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| A local manufacturing plant |
If there is any policy that has generated a lot of controversies in the last two years, defi nitely, it has been the auto policy. Introduced by the administration of former President Goodluck Jonathan to encourage local manufacturing of vehicles and gradually phase out used cars, under the new policy, import duty on cars were shot up to 35 per cent with an additional levy of 35 per cent compared to 10 per cent under the previous regime. This move, many people said, have made imported cars especially fairly-used cars known as Tokunbo more expensive.
No doubt, the policy has been generating a lot of mixed reactions with commercial road transporters and some businesses questioning the policy while the government of the day defended it; saying in 2014 that the implementation was already working positively for the country as some vehicle manufacturers had either started or stated their intentions to start assembling vehicles in the country.
Former Minister of Trade and Investment, Olusegun Aganga while defending the policy had last year noted that the policy was not just restricted to the auto sector but across the value chain to develop rubber into tyres; to go from gas into petrochemical; to the plastic industry, and from iron ore to metals “because we need all of those across the value chain and a lot of jobs will be created because of that.”
Speaking further, the former minister noted, “The truth of the matter is that when you bring in CKDs into the country, it is at zero percent duty; when you bring in SKDs it is at fi ve per cent duty; when you bring in SKD2 it is at 10 per cent duty; and for those that are assembling cars in the country, they can bring in cars of the same make. For every one car they produce, they can bring in two new cars at 35 percent duty. It is only those that are not in the auto programme that will attract 70 percent duty.”
Since the commencement of the policy last year, out of about 36 Auto assembly licenses issued out to kick-start automobile production in the country, according to the National Automotive Council (NAC) only three of them are said to be in operation. Others are in existence only in name. The situation, as it is today, might not be unconnected to the recent suspension of further license issuance by the Federal government despite the increasing demand new entrants.
According to Mr Aminu Jalal, the Director General of the National Automotive Design and Development Council (NADDC), the action became necessary in order to enable the council to consolidate the country’s vehicle assembly operations and concentrate in developing local content.
Jalal however noted the council would give new licenses to auto fi rms willing to go into manufacturing of parts to feed the main plants with local content. According to him, the suspension did not apply to investment in original equipment manufacturing (OEM), adding that applicants for OEM license would not be affected.
Jalal said: “The major objective of the National Automotive Industry Development Plan is to bring back completely knocked down (CKD) automotive assembly and develop local content.
“NADDC is investing over N5 billion to establish automotive test centres that will ensure that the vehicles and components meet international safety and environmental standards.
“The response to the policy so far has exceeded our expectations. The current status of implementation of the policy is that 14 existing assembly plants started assembling new products (cars, SUV, buses, pick-up trucks) in 2014.”
The DG listed some of the 14 plants as Volkswagen of Nigeria (VON), Peugeot Automobile Nigeria (PAN), Innoson Vehicle Manufacturing, ANAMMCO, Leyland- Busan, NTM and Steyr.
According to him, Nissan, VW, Hyundai, Kia, Honda cars and SUV, Shacman and MAN Trucks, and Ashok-Leyland buses are now assembled in Nigeria.
“Eleven new companies, including Century Auto (Toyota), TATA, Coscharis Auto (FORD, Joylong, Dongfeng) and Dana Motors (Renault) have been given bona-fi de manufacturing status and are on track to start assembly operations this year.
“Our emphasis has now shifted to the development of automotive local content. “Sites for automotive supplier parks in excess of 400 square hectares have been acquired across Nigeria and effort is ongoing to acquire more.”
Many industry stakeholders have however continued to criticize the implementation of the auto policy, as they submitted that the implementation is too hasty. They argued that the import prohibition and the increase in tariff on imported vehicles from 35 percent to 70 per cent, when the assemblies have not started to roll out their products, is uncalled for and makes no economic sense.
Speaking at a recent symposium and luncheon of the Automobile and Allied Products Group of the Lagos Chamber of Commerce and Industry in Lagos, Chief Michael Ade-Ojo, Chairman, Toyota Nigeria Limited, TNL, said unknown to many, the hasty auto policy implementation has been promoting a lot of job losses in the country.
Describing the initiative as a move with a weak foundation that cannot stand the test of time, Adeojo said unless the auto policy was given a holistic review and properly executed with the involvement of all stakeholders, the efforts could fail again and it would hurt the nation badly.
Citing as an instance, he said that the TNL was forced to disengage quite a number of its workers between 2014 and this year as a result of the 70 per cent import tariff slammed on vehicles when the auto policy became effective.
He said, “We must therefore sit down to plan in the interest of everybody in the industry. There is room for everybody including those who have benefi tted and those who did not benefi t from the emergency situation.
“This is my honest view. At 77, I’m not the kind of person who will tell you lies. I’ve been in this business for 41 years having started in 1971. Foundation in anything is very important. If you put up a weak foundation, it will crumble.”
According to him, the policy could take the nation to the destination of making it a regional hub if well planned and effectively executed.
“Right now, I don’t know how many people have lost jobs as a result of the new approach. But they are many. I have had to downsize because we are only one fi fth about what we used to have.
“Although we have concluded plan to establish a Toyota assembly plant in Nigeria, but we were hurried and the necessary things we should have done have not been done,” Ade-Ojo said.
According to him, the decision was taken to meet the emergency situation as he described the current posture by some of those in the assembly plant project as pretentious.
“I can say that the pretentious assembly plant project that is going on currently cannot take us anywhere because it was made to just help some people.
“An industry like the automobile is not one you just wake up and start. We cannot just wake up and say within three years we should start to assemble vehicles. It needs serious planning.
Africa is the next region for development. Those who have made tons of money in America and other places need to spend it somewhere,” he added.
Also speaking in the same vein, the senator representing Bauchi South Senatorial District, Ali Wakili pledged to champion the reversal of the federal government automobile policy which he said has led to increment in tariff on imported second-hand (also called tokunbo) vehicles.
Senator Wakili said the hike in tariff on the second-hand cars may not only deny the country the needed revenue, but also emasculate the middle class.
The lawmaker, who is a retired Comptroller of the Nigeria Customs Service, NCS, said, “The new customs tariff on cars need to be reviewed downward because we need to re-establish the middle class in Nigeria,” he said.
“The relativity on items often affects the implementation. No body wants to pay high taxes, because the higher the tax, the higher the potential of smugglers to indulge in smuggling”, he said.
“As a former Area Comptroller of Seme border, I have argued that the hiking of tariff on items does not help us. It takes away our attention from the anti-smuggling activities; we dissipate energy on running on one or two smugglers with the attendant risk of life on the smugglers and on our own personnel.”
“Government should know that the average citizen cannot afford to buy a new car, whether it is being produced by only PAN or other manufacturers; rather they would want to buy used cars. If they must buy second-hand cars, then we ought to encourage them to take the normal routes, charge them medium rates that they can afford to pay, and no one would want to take the tortuous smuggling routes.
“If you are coming from the developed countries where you don’t need to have a car; where you can jump into the next train or pick a bus that is effi cient and timely, you can afford to do without a car of your own.
“But as long as the public transportation system is faulty, and people cannot afford to buy new cars, they would rely on used cars and if you are exerting so much pressure on them in trying to own these so called tokunbo cars, they will circumvent the law.
“It will cost you so much manhour, because you cannot be able to control them. There are so many porous borders; once you try to block one, many others are created the next day; because of the leaky nature of our border system – from the bite of Badagry up to Bayelsa, you can always have a place to enter this country.
However, contrary to the views of many against the auto policy, especially in terms of economic losses being experienced by the country, Luqman Mamudu of National Automotive Design and Development Council has a different view. According to him, there is no truth in the belief that the country has been making losses under the automotive policy as such statement could only be the handiwork of those still opposed to the policy for their selfi sh interests.
Mamudu, who is the council’s Director of Policy and Planning, said the policy is expected to boost government’s revenue, especially with the recent hike in vehicle import tariff.
He said: “Before the NAIDP, the duty on vehicles below 3000 cc was 20 per cent and most vehicles imported into the country fall under this category.
“In the past, only cars above 2000 cc attracted 35 per cent.“But with the policy, the duty on all cars is now 35 per cent.
“Commercial vehicles attracted 10 per cent before the policy, but now, all fully built commercial vehicles attract 35 per cent.
“The so called concessionary import granted assemblers is 20 per cent for commercial vehicles and 35 per cent for cars.
“So, where is the loss of revenue?”
The director argued that even the duty on semi-knocked-down kits imported by assemblers for commercial vehicles were in some cases as high as 10 per cent.
According to Mamudu, only completely-knocked-down kits with very high employment potential along with equipment imported to build vehicles attract zero per cent.
Mamudu said the concessions granted to assemblers under the policy were carefully selected to make the industry fairly attractive to local and foreign investors.
He said: “This is a point that the NADDC has tried to explain to other stakeholders, including the Nigeria Customs Service, especially some individuals, in its past management.
“The concessions granted to assemblers were carefully selected to ensure that local and foreign investors fi nd it fairly convenient to invest in a very capital intensive industry.
“This is without loss of revenue to government or excessive increase in prices of products coming out of the assembly plants.”
Mamudu explained further that vehicle assembly at SKD level was a global provision to allow easy entry into the industry by investors. As investors’ confi dence grow in the market, according to him, they then graduate to the labour intensive operations at CKD level.
“Basic as SKD operations seem, they represent almost 18 per cent value added for cars and about 60 per cent for commercial vehicles, especially when you have to build bodies locally,” Mamudu added.
To Bismarck Rewane, CEO of Financial Derivatives believes, “The benefi ts of this policy are long term while the impact of the policy is immediate. So any policy that is of destruction to the allocation of resources will come out with negative economic outcomes.”
According to Rewane, the impact and execution of the new policy is questionable.
“We will see an increase in transport fares especially in urban and town centres. This [hike in fares] feeds into the Consumer Price Index (CPI) and that begins to put pressure on the central bank to actually push up interest rates and protect the economy,” Rewane said.
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