Aromolaran: Local Auto Manufacturing will Transform Nigeria’s Economy

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Chairman, Nigeria Automotive Manufacturers Association, Mr. Tokunbo Aromolaran, in this interview with Crusoe Osagie, urges the federal government not to renege on its pledge to implement the needed policies for a robust automotive industry. Excerpts:

How would you assess the present administration’s commitment to the achievement of a viable automotive industry?
The administration of President Mohammadu Buhari led-government came in barely three years after the National Automotive Industry Development Plan (NAIDP) was approved by government and no sooner the policy document was launched than the Original Equipment Manufacturers (OEMs) swung into action with a rush of investments into the sector. The policy seeks to revive domestic production of automobile, using local human and natural resources with a view to enhancing the industry’s contribution to the country’s GDP. The Impact of the policy on the automotive segment has in fact been tremendous. In fact, it is short of spectacular. As at the last count, more than 12 entrepreneurs have taken up the challenge and commenced operations, with fresh investment running to billions of Naira. There is still a long way to go in getting us to the Promised Land. We are looking to this administration to take it to the next level and really own it.

There has however been very little interaction or activity with this government on the policy. We understand the Honorable Minister is accessible but haven’t been able as a segment to interact with him. But being from the private sector we believe he is positively disposed to the policy. We are aware that the government is taking a critical look at the policy with a view to twicking it to achieve their own idea of development and hope they will engage the authentic stakeholders who have already invested so much in the takeoff of the sector shortly.

• What do you suggest the government should do especially at this time to reawaken the sector for renewed growth?

• If the government is serious about developing our industries, it should determine the strategic industries going by the National Industrial Revolution plan and determine the incentive package it would put in place to accelerate their take-off. The incentive package would take into account the peculiar disadvantages investors face in Nigeria because of failure to develop our infrastructure and put them in a position to compete. The auto industry falls into this category. Without mincing words, a viable vehicle manufacturing industry is capable of creating huge multiplier effects for the Nigerian economy and society. Other nations with developed auto industries towed the same path. There is so much for the government to do in this respect. The previous governments merely scratched the surface of the issue by putting in place the auto policy. The government can take the credit for giving it a bite by actually putting out a strong incentive package to attract major OEMs and seeing it through. This is the way to reawaken our productive capacity and create a future for the children of the poor and down-trodden.

Does that imply the government is unacquainted of the potential of the automotive industry?

Recently I read an excerpt of a speech from the Minister of Trade and Industry outlining the path of growth for the industry. His thoughts were in line with the Auto Policy initiatives so the government is well acquainted with the potentials of the sector and what should be done. It is a question of overcoming the inertia. Statistics compiled by various government agencies including the Nigeria Automotive Manufacturers Association (NAMA) confirmed that in that a total of about 400,000 vehicles (100,000 new and 300,000 used) valued at over N550billion were imported into the country. Now imagine if one fifth of that quantum of imports were assembled locally using available local resources; won’t the country be much better off?

• What then is your conviction?

• It is my conviction the government is well aware of the positive and multiplier effects a vibrant auto sector can have on the economy. I believe they are figuring out how to assume ownership of the programme started by the previous administration and how to improve on it. This has taken the better part of one year without a formal engagement of the association of automotive manufacturers.

We are forced to believe that the government is being distracted by many nay-sayers and interested parties who wish to slow down progress in the sector. The way forward is clear, very easy to decipher if you are objective and desirous of moving this country forward. Many people have benefitted from trading and are feeding government with negative reports and holding back the pace of development of the industry.

The investors in the Nigerian Auto Manufacturing segment are indeed hopeful and that’s why there is still tremendous activity in the automotive sector in spite of very difficult operating environment of policy uncertainty, dearth of skilled labor, poor infrastructure and scarce foreign exchange.

However, government needs to demonstrate in double quick time its conviction that support of the auto policy is good for this country. This will assure investors that government is a continuum and policies will not be dumped for the sake of ‘change’. Investors will only respond when they perceive a stable and supportive industrial environment.

The contention in public sphere is that locally manufactured vehicles are yet not competitively priced. How would you react to this?

Aside the relatively unavailability of foreign exchange and the fluctuation experienced lately in the money market, the OEMs still can’t operate at optimal capacity with the level of patronage. We need volumes to drive down unit cost of vehicles and when viewed against the economics our industry, the environment has be right with good policies, implementation of the auto policy, enhanced purchasing power, introduction of consumer credit, government patronage and above all, restriction of imports including used car imports. Successive governments in Nigeria have over the years battled to move our economy forward, employing different strategies and ploys to energise our docile state and create value to sustain a decent livelihood for the present and future generations of Nigerians. It is time for the government to reel out policies needed to assist OEMs to operate optimally and empower patrons too. What we need is that inspiration to acquire capacity to expand our facilities and produce more units at lower prices and consequently move towards global competitiveness and self-sustainability. It is also important the government enhances consumers’ purchasing power and implement the needed policies to assist the OEMs to produce quality and affordably priced vehicles.

What then prompted your motivation for a viable automotive industry?

This move by NAMA could pass for the beginning of the reversal of the pathetic state of the country’s automotive industry and reversal of the stagnation of the economy. Nigeria has for decades being a one-stop dumping ground for virtually all kinds of vehicles – cars, buses and trucks – some of which are more than a decade old. It is time to reverse this trend and produce cars that suite our lifestyle and environment. In 2012, for example, more than 400,000 vehicles valued at N550billion were imported into Nigeria. This isn’t healthy for an evolving economy like ours. If we must strengthen our Naira and economy at large, we must be ready to enhance the capacity of our industries. It is therefore our conviction that the upgrade of critical infrastructures such as roads, power, and port facilities would immediately facilitate the success of the new auto plan. And in developing infrastructures, the public-private partnership model adopted by various governments has proven to be a viable option. The Federal Government should therefore encourage the private sector to collaborate more in infrastructure development.

How can the government benefit from this nascent industry?

Worldwide the auto industry is reputed for creating huge multiplier effects in any economy with unprecedented job creation, value addition and technological advancement. That’s what our economy needs at this time. This is about the only industry that can accommodate, train and empower young school leavers and graduate engineers in their thousands. You now see why the Buhari/Osinbajo government has been keen on diversifying the economy and develop other sectors to reduce dependence on oil revenues. Ironically, the mainstay of our economy has been export of crude oil and with the crash of the global oil market, our economy has witnessed significant drop in revenue accruing to the Federal Government. This has impacted heavily in the salary of public officers and funding of relevant infrastructures and government supplies while the common man keeps groaning under inflationary burden that is constantly under-estimated. The automotive industry however promises huge multiplier effects for the Nigerian economy and society if plausibly explored.

What are the consequences of this lofty objective?

Countries like South Africa, Egypt, India, to mention but a few, today have vibrant automobile sectors because their respective governments did not only introduce good policies, they also put in place measures to ensure such policies are well executed. We advise that lessons of our past vehicle manufacturing experience must be fully digested. It is not enough to have good intentions. What is crucial is that a workable plan for the achievement of these intentions is created and properly implemented taking proper consideration of the realities of the Nigerian experience and environment. However, we commend the current move by the federal government to revamp the automotive industry. But more importantly is the need to pull out all the stops in creating a vibrant industry such that the ambition to export cars, and fully meet the needs of the local market will become a reality sooner than later. It cannot be denied that a viable vehicle manufacturing industry will create huge beneficial multiplier effects for Nigeria’s economy and society.

What then is NAMA’s motivation?

We are inspired by the implementation of the Auto policy and to us this move could pass for the beginning of the reversal of the precarious state of the country’s automotive industry and reversal of the stagnation of the automotive industry. Nigeria has for decades being a one-stop dumping ground for virtually all kinds of vehicles – cars, buses and trucks – some of which are more than a decade old. It is time to reverse this trend and produce cars that suite our lifestyle and environment. In 2012, for example, more than 400,000 vehicles valued at N550billion were imported into Nigeria. This isn’t healthy for an evolving economy like ours. If we must strengthen our Naira and economy at large, we must be ready to enhance the capacity of our industries. It is therefore our conviction that the upgrade of critical infrastructures such as roads, power, and port facilities would immediately facilitate the success of the new auto plan. And in developing infrastructures, the public-private partnership model adopted by various governments has proven to be a viable option. The Federal Government should therefore encourage the private sector to collaborate more in infrastructure development.

How economically viable is the automotive industry?

The automotive industry has always been traditionally considered a great industry from the point of view of good pay, benefits, pension and stability. I can attest to this. The auto sector still provides some of the best standards of living a person can find. Large auto companies worldwide still provide huge opportunities to anyone who is willing to work hard.
Keeping our eye on earnings, we have to look at the industry for how much each company has to spend to develop, manufacture, and advertise its vehicles. Each manufacturer discusses a movement toward global platforms, with upper bodies adjusted to regional preferences and the reorganization and optimisation of its manufacturing platforms so that they manufacture aligns to demand—both existing and expected. It’s about how much revenue a company keeps, which determines its profitability.

I believe that the face of the automotive sector is evolving. The car isn’t going away but is evolving. There is pressure on all manufacturers to make increasingly fuel efficient cars. Some companies have introduced E85 fuel, hybrid and electric vehicles. As gas continues to increase in price, these alternate vehicles are going to become more desirable and prevalent. I believe this will redefine the industry yet again and will determine who will be the movers and shakers, who will thrive and who will not survive. But in our case, we have to start from somewhere and gradually compete with renowned automakers. There is nothing wrong in starting late provided we are serious. Those coming behind will build on what we started.

Can you attempt a global review of the perspectives of the automobile industry?

The automotive industry has lately enhanced technological growth in areas such as computer and communications. About 12 per cent of the earth’s six billion people enjoy the benefits of vehicle ownership and industry growth remains positive at about 20 percent per decade, with the potential for global annual sales of 70 – 75 million vehicles. Most of this expansion will occur in emerging markets such as China, India, Russia, and Brazil. The developing countries including Nigeria account for only a small percentage of the total number of vehicles sold each year. In 10 years, this percentage is expected to increase sustainably. China alone could account for as much as one-fifth of the expected growth in the emerging markets. This data points alone explains why GM has taken such an aggressive business position in China. Even as the automobile business grows, it is also becoming more competitive. Currently, there is worldwide overcapacity in the industry – and this has forced manufacturers to contain and even reduce costs. In the United States, the average monthly vehicle payment as a percentage of household income has dropped from 12.5 percent in 1980 to only 7.5 percent today – a 40 percent decrease. This cost pressure has forced all manufacturers and business partners to develop products with more innovative styling and content. The industry as it is, is giving more to its customers for less. Increased value combined with a healthy economy helps explain sales in the US in the last couple of years.