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Why 2020 Finance Act is Killing Nigeria’s Auto Industry and should be Reversed – Former NADDC Director

Following the swearing in of President Bola Ahmed Tinubu as the 16th President of Nigeria, stakeholders of the nation’s auto industry are hoping that his regime would put the development of the sector at the front seat, as it has done to the subsidy removal.

They look forward toTinubu’s signing into law the national Auto Industry Development Plan (NAIDP) bill, an important industry bill that will put Nigeria in the class of auto manufacturing nations and enable the industry to contribute substantially to the country’s GDP.

Mr. Luqman Mamudu, an auto industry expert, a former director of Policy and Planning, National Automotive Design and Development Council (NADDC) and presently Managing Director of Transtech Industrial Consulting, was part of the team of experts, that put together the NAIDP, which was launched in 2013.

Fielding questions exclusively from Motoring World International’s Lagos Bureau Chief, ROTIMI ASHER, Mr. Mamudu revealed reasons why the industry has remained stagnant in Nigeria and what urgent steps the new administration needs to take to salvage the situation.

Excerpt:

Auto Industry watchers believe that the Nigeria’s auto industry has remained backward, due to non-passage of the NAIDP into law nine years after it was drafted. Would you say Nigeria’s auto industry is jinxed?

Certainly not! Nigeria automotive industry is not backward if you push back and examine the status in 2012/13 the eve of NAIDP launch. From a mere installed capacity of less than 80,000 vehicles unit per annum  and  1% capacity utilization, it rose to  about 500,000 installed capacity and 10% capacity utilization by 2017.

Although it dropped to 6% by 2022, installed capacity remains high. Besides, nearly all the OEMS including Nissan, Ford, Kia, Honda, Peugeot, Geely, TATA ,Hyundai, GM, SINOTRUCK, YUTONG, JAC, MAN, FAW, etc have established  investment pipeline in Nigeria.

Indigenous Nigerian automotive Companies like IVM, NORD, Proforce, JETVAN, Lafbert Innovations, IPI, etc have also invested massively in the industry.  As at 2017/18 nearly 3000 Nigerians were employed in the industry which witnessed over $2billon investment between 2014 and 2017.

The NAIDP investment confidence bill successfully passed through the lower and upper chambers of the legislative arm of government but, unfortunately, failed to get presidential ascent.  This certainly slowed investment by OEMS, because they fear policy summersault which can compromise their investment.

From that moment, the capacity utilization, which was gradually increasing stopped and began to decline. This non presidential assent also indirectly led to serious challenges within the administrative space. Those in and outside governments who never liked the policy mobilized against it. So it wasn’t a jinx.

To what extent would you say the Finance Act 2020 has impeded the growth of the nation’s auto industry? What should be done to that act, if the auto policy must see the light of the day?

If the non-assent by the presidency knocked down the bill, the 2020 Finance kneeled on its neck. It was ill advised and as such the provision should be reversed. It had no input from the National Tariff Review Committee as required. The incentive to assemble commercial trucks and buses, which are easier to build locally and requires minimal investment capital was removed. Unfortunately Nigerian assemblers had achieved so much capacity in this category especially in body building.

Previously, import tariff on fully built commercial vehicles was 35%, while Assemblers had the incentive to import their broken down kits (KD) at 10% but the imported FBU was made 10%.

Curiously, Agricultural tractors for which NAIDP provided 0% import duty to encourage Agricultural was increased to 5%. No one knows the rationale.  As a result of 2020 tariff structure, Local assembly for commercial vehicles categories has practically disappeared but for a few firms like Dangote, Shacman and FAW. Everyone is now importing both new and used vehicles. These have now flooded the entire streets of Nigeria.  Nigeria is now the biggest destination for used vehicles.

The argument by those who engineered it was that the move was to reduce prices of commercial vehicles to the masses. Prices went up instead. The truth is that price upward push factors were mainly others. This was during COVID19 and the increasing fall of Naira. It was simply an excuse to slash the tariff on SUV which was formally 70% but now 25% or thereabout. Established local capacity to build SUVs has also stalled more or less.

Being a former acting DG of NADDC, what do you think the council should have done better in the last five years?

The council should have undertaken a mid-term policy review as provided for in the NAIDP and scheduled for 2018. This was to involve engagement of all stakeholders. Second, Policy implementation Monitoring and Evaluation exercise should have been sustained. Third, the NAIDP programs which included automotive supplier park, Safety Standards laboratory, and automotive credit purchase scheme to drive demand for made in Nigeria automobiles, shouldn’t have been abandoned.

Certain analysts believe that the stunted growth of Nigeria’s Auto Industry has worsened the economic problem we had since the introduction of NAIDP in 2014, what is your take on this?

The automotive industry is recorded to contribute significantly to economic prosperity and certainly would have done the same for Nigeria. The automotive industry can account for as much as 12% of a country’s GDP. However, I have no statistical indication of its responsibility for Nigeria’s slow growth or worsening of economic problem.

What is your reaction of the recent approval of the so-called amended auto policy by the Federal Executive Council at the twilight of the immediate past administration?

I’ve gone through the summary only. I don’t have the full copy. But I think they may have reintroduced a clause that caused its presidential rejection in the first place. The crafters apparently didn’t consult widely.  The tax holidays provided for in it is already well accounted for in the Nigeria investment pioneer act. Besides, its incentive provisions don’t seem deep enough to attract investors; local or foreign. As I said, I’ve not had the privilege of seeing the full copy.

To what extent would you say the former President Buhari’s regime fulfilled the promises it made to the auto industry stakeholders after assuming office in 2015?

There was an Executive order to patronize made in Nigeria vehicles. This underscores his interest in the industry.  He also did not cancel the 2014 NAIDP as many traders wished him to. I am not too sure that most MDAs respected the Executive order for patronage anyway.  Just look at their fleet.

Towards kick-starting the long expected development of the nation’s auto industry, in a comprehensive term, what agenda would you like to set for the Nigeria’s new administration of President Bola Ahmed Tinubu?

It should pick up the 2014 NAIDP and have it reviewed by the stakeholders. After urgently passing and signing the NAIDP into law, the following programmes of 2014 NAIDP should be singled out for implementation.

  1. Automotive credit purchase scheme launch. The anticipated N800 Billion naira for petroleum subsidy and other source should be injected in the scheme. This will make it affordable.  Bus operators and haulage companies should primarily be the beneficiary of this scheme as individuals may not be able to sustain repayment from meagre salaries. Transportation cost will drop so let create culture of bus riding. We do so gladly abroad. Only made in Nigeria vehicles should be sourced under the scheme.  This will quickly revive the automotive industry, drive demand for their products and lead to  massive employment along the value chain. .
  2. The lands already acquired by NADDC in Kaduna, Oshogbo and Nnewi for automotive Components and parts production should be realized. This will drive local content and massive employment.  To be competitive in the AfCFTA this project is a must do. It’s only high local content that will qualify you to sell automotive products across Africa duty free.  If you don’t, other Africa countries will take advantage of our over 1m vehicles per annum market.
  3. Automotive Safety laboratory for emissions in Lagos, Components and parts LABORATORY in Enugu, and Materials laboratory in Zaria should be completed and made functional.  This is critical for homologation in the industry.
  4. The fiscal incentive must be adjusted to take full advantage of limits allowed by member state for industry they wish to protect.  Secondly, in order for the Components and parts industry to grow we need to ring fence the tariff code for automotive manufacturers. Nigeria has over 12 million vehicles on the road.  We can locally make parts and Components to maintain them as well as serve the emerging assembly industry.  All these translate to jobs. This is what Nigeria needs now.
  5. Lastly, this is not only for automotive industry.  But the industry particularly faces challenges in sourcing FOREX, my recommendation which is nothing new , is for the new government to scrap parallel market for FOREX. There should be only one exchange rate for Naira. Domiciliary account should be scrapped.  Those who require FOREX should state the purpose and apply based on funds in their account.

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