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Nigeria’s New Automotive Policy: Clearly A Winner If Well Executed

Nigeria’s New Automotive Policy: Clearly A Winner If Well Executed

Nigerians love automobiles is a no brainer. It does not matter whether they belong to the higher strata of society who mostly buy luxury brands or are amongst a significant pool of persons who cannot afford one except of course there are financing options and other incentives. However, what is key is the ability of owners to transport themselves to any destination at anytime whether for work or leisure with ease.

As the debate continues for and against the federal government’s new automotive policy, it makes a lot of sense to argue in its favour because of the encompassing positive impact it will have on job and wealth creation for Nigerians, as well as the economy as a whole, if well implemented.

The Goodluck Jonathan administration seem to have a well thought through plan that will revive the local automotive and transportation sector. It has so far gotten it right with the revamped railway sector, and encouraged private sector participation in automobile manufacturing with the Stallion Group partnering with Von Automobiles Limited, Nissan Nigeria Ltd, and Hyundai Nigeria Limited to set up plants to assemble vehicles locally.

There is also the very impressive Innoson Vehicles Manufacturing Limited, and PAN with assembly plants in the South East and Kaduna respectively.

Clearly, Nigeria has a worrisome unemployment problem and this initiative will help confront it by creating skilled employment opportunities in plants, auto parts trading, as well as reduce our over reliance on foreign goods and services. This will also strengthen the naira on the long run and place Nigeria on the path to economic boom.

Where we were

Efforts made at developing a national automobile sector dates back to 1972 under the administration of General Yakubu Gowon but it failed due to inconsistencies until the creation of the Z600 vehicle in 1997 by Mr. Ezekiel Izuogu of Izuogu Motors Limited which caused such stir that also quickly fizzled because of what is commonly known as the Nigerian factor.

Known as a prototype first indigenous Nigerian car, Z600 was first launched in 1997. It was hailed as the first automobile of indigenous all-African technology. Primed to be sold at the rock bottom price of only $2000, the cheapest car in the world then, it had a 1.8L four cylinder engine that got 18mpg and allowed the car to achieve a top speed of 140 km/h (86 mph). Interestingly, 90 percent of the car’s components were made locally.

But its mass production never took off. THEWILL recalls that it was reported then that a combination of financial and political hurdles prevented the car from going beyond the prototype stage.

The Rebirth of Auto Manufacturing With NAIDP

Several years after, the federal government has revisited the idea by creating and implementing the policy thrust of the National Automotive Industry Development Plan (NAIDP). Many Nigerians have become apprehensive that the execution of the policy will jerk up the prices of vehicles whereas very few have had the patience to look at the incentives attached to the policy.

Scheduled to kick off in October, its features include, but are not restricted to a new vehicle credit finance scheme to make new cars affordable, provision of low interest rate loans of not more than 10 per cent repayable over a period of four years to potential buyers and creation of employment opportunities within Nigeria and for foreigners as well, through a structured Original Equipment Manufacturers (OEMs), who will be encouraged to invest in Nigeria.

Intended to accelerate inclusive economic growth, the policy has variety of tariffs, such as zero per cent for Completely Knocked Down vehicles (CKDs); five per cent for Semi-Knocked Down 1 (SKD1) vehicles; and ten per cent for Semi-Knocked Down 2 (SKD2).

In order to ensure that the automotive policy works this time around government decided to back it with legislation. So far, the new automobile policy bill has passed the first reading in the National Assembly and it is hoped that it will be passed into law.

The Minister of Industry, Trade and Investment, Mr. Olusegun Aganga, rationalizes the policy in these words: “We knew that because we were just starting with the implementation of the policy, there would be a gap between local production and demand. Therefore the policy allows those companies who have keyed into the policy by investing in the establishment of assembly plants in Nigeria to help us create jobs to import the difference of what they cannot produce at 35 per cent duty.

“However, for those companies that want to continue to support the economy of other countries and help them to create jobs at the expense of Nigerians and the Nigerian economy, they can import cars at 70 per cent.”

The Debates

All these were greeted by rumour that the federal government has increased the tariff on imported cars by 70 per cent. The government was quick to respond to clear the air over this misconception. According to Aganga, there is no need for Nigerians to panic and be apprehensive, as there is adequate stock of imported vehicles. He also assured that the price of imported vehicles will not be increased as speculated.

Instead, he said, Nigerians will be able to buy new cars assembled in Nigeria at an interest rate of not more than 10 per cent repayable over a period of four years. “Nigeria is the only country in the world where used vehicles were not banned following the introduction of the new automobile policy. This is because President Goodluck Jonathan, before announcing the new policy, had taken into consideration the current socio-economic conditions of the average Nigerian and would not want to come up with any policy that will inflict more hardship on them.”

He added: “We knew that because we were just starting with the implementation of the policy, there would be a gap between local production and demand. Therefore the policy allows those companies who have keyed into the policy by investing in the establishment of assembly plants in Nigeria to help us create jobs to import the difference of what they cannot produce at 35 per cent duty.”

The Minister is not alone in convincing Nigerians on this issue. The National Association of Automobile Manufacturers (NAMA) also lent its voice to the debate, pledging that there will be no increase in the prices of cars.

In the words of the Executive Director of NAMA, Mr. Arthur Madueke, “We have no plans to increase the prices of cars. Our members have agreed after consultations that they will not increase the prices of cars in Nigeria because currently, we have enough stock to meet the country’s demand.

“Those that have increased or are planning to increase the prices of cars want to take undue advantage of the new automobile policy to exploit Nigerians and we will not be part of that exploitation.”

Reeling out statistics to buttress his argument, Madueke explained that in 2012, the total number of new cars imported into the country stood at 50,000 units; between January and December 2013, about 52,000 new vehicles were imported, while by May this year, 37,000 cars have been imported.

“All the vehicles were imported before June this year at the 20 per cent duty. So why do they now want to make things difficult for the ordinary Nigerians through needless exploitation,” he wondered.

NAMA, on its part reasoned that it is cars assembled overseas and brought into Nigeria that will cost more, not those that are assembled locally. In its statement signed by Madueke, NAMA reiterated that he gave a strong assurance to Nigerians that the prices of locally produced vehicles will gradually come down, citing the nation’s experience with the aviation and telecommunications sectors as examples.

“We pledge our support to the Nigerian people that there would be no increase in the prices of vehicles as being heralded by harbingers of doom, who wish themselves well at the detriment of the growth of Nigeria for the benefit of all,” Madueke wrote.

NAMA took on the critics of the automotive policy, arguing that they are trying to scare Nigerians away from embracing the progressive policy designed to make cars cheaper.

“Such critics did not consider the fact that the tariff has only been used as a tool to redirect incentives to the value-adding segment the government has decided was germane to the success of its industrial revolution agenda.”

“It was clear that the country needed to gravitate in a new direction, away from the import mind-set, if it was going to embark on sustainable industrial development. Only a select group of traders benefitted from a high end auto market with a massive resource drain in the form of foreign exchange outflow and littering of the landscape with a scrap heap in the name of fairly used cars,” he stated.

“To achieve this policy shift, it became necessary to ensure the buy-in of all stakeholders. The federal government embarked on a massive consultation to explain the industrial development vision, sensitise affected groups and educate them on changes required to re-integrate into the new paradigm,” the association said.

Roll Out

With the introduction and implementation of the NAIDP, the federal government is set to introduce the vehicle credit finance scheme in the country by October.

This is fashioned to promote patronage of locally made vehicles just as the prices of cars remain stable and unchanged. The government argued Aganga has concluded plan with the nation’s financial institutions in raising the fund, which would be at a relatively low interest rate to be offered the beneficiaries.

NAMA too, congratulated the Federal Government for its initiative, saying: “Indeed, July could be said to mark the watershed moment in history and a tremendous victory for this administration in its bid to unbundle and revolutionise the auto industry in Nigeria.

“Stallion Group, in concert with Von Automobiles Limited, Nissan Nigeria Ltd, Hyundai Nigeria Limited, Innoson Vehicles Manufacturing Limited and a few others had commenced production of semi-utility vehicles, pick up vans, cars, light and heavy duty commercial buses long before this date.

“PAN Nigeria has also officially launched its brands of Nigerian made vehicles. It is remarkable that this is happening before our very eyes and the stage can only get bigger if cynics allowed it to grow.

“We make bold to salute the courage, resilience and patriotism of the over 19 other assembly plants which identified with the aspirations of the government and the people of Nigeria to be one of the industrialised economies of the world with the development of an engineering base, symbolized by a growing and vibrant automotive industry.

“Members of NAMA, working with the government, are well aware of the enormous responsibility we owe Nigerians in not only making these vehicles available but also in ensuring that the standard and prices compete favourably with what is obtained in any major vehicle manufacturing economy the world ever.

“Despite the existence of some infrastructural challenges, we know that the growth and development of this industry is a vital impetus that is capable of generating massive employment for Nigerians and emphatically for our teeming school leavers. Our internal and external training facilities such as exist in VON Automobile Ltd, PAN Nigeria, among others will provide platforms for technology development and transfer as our young engineers will learn from world-class auto professional and become better equipped for the task ahead.

 

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