motors.
It is no longer news that in the last three years, quite a number of automobile companies have been making efforts to assemble trucks, such as Dangote. On the other hand, BUA had not too long ago shown some enthusiasm in the industry.
BusinessHallmark learnt that last year, an MOU was allegedly signed with Volkswagen, even as over 21 companies were said to have been licensed to build vehicles in the country.
Just before Nigeria shut its borders, there was a reported rise in the quantum of smuggled vehicles into the country due to the high import levy and tariff.
Col. Hammed Ali, Comptroller-General of the Nigeria Customs Service, had last year said that the 35 per cent levy discouraged importers and created opportunities for neighbouring countries and the blossoming of smuggling.
The development is seen by some members of the organised private sector as good and capable of spurring growth and competition.
Dr. Ajani Odebeyi, a transportation expert says there is a need for the country to streamline her tariff regime.
“We should note that it can no longer be business as usual; now with the coming into force of the execution of the African Continental Free Trade Area (AfCFTA) Agreement by January 1, 2021, there is need to get our tariff right in compliance with the protocol, ” he told BH.
Felaniyi Ojo, Chief Executive Officer of Felaxic Motors, Sango told BusinessHallmark that the exponential rise in duty coupled with the devaluation of the naira was responsible for the hike in prices of new cars far above what an average middle class -income earners can buy.
Automobile dealers also witnessed a significant decline in sales volume due to higher landing cost of imported vehicles, which has been further amplified by higher tariffs.
According to National Bureau of Statistics, NBS, the country posted a total sum of N1.28 trillion as the value of “used vehicles” (popularly known as Tokunbo) and motorcycles imported in one year (Q3 2019 – Q2 2020), compared to N899 billion recorded in the corresponding period (Q3 2018 – Q2 2019), implying an increase of 42%.
The increase in the importation of used vehicles and motorcycle has been attributed to demand by e-hailing car and bike services, one of the two fastest-growing businesses in Nigeria, due to rising urbanisation, growing youth population, surging number of internet and smartphone users and increased investment.
Recall that in November 2013, the Goodluck Jonathan administration had brought on board a new automotive policy, which was tailored towards frustrating the importation of wholly assembled automobiles and encouraging local manufacturing.
On the whole, the policy encourages local assembly plants to import completely-knocked-down vehicles at zero per cent duty, and semi-knocked-down vehicles at 5 per cent duty, while importers pay a 70 per cent duty on new and previously-owned vehicles.
More than six years after the policy was rolled out it has failed to achieve the desired outcomes, as Nigeria’s domestic vehicle production capacity remains under-utilised.
The economic slump that the country suffered shortly after the automotive policy was introduced hindered resuscitation of the industry.
Hope was rekindled early this year, when the Minister of Industry, Trade and Investment, Adeniyi Adebayo, at 2020 general meeting of the Manufacturers Association of Nigeria (MAN), hinted at plans for a fresh start for the auto industry.
In the view of Adebayo, the bill worked on by the former administration was not received at the National Assembly; hence the plan to engage all stakeholders in the industry to get it right this time.
Many stakeholders have expressed support for the effort to cut charges on imported vehicles.
Mr. Tony Nwabunike, the National President of the Association of Nigerian Licensed Customs Agents (ANLCA), said that the cut in levies demonstrates the fact that the Buhari administration has the welfare of the masses at heart.
He said the country at present, does not have the means and capacity to manufacture cars to meet local demand. He observed that, although Innosson had worked hard to get it right, other local assemblers had not shown similar acumen.
“The local manufacturers or assemblers cannot meet the demands of the masses, they shouldn’t bother much about it,” he said.
This line of reasoning was towed by Muda Yusuf, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), who hailed the development; saying current high tariff had engendered a culture of massive smuggling of vehicles and loss of revenue to the government.
The Manager, Client Services, Grace Motors, Kingsley Nwachukwu in his chat with Business Hallmark said the policy will negatively affect local production line, saying rather than encourage local automobile industry will kill it.
“My brother, how can the government come up with such a policy, of the idea is not to kill local manufacturers. They came up with this important decision without the input of local producers this is bad. Now, there will be massive importation of vehicles; tell me: how are manufacturers going to survive?”
To prevent the collapse of local manufacturers, he wanted the government to provide incentive, tax rebate and reduce the tariff for local automobile manufacturers and assemblers.
“A lot of what local car dealers assemble is still brought from outside the country. There is this high demand for foreign exchange. The black market rate is up and how many of them can access it on time. All these things have to do with getting what you need for your business on time.”
Sunday Afolabi, a car dealer at Fagba told BusinessHallmark that “this reduction is one of the most momentous and good developments in the automobile industry. How many cars do we sell these days?
“The middle class can no longer buy cars because of the exorbitant prices owing to high duty. But with the reduction, a lot will change and the industry will become vibrant again, as there will be more liquidity to lubricate once again the dry industry.”
Joseph Adesanwo, a civil servant welcomed the idea of a reduction in tariff, as it will “make cars affordable to middle-class income earners like me. The development will bring down prices of cars. Imagine at my level, I cannot buy a car because of the exorbitant price. In this, the administration has done well. “