In a country with deepening dearth of manufacturing plants and a market far-flung from her realisation of an industrialised economy, it is pertinent that we have strong economic blueprints and policy statements that are geared towards changing the current phase of our economy from import-oriented to a self-sustaining manufacturing economy.
To realise this, the government must eschew policy inconsistency through one-sided reviews as touted by some individuals whose concerns are rooted in short term gains.
There is no gainsaying the fact that one of the cardinal focus of the present administration is the diversification of the economy through the local manufacturing sector and foreign direct investment (FDI). To realise this economic growth, the president Buhari-led administration has reinforced its stance on sustainable economic growth by endorsing the auto policy which was reveling for stakeholders and investors.
However, the resounding echoes of few stakeholders on the need to review the policy to satisfy their short-term aspirations will ultimately lead to policy summersault and erode the investments in the industry.
To ensure a backward integration through the auto industry, it’s important that the industry is dependent on the domestication of car manufacturing in the country. The policy formulation was well thought off and in line with the stakeholders yearning for the development of the industry through industrialization. The intrinsic value and direct nexus between sustainable economies and viable auto industry rest solely in the government’s policy framework. As one of the backbones of the economy, the effectiveness of this industry is directly proportional to the stability of the auto policy owing to the fact that it drives industrialised economies and in turn, dictates the pace of the economic development of the country.
In recent time, there has been a deafening call from some quarters on the need to review the policy chiefly among the reasons for this is the purported revenue loss at the ports. The major proponents of this review are the RORO operators, clearing agents, used car importers, the Customs Service and Nigeria Ports Authority, amongst other maritime agencies. Their crux is the low vehicle importation through Nigeria ports and the incentives doled out to importers in neighbouring countries on cars that are in transit to Nigeria.
As a player in the global economy with a possibility of chain reactions to policies from other countries, Nigeria can’t simply ignore this move by neighbouring countries to incentivise importers. However, we shouldn’t have our development solely reliant on the happenings in these countries.
The auto policy has literally addressed the shortfall of the new tariff regime and expressly stated that for the policy to materialise, the importation of cars through land borders should be banned. Disappointingly, the influx of imported cars both used and new through our porous borders have been on the rise owing to the inability of the law enforcement agencies to forestall these sharp practices.
To put the concerns of few stakeholders that are clamouring for policy review into perspective, it’s of utmost importance to highlight their yearnings and x-ray them accordingly for a holistic approach to the auto policy.
As the largest market in Africa and the most populous black nation in the world, our policy statements and economy blueprints should be intricately linked to our local market. It will be too simplistic and monistic for government to be solely concerned with raising government revenues on a short-term basis and further deepening the crisis of our economy.
As rightly posited by the DG of LCCI, Mr. Muda Yusuf, the major harbinger of revenue loss is the sharp practices by some auto dealers to “divert vehicles through Cotonou”.
To incentivise importers of used car aimed at generating more income to the port authority is to accepting our systemic failure as a nation and caving into the exploiters of the grey areas of our economy. And this will take us back to the dark ages where the country was a junkyard of rickety vehicles.
For our economy to be sustainable, we must strengthen our border security, declare a state of emergency on smuggling.
At this juncture, we can’t afford to rescind the tariff regime of 35 per cent duty and 35 per cent tariff as it will immediately spell doom for local assembly plants and bring the auto industry to its knees thereby amounting to a colossal loss of jobs and investments.
According to research by PWC, the imported used cars dominate the industry, accounting for 74 per cent of all vehicle imports. Ten per cent imported cars are less than three years while 63 per cent are over 11 years. To this end, one can safely assume that a large chunk of cars on Nigerian roads are smuggled through the land borders as only a few berthed the port of the country. Again, to address this is to abate the influx of used car by strictly enforcing a ban on the importation of both used and new cars through the land borders.
Price of Locally Assembled Cars and Market Volume
At the inception of the auto policy, there’s an alignment of expectations between the local assemblers and Nigerians that the price of cars will be affordable owing to the fact that they are locally made. Paradoxically, however, the prices of new cars skyrocketed contrary to expectations. Sequel to this, it deserves to note that the policy in itself hasn’t the prices of the cars up, on the other hand, some extraneous economic variables like forex instability, the dearth of ancillary/component manufacturers in the country have been chiefly responsible for the price hike.
As the purveyors of an import-oriented economy will want us to believe, the auto policy in its true essence is not responsible for the price hike in cars.
You will recall that in 2015, a Made-in-Nigeria Kia Rio was sold for N1.89 million, however, this price was increased to N6.3 million in 2018, as a result of the weak value of the naira. As at 2014, $1 is exchanged at N160, in 2016, 2017 and 2018, the naira was hovering at N350 to N500 to a $1.
Thankfully, through the government’s effort, the naira is stabilised at N360 to $1, which is still over 125 per cent of the rate in 2014.
To reduce the price of Made-in-Nigeria cars, the government has to make good its promise to work on several initiatives aimed at creating the right operating environment to investors and increased tax incentives to local assemblers as echoed by the Minister of Commerce, Trade and Investment in a stakeholder meeting held in 2017.
It will be a disservice to the country if one should shy away from the sharp practices by some purported assemblers taking advantage of the incentives and exploiting the loopholes in the implementation of the policy. Regardless of how great the policy is, some economic usurpers will always exploit the loopholes in its implementation. It behoves the law enforcement agencies and regulatory bodies to implement this policy and weed out serial abusers of the policy.
We’ve got to make a choice; one with short term gain by incentivising importers of FBUs at the expense of the local assemblers or a long-term gain that helps with the production of made-in-Nigeria vehicles by implementing the policy and further incentivising the local assemblers to help them improve the country’s backward integration of the economy.
The need for vehicle acquisition scheme cannot be overemphasised, a provision of the scheme will widen cycle of vehicle ownership by making it more accessible and affordable. The auto industry as a consumer-facing business is as dependent on well-functioning and widely available financing as any other retail businesses across the globe. Car financing has over 85 per cent market share in car sales in the global market, non-availability of these schemes in Nigeria have continued to make the ownership of a new car a tall order rather than a go-to option for car owners.
In the US, roughly $500 billion in new loans and leases are originated annually and 86 percent of new car purchases and 55 percent of used ones rely on borrowed money, with banks, captives, and fleet financiers all playing important roles. Collectively, the US auto finance industry held roughly $1 trillion in outstanding loans and leases in 2015, translating to nearly $111 billion in revenue. Premised on this, the government needs to finalise the single digit vehicle acquisition scheme from financial partners to make the locally manufactured cars accessible to all in the market.
With the provision of the finance scheme, there will be significant growth in the market volume which will, in turn, serve as a motivation to bring in component manufactures. When the car components are manufactured locally, it will drastically reduce the cost of production thereby reducing the prices of the cars ultimately, a value chain that is sustainable.
It will be too devastating to take a cue from neighbouring countries by encouraging importation by auto dealers through incentives on imported cars both new and old at the expense of local investors that had setup multi-billion naira plants in the country.
On the contrary, rather than giving incentives to auto dealers for importing vehicles, a tariff cut should be extended exclusively to only local plants to make them competitive and provide affordable Made-in-Nigeria cars.
While we are not averse to the call for a review, the elements of the review must be directed towards industrialising the economy and keeping the local manufacturers competitive in the market.
Olawale is the Marketing Manager at Kia Motors, Nigeria