By: KUNLE JAIYESINMI (DMD, CFAO Motors)
Introduction:
With a population of over 115 million people, one can adjudge Nigeria as a country with huge potential for the Automotive Industry. In the 70s and 80s, Government partnership and patronage with these Auto Assembling Companies: Peugeot Automobile Nigeria (PAN) in Kaduna, Volkswagen of Nigeria (VON) in Lagos, Anambra Motor Manufacturing Company (ANAMMCO) in Enugu, Steyr Nigeria Limited in Bauchi, National Truck Manufacturers in Kano and Leyland Nigeria Limited in Ibadan contributed immensely to the economic development of Nigeria and the non-oil revenue of the Federal Government.
However, the Oil Glut that caused the fall in Oil prices from $27 to $10 specifically in 1986 sent the early Auto Assemblers mentioned above into moribund as Nigeria went into recession. The funds from Agriculture and other sectors could not keep them afloat.
The economic downturn and the massive depreciation of the Naira to U.S Dollars and other major currencies of the world resulted in a surge in the importation of used vehicles (popularly called Tokunbo – as it’s affordable for Nigerians, considering the continual inflation in the country) and Fully Built vehicles, leaving the very few Assemblers in existence struggling for survival with no incentive scheme or policy to protect and guide them.
This worries birthed the National Automotive Industry Development Plan (NAIDP) in 2014. The objective of the Auto Policy is to discourage the importation of Fully Built vehicles into the country, encourage local Assemblers to maximize their potentials, generate employment, boost skills and manpower, instill research development, increase the nation’s GDP and make Nigeria an automotive hub in West Africa and Africa in general.
According to the National Automotive Design and Development Council (NADDC), 28 companies are currently assembling in Nigeria out of the 54 that registered for assembling. And out of the 408,870 units capacity per annum, only 8,473 (2%) have so far been achieved.
No Presidential assent to the NAIDP Bill since the commencement of the Auto Policy or Assembly Scheme of the FG since 2014:
The Goodluck Jonathan administration introduced the National Automotive Industry Development Plan (NAIDP) Bill in 2014 and less than a year to the Eight year-tenure of the Muhammadu Buhari administration, the bill is yet to see the light of the day in terms of legislation and accent to the final draft by the President.
At the inauguration of the $7 million Toyota Assembly Plant with 1,330 units capacity per annum in Ghana in June 2021, the President John Akufo-Addo said: “Government attaches great importance to the development of the automobile industry in Ghana’’
He also stated that: “By assembling and ultimately producing cars in Ghana, the importation of second hand used cars in Ghana will be reduced and at the same time, the export of made in Ghana cars to other African markets will earn our nation the much needed foreign exchange” (Source: The Cable June 29 2021). This and more are the aim of the Nigerian Auto Policy.
Players like Toyota, Volkswagen, Nissan, Sinotruck and Katanka (indigenous) have set up assembly plants in Ghana and others like KIA and Hyundai are planning to join them pretty soon. Nigeria already has some good number of Assemblers and should do all it takes to keep them, boost their confidence and attract more investors.
Reiterating my statement about the NAIDP Bill a couple of years ago, the Bill should be critically reviewed with the involvement of key players in the industry (as it was only being drafted by Civil Servants and non-players in the Industry) and signed into law.
The Government should also consider tackling insurgency which has constrained Assemblers to some clustered spots and limiting the expansion of their sales, after-sales and services to other parts of the country, address the issue of power supply and manufacture of car accessories and development of local content which are the major reasons why a country like Ghana is recently becoming the attraction to Auto Investors and Assemblers in the West African Sub Region at the expense of Nigeria.
Lack of incentive to those that invested billions in the automobile assembly project:
The provision of juicy financial loans with single-digit interest rate for Auto Assemblers should be provided by the Government to curb the problem of inadequate capitalization and funding. Granting Tax Breaks to Assemblers in their first few years of establishment by the Government can also serve as a good incentive measure.
We have seen the enthusiasm and support of the past Government and the present Government with regards to public appearance and support of local assemblers, but this should be done holistically to benefit all the Local Assemblers. The adoption of Innoson by the Anambra State Government as its official vehicle in March 2022 is a milestone in the Industry and this is what the Federal and other State Governments should emulate.
According to the Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele, during the introduction of Produce, Add Value and Export (PAVE) to boost export and encourage local production: “To solve the immediate and long-term economic challenges of the country, we needed to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development”. This statement shows clearly that Auto Assemblers in Nigeria need to be incentivized.
There should be revitalization and incentivization of the auxiliary companies (Plastics/ Rubber/ Foam/glass) too since they produce complementary components/ parts that are used in the production of vehicles. This will salvage local assemblers from importation of spare parts. Over $10 billion (about N5 trillion) is being lost yearly in Nigeria to large scale importation of Fully Built vehicles and allied components used for local assembling.
Re-emphasizing my viewpoint about a year ago, on the deplorable state of Petrochemical and Steel firms; the demise of Ajaokuta Steel Company, Aladja Steel Rolling Mills and departure of the tyre manufacturers, Dunlop and Michelin and other parts and components manufacturers like batteries, belts and windscreens are big setbacks to the sustenance and development of the Automotive Industry in Nigeria.
Non provision of forex by the CBN for settlement of our Letters of Credit:
The failure of the Central Bank of Nigeria (CBN) to provide forex for Auto Assemblers to settle their Letters of Credits (L/Cs) slow down their businesses and puts additional pressure and cost on them even as Auto Assemblers are already overwhelmed by epileptic power supply, high cost of electricity tariff, and scarcity cum hike in the prices of fuel, diesel and gas amongst others weighing down their businesses.
The CBN affirmed to this in the Communiqué No 143 of The Monetary Policy Committee (MPC) Meeting held on the 18th and 19th of July stating that “considerable rise in core inflation resulted largely from the rising cost of production due to high energy prices associated with the persistent disruptions to power supply, hike in electricity tariff, continued scarcity of Premium Motor Spirit (PMS), and rising price of Automotive Gas Oil (AGO)”. The CBN is expected to sustain efforts at enhancing efficiency, liquidity and transparency in the foreign exchange market that would give special considerations to Auto Assemblers and other manufacturers via the best favourable windows to settle timely, their Letters of Credit (L/Cs) and ensure it is carried to the latter by instructing Banks to submit their L/Cs from them for verification and audit. The intents behind the establishment of the Investors’ and Exporters’ FX Window on April 21st 2017 by the CBN are meant to be a plus for Auto Assemblers.
However, the establishment of the I & E FX Window and the claim in Q1 2022 by the CBN about the stability of the naira at the I & E Window at its 32nd Seminar tagged: “Exchange Rate Management and Economic Diversification in Nigeria: The ‘PAVE’ Option,” are yet to yield the desired results as Assemblers still battle to source for foreign exchange amidst the depreciating value of the naira, causing instability in prices.
Non-availability of vehicle finance scheme despite the collection of over N180 billion levies on Fully Built vehicles by the Nigeria Customs Service on behalf of the NADDC/ FG
It is one thing to produce a vehicle and it is another to create an enabling environment to sell it. Local Auto Assemblers are in dire need of schemes that would make Nigerians patronize them. The rate of inflation in Nigeria is very high, thus, the ability of an average Nigerian to purchase a new vehicle is considerably low. This underscores the need for Vehicle Finance Scheme that would enable Nigerians own new vehicles, thereby discouraging the use of imported used ones. But unfortunately, despite the collection of over N180 billion as levies by the Nigeria Customs Service, the auto Industry is still yet to witness any proper vehicle finance scheme.
In May this year, The National Automotive Design and Development Council (NADDC) through its DG, Jelani Aliyu announced a N200 billion vehicle financing scheme to enable Nigerians own brand new vehicles at ease. He said that the council was discussing with the Central Bank of Nigeria, Jaiz, Wema and Zenith Banks to provide a single-digit auto financing which will allow Nigerians take a brand new vehicle home and pay over 4, 5 or 6 years. This will be a welcome development if only it can come to fruition as it would make Nigerians patronize made-in-Nigeria vehicles. The worry is that several of such promises by the government have been announced without a latter follow up and implementation.
Frequent upgrade of imported vehicles (SKD/ CKD) values by the Nigeria Customs Service:
The Nigeria Customs Service (NCS) outrightly believes in the upgrade (increase) of the value of imported Semi-Knocked Down or Completely Knocked Down vehicles year by year, considering just model change. This process is faulty as the manufacturer may not have upgraded the vehicle models or might have only done a minor upgrade that actually does not affect all parts of a vehicle. Most manufacturers carry out full model change between 4-5. This trend should be discontinued as it discourages Auto Assemblers and mars the objectives of the Auto Policy.
Delay in vehicles/ containers clearing process at the Port
The bottlenecks at the Ports by the Nigeria Customs Service (NCS) and other Government agencies are a hindrance for Assemblers.
For instance, after the issuance of the Pre-Arrival Assessment Report (PAAR) and the inspection and certification by the Valuation unit, products can still be impeded by any of these units: Gate/ Releasing/ Customs Police/ Strike Force, discrediting the PAAR that had already been certified after thorough inspection of the vehicles. One can be sent back to any of the units from which one has already been cleared. Many at times, even after the bureaucracies by the NCS and other Government agencies at the Ports, the Federal Operations Units (FOU) are still there to cause further delay on the highway en route warehouses in spite of all the clearing documents from the Ports.
The poor state of the roads to & fro the seaports and the gridlocks especially that of Apapa is another hell process for Assemblers. It was reported that Nigerians lost about N90 billion in 2020 due to bottlenecks at the Apapa Seaport.
In Q2 2021, the National Bureau of Statistics (NBS) reported that, majority of the commodity exported out of Nigeria were transported via water, which accounted for N5,033.37billion representing 99.09%, followed by Air transport that contributed N31.71billion representing 0.62% and Road transport valued at N14.36billion representing 0.28%. Similarly for imports, goods brought into the country via water transport accounted for N6, 508.63billion or 93.65% of the value of total imports, Followed by Air at N359.70billion or 5.18% and Road N81.87billion or 1.18%. With these figures, the need for removing unnecessary bureaucracies at the Ports cannot be overemphasized.
To ease congestion and curb extortion, the then Finance Minister, Ngozi Okonjo-Iweala in 2012 cut the number of government agencies allowed to inspect cargo at Lagos Ports – “AFRICA BUSINESS: Lagos Port Still a Bottleneck for Africa’s Top Economy” (Source: The Reuters April 27th, 2015).
The NCS and other Government agencies’ activities at the Ports are tardy and repetitive. Leaving behind the manual processes and automating them wholly would remove the bottlenecks which lead to demurrage and loss of sales for Auto Assemblers.
Reduction of duty payable for non-assemblers and used vehicle importers
The Automotive Policy introduced by the Federal Government was targeted at discouraging the importation of Fully Built vehicles and encouraging local manufacturing. The policy allows local assemblers to import Completely-Knocked-Down (CKD) vehicles at zero per cent duty, and Semi-Knocked-Down (SKD) vehicles at 5 per cent duty, while importers pay a 70 per cent (35% on duty and 35% as Levy) on Fully Built (FB) vehicles (new and used). According to reports released by the National Bureau of Statistics (NBS), Nigeria recorded a total sum of N1.28 trillion as the value of “used vehicles” (popularly known as Tokunbo) and motorcycles imported in one year (Q3 2019 – Q2 2020), compared to N899 billion recorded in the corresponding period (Q3 2018 – Q2 2019), implying an increase of 42%.
This underscores the importance and urgency of signing the Auto Policy into law to restore investors confidence. The policy somersault of the Government is the reduction of import duty from 35% to 10% and applying the same on SKDs and FBs commercial vehicles (Buses and Trucks). This flaws the fundamental objective of the Automotive policy which is to discourage the importation of Fully Built vehicles.
This is more appalling, considering the fact that Assemblers in the country today are trying to maximize their potentials in the SKD operations and not in the CKD as it should be. No investor would establish an Auto Assembly Plant in a country where the cost of importing an already built vehicle is cheaper than the cost of producing a new vehicle.
Conclusion
The urgency to have the National Automotive Industry Development Plan (NAIDP) Bill critically reviewed and signed into law cannot be overemphasized. The unfortunate thing is that while other nations are making policies that would shape their Auto Industry from 2025 – 2050, we are still lagging behind discussing what would have been settled almost one decade ago.
This report was a full presentation made by Mr. Kunle Jaiyesinmi (Dep. Managing Director, CFAO Motors) at the 7th edition of the Nigeria Auto Journalists Association’s Training Workshop held on 29th July, 2022, at the Conference and Exhibition Centre of the Lagos Chamber of Commerce and Industry (LCCI), Alausa, Ikeja, Lagos, Nigeria.
