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Analysts List Measures to Transform Nigeria’s Automobile Industry

Analysts List Measures to Transform Nigeria’s Automobile Industry

As part of efforts to develop the country’s automobile sector, the federal government has been advised to set out policies to encourage the manufacturing of automotive components such as tires, doors, glass, among others.

This, is expected to attract more automobile sub-industries and investors to the country.

Analysts at Lagos-based Financial Derivatives Company Limited, gave the advice in their bi-monthly economic bulletin for August obtained at the weekend.

The move, according to the research and financial advisory firm, would also have a spill-over effect on value-added for the economy and create a number of high-skilled jobs.

It, however, pointed out that the development of the automobile sector takes time and requires a supportive business environment.

For instance, it noted that French carmaker Renault and Nigerian conglomerate Coscharis Group had formed a partnership to assemble and distribute Renault vehicles in Nigeria from October 2019.

“However, many domestic firms still continue to struggle in a weak business climate, coupled with skills shortages among the domestic workforce, as the quality of education and technical skills training is low. Improvements in these areas will boost investment and increase investors’ confidence.

“The auto industry in most economies acts as an engine of growth, especially as it serves as an important stimulus for other manufacturing activities.

“The potential for growth of the Nigerian automobile industry remains strong. Nigeria has a population of over 190 million people, with over 40 million who are in the growing middle class.

“However, Nigeria has the ratio of 19 passenger cars for every 1,000 persons, which does not compare favourably to the average of 68 passenger cars for every 1,000 persons in the Middle East and Africa. This gap creates a unique opportunity for players in the industry,” it stated.

According to the firm, over the last few years, the purchase of imported used cars, often called ‘tokunbo,’ had grown due to insufficient domestic vehicle production and affordability.

It cited a US Department of Commerce report that estimated that Nigeria spent an estimated $526 million in 2018 on used vehicle imports, noting that with a ratio of new to used cars at 1:134, tokunbo cars make up about 70 per cent of the cars in Nigeria and are mostly imported from neighbouring countries as well as the US, UK, Germany and Brazil.

Nigeria’s auto importation policy of 2014 took a multi-prong approach to address the grossly lopsided balance of trade.

In the first phase, the federal government had introduced a 70 per cent tariff (35% duty plus 35% levy) for consumer vehicles and the 35% duty (no levy) for commercial vehicles.

It had also stated that completely knocked down parts and semi-knocked down parts for assembling would be charged zero per cent and five to 10 per cent duty respectively.

Finally, it stated that the levy on consumer vehicles would decrease as the industry grows and becomes more competitive. The policy aims were to: promote local production, attract foreign direct investment, curtail the overdependence on vehicle importation, and boost the industry’s contribution to the national economy.

Yet, the desired increase in investment and local production has not manifested, nor has the importation of used vehicles been discouraged. The policy worked for a while.

“The high tariffs discouraged importations initially with the number of imported used cars falling by 48.02 per cent to 40,136, valued at $272.69 million in 2015. However, without an equivalent boost in production, imports began to rise again in 2017. By 2018, Nigeria’s imported used vehicles, from the US, were valued at $526 million (82,180 units of vehicles). “This was a 68 per cent year-on-year rise from the 2017 numbers of $284 million (48,899 units). If the industry operated at full capacity, it could serve as an avenue for increased government revenue, industrial and technological advancements, and job creation.

“Left to function as it is now, the industry will remain a drain on the balance of trade and burden for the average Nigerian,” it stated.

However, it pointed out that the Nigerian auto industry could contribute significantly to government revenue as well as the country’s Gross Domestic Product (GDP) growth.

For instance, the firm pointed out that in developed countries, growth in the automotive industry by one per cent causes a GDP growth of 1.5 per cent and also accounts for about five to 10 per cent of their GDP.

The auto industry accounts for 14 per cent of the German GDP; 12 per cent in Japan, 10 per cent in South Korea, and 6.8 per cent in South Africa.

Furthermore, the industry contributes significant tax revenues from vehicle sales taxes, income taxes paid by employees working in the sector, registrations and licensing fees, and corporate income taxes paid by automotive companies, in those countries.

  1. Pierson Urges Ministers, Governors to Deploy Professional Plans

Experts at H. Pierson Associates, a leading strategy consulting firm, have emphasised the need for the newly sworn-in ministers as well as the state governors that were elected few months ago to priorities the deployment of professionally articulated medium-term plans.

The Head Public Governance Advisory at H. Pierson Associates, Val Onyeakazi, stated this in a report obtained at the weekend.

This, he said was badly needed considering the shape of the national economy.

“May 29th 2019 saw the swearing-in of new state governors. Last week August 21, also saw the inauguration of new ministers taking on their portfolios. Both governors and ministers will meet their States and Ministries, Departments and Agencies (MDAs) in different states of progress, drift or inertia.

“With the economy in its current weak state as evidenced in a low Gross Domestic Product (GDP) growth rate below the population growth rate, high unemployment and high poverty levels, expectations are very high, more so as the APC itself has this time come to power on a promise of taking Nigeria to the ‘Next level,” Onyeakazi explained.

Continuing, he said, “from our experience over the years working with states and parastatals to succeed, nothing guarantees success more for a governor than being guided by a developmental master plan that is meticulously executed using strong public and private sector collaborative monitoring and evaluation frameworks.”

According to him, “execution is even trickier and that is where we put in much more professional support as the forces against execution, especially in the public sector, are unimaginably huge in our environment.”

He pointed out that public sector leadership in the country falls into three categories – those that hope to succeed using no structured plans, those who develop well-articulated strategic plans but are unable to effectively execute them, and then those who have clear plans and deploy very strict monitoring and evaluation frameworks to ensure that the set initiatives are duly executed and the desired outcomes and impact are closely tracked and achieved.

“We definitely need to see much more of the third category if we must transform from our still largely backward state of development.

“While some states such as Lagos State have blazed the trail, a few others have sought to bring in this desirable levels of methodical planning, execution and professionalism, in ensuring their public sector entities truly deliver superior value to their citizenry and stakeholders. The entire nation will be much better off if most states follow this path,” he added.

Writer: Obinna Chima

Published: August 26,2019

Source: .thisdaylive

Photo Credit: .thisdaylive

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