Challenges of Nigeria’s Auto Industry

BY: TOKUNBOH AROMOLARAN

Mr. Tokunboh Aromolara, Chairman Nigerian Automotive Manufacturers Association (NAMA) and MD, VON Automobiles Limited

The federal government has a long-term view of developing this industry. But certain government departments like the ministry of finance, Nigerian Ports Authority (NPA) and the Nigerian Custom Service (NCS) don’t see this same long-term vision. They see just a short revenue scope.

They wonder what the government hope to achieve by giving local automobile assembly plants tariff incentives. They are not seeing what we (the auto industry) are expected to add to the nation’s GDP by local production.  They only see the short-term reduction in revenue. Therefore, they put every possible impediment on the way to hinder the growth of this industry.

For instance, when our goods arrive at the port, for two, three months, they won’t allow them to come out, because they must check everything, not because they are so efficient, but because of what they have against the special tariff as conferred by the auto policy.

Given their actions, unfortunately, the essence of the tariff incentive is being defeated.

Reason:  Because of the unnecessary delay at the port, what we don’t pay as duty, we pay on demurrage. You would think we should not have been penalized for a delay we did not cause. No. They don’t want to understand why your goods are delayed. They still levy their charges.

That is why Nigerians and those in authority need to understand these issues. The Director General of Customs say they are losing revenue, because of the policy and the Managing Director of Nigerian Ports Authority (NPA) say their IGR is going down, because less cars are coming in.

Imagine. You would expect every arm of government to understand each other and know that all the nation needs at the moment is to move the economy forward towards the route of industrialization.

Truth is that their complaints are baseless, because what does not come in as fully-built up cars are coming in as CKD (Completely Knocked Down)  in boxes. So those things are still coming in. But they don’t come in as cars on four wheels anymore. They come in as knocked down parts that we import. But as far as they are concerned, enough cars are not coming in, because they cannot count them one by one.

Somebody needs to educate them and ask this question: Are we going to be slaves to the Japanese industry forever? Are we going to be keeping Asian  factories running forever, while our own people are asking for or looking for jobs?

Duties on Second Hand Cars?

Another issue is this view that the poor would suffer, if duties on second hand cars are increased. If the government keeps having this myopic view, poor man would continue to suffer with the way we are going, for we are not putting in place things that are sustainable for the poor man. Leaving things as they are at the moment, on the contrary is not helping the poor. That is why we rely on import and helping to sustain economy of other countries, while millions of Nigerians remain unemployed. The ultimate goal of building an auto industry is to create jobs and move the nation’s economy to the 21st century.

Solution to the problem of a poor man is not the second hand car, but putting in place a nice public transport system, a mass transit. Continuous import of second hand cars will only make our own industry to remain backward, because we cannot produce cars in huge volume, which will bring the cost down such that locally made vehicles would become affordable to the common man.

So the government has to think the business through and understand all the parameters that affect industrializing the auto industry.

Bad Road from Port

Even after eventually getting your goods released from the port, transporting them to the factory is another challenge due to bad roads.

Try driving through the road leading to my factory; you will weep for people who have to drive through that place every day. You would see what we have been reduced to. So when we say we are near the port and our goods can’t come in easily, part of the delay is when the trailer is stuck in the traffic due to bad road. Our government needs to be more responsive, if we want this country to develop.

Problem of Competition/Smuggling

Another thing I cannot but mention is problem of competition.  We are not afraid to compete. But we want fair competition. The same custom that complain that their revenue is going down, because of the auto policy incentives, are the ones allowing smuggled cars into this country unashamedly.

You know we said to the government some years ago that we are unaware of any assembly plant in Benin Republic, Cameroon or Niger republic, the countries that surround us. And so we do not see any reason why vehicles should come into this country through our land borders, that all vehicles should come in through the sea ports, where they can go through proper checks.

And government accepted our advice. But what is the situation today? Those cars are still coming in through the land borders. Excuse has been  that our borders are porous. But the truth is that, when the Customs decide to police the border, they know how to police it. When they do not want to, they know how to turn a blind eye, work through the dead of the night and pretend as if nothing is happening.

We are suffering, because people are bringing in vehicles, which they pay no duties on. As a result, they can sell the vehicles at ridiculous prices, a situation that discourages demand for locally assembled vehicles. As a result, our volumes remain low, which is why prices of our vehicle remain on the high side and unable to compete fairly with imported vehicles.

Auto Finance

Another issue has to do with customer’s ability to purchase the vehicles we produce. Buying a motor vehicle is not like going to the market to buy a shirt. If you want to buy a car, you have got to plan for it, because a car is a luxury.

In most countries, people go through financial institutions to procure a vehicle. That is part of what we suffer here, because there a lot of demands out there. A lot of people need vehicles. But they do not have the means to finance it, in which case that demand is not active demand. All we have been trying to get government to do is to come up with financing institution for vehicles that are locally assembled.

The reason is this. Our turnover can grow by three, if people were able to come and pay even 20% of the cost of the car and spread the balance over three years. For instance, for a car that costs N5 million, you bring N1 million and we get you a credit financing for the balance over three years. It is possible to come up with a structure that enables a Nigerian who is a graduate of three to four years having a sustainable job, and has been at work for three to five years, to be able to afford a car.

On our part, we are able to profile a Nigerian by virtue of whom he or she is, what he has done, how he is in the society, what other relationships he or she has.

With auto finance system in place, all you would do is walk into our showroom and you can be profiled for an auto finance that would enable you to drive home a brand new car.  it’s like somebody planning to go to Canada. You go to their website. They profile and score you to decide whether or not you have a good chance of being given a visa.

Similarly, we are able to profile and score you and at the end decide whether or not you would be fit for a loan. One thing that would enhance your score is if you have a secured job and we can link up with your employer and can deduct at source, just as they deduct VAT at source. This type of programme works in Liberia.

This can also work in Nigeria if we put our mind to it.  Because we don’t have credit facilities here, people suffer. At the end of the month, you get your N50,000 salary. And that is all you have to live on for the rest of the month. By 15th of the month, everything is gone; you are just managing and you are gasping for breath till the next pay day. That is unlike somebody on the same salary, who has already acquired a product he needs on credit and he is already enjoying the product, while paying just a portion of the cost every month.

It’s the same thing we want for the Nigerian car industry, because that is one thing that is going to impact our development. For instance, if f I can triple my present sales volume, my price would crash, because I can produce more and sell at a cheaper price.

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