Push for auto policy review

May 16, 2019
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The automotive policy was introduced in 2013 to stimulate the local industry; save the estimated $8 billion sunk into importation yearly and create jobs. But six years after, these goals have not been achieved because of what observers described as shoddy implementation and lack of infrastructure, among others. Some industry watchers are calling for the policy’s review, Assistant Editor CHIKODI OKEREOCHA reports.

The outcome was predicted. The failure of the Federal Government’s automotive policy to deliver on its strategic objective of incentivising vehicles’ local production and cutting down on the  humongous vehicle importation bill did not come as a surprise to some experts and industry stakeholders.

Even before the policy’s implementation, which also promised to gradually phase out used cars, popularly known as Tokunbo, as well as spur massive job creation and technology transfer kicked off, those knowledgeable about the auto industry had expressed reservations that the initiative, though progressive and commendable, would not live up to its billing of resuscitating the automobile sector.

Some of them, in the maritime and automobile industries, pointed out that the auto policy was an import substitution industrialisation strategy. According to them, import substitution strategy can only thrive in the context of high domestic value addition, which, unfortunately, was and is still evidently lacking in Nigeria.

Yet, it is within such a framework that the economy could benefit from the inherent values of import substitution, which the auto policy espoused, including foreign exchange conservation, job creation and import bills reduction, among others.

The Federal Government introduced the new National Automotive Policy (NAP) on October 3, 2013. It was drafted by the National Automotive Design and Development Council (NADDC), and simply called National Automotive Council (NAC) with inputs from the Nigerian Automobile Manufacturers Association (NAMA) and other organisations in the industry.

NAC, a parastatal under the Ministry of Industry, Trade and Investment, was established by Act No. 84 of August 25, 1993, and NAP’s strategic trust, which it designed, was to ensure the survival and growth of the  automotive industry, using local, human and material resources.

The Council drafted the progressive policy in the hope of making cars cheaper in Nigeria, domesticate their production, create jobs and bring about the much-needed transfer of technology to drive Nigeria’s industrialisation. The policy was also expected to help conserve scarce foreign exchange.

By promoting the local assembly and production of vehicles, it was envisaged that the policy will halt, or at least, significantly reduce the estimated $8 billion spent on the importation yearly.

Perhaps, the icing on the cake was the promise of increased employment opportunities. This was based on the fact that the auto industry accounts for about nine million jobs globally and accounts for five per cent of manufacturing, according to the International Organisation of Motor Vehicle Manufacturers.

Also, the industry’s extensive forward and backward linkages in the economy have never been in doubt. Its value chain spans a range of activities including design and development, manufacturing and service-related activities such as marketing and sales, maintenance /after sale services, etc. Each of these activities is credited with the potential to churn out thousands of jobs for Nigerians.

However, six years into the implementation of the policy, the revitalisation of the industry for massive job creation, local value addition, and technology acquisition has yet to manifest. Due partly to lack of domestic value addition, the policy has failed to help restore the automotive industry for indigenous vehicle production for Nigerians.

The Nation learnt that at present, virtually all the raw materials for auto assembly are being processed in the countries of origin of the foreign auto firms, leaving Nigeria producing none of the about 3,000 car components.

Rather than incentivise domestic vehicle assembly, the policy, according to observers, has been allegedly hijacked by some unscrupulous businessmen in the auto industry, who are said to have taken advantage of its shoddy implementation.

These unpatriotic and phony vehicle manufacturers, The Nation learnt, are said to be benefitting from the zero tariff given by the government to companies that are supposed to be genuinely assembling cars locally.

Sources conversant with the modus operandi of the phony vehicle manufacturers said rather than implementing the auto policy, the culprits allegedly go abroad to purchase fully built cars, pay an extra cost to partially dismember these cars and then ship them into the country as knocked down components of the cars for assembly in-country.

The activities of these unscrupulous vehicle manufacturers are said to have not only frustrated the efforts of genuine companies willing to implement the policy, but also resulted in loss of huge revenues to government.

This was what fueled earlier fears by critics that the policy was all about encouraging trading and nothing more, as it will only make Nigeria haven for all manner of foreign auto producing companies to come into the country and assemble cars.

The thinking is that ab initio, the components/raw materials that are used in the manufacture of vehicles should have been carefully identified and broken down to ascertain opportunities for local sourcing/production.

Lagos Chamber of Commerce & Industry (LCCI) Director-General,  Mr. Muda Yusuf, put this sentiment in perspective. He said even though over 50 vehicle assembly plants licenses have been issued, the total yearly assembly of new cars in 2017 and 2018 was estimated at less than 10, 000 units.

He expressed regrets that six years into the implementation of the auto policy, not much progress has been made. If anything, the policy, he said, has adversely impacted the cost of doing business in the country. According to him, the policy has affected the welfare of Nigerians, government revenue and the economy’s capacity to create jobs.

Besides, it has caused massive trade diversion to neighbouring countries. Yusuf lamented that the cost of vehicles had risen beyond the reach of most Nigerians and corporate bodies, while impacting negatively on businesses. According to him, the high cost of vehicles has taken a huge toll on the economy, from logistics cost and welfare point of view.

“Practically, all aspects of our economic and social lives had been negatively impacted by the situation,” the LCCI DG said, adding that manufacturers and other real sector operators and investors are currently suffering from high cost of delivery vehicles and sharps increases in haulage cost because of the high cost of trucks..

He also said school buses have also become unaffordable for many institutions, even as many hospitals cannot afford ambulances. Also, many corporate organisations have drastically cut down on their fleet, while vehicle ownership is now completely beyond the reach of most of the middle class. 

It is easy to see why the auto policy left sour taste in the mouths of stakeholders in the economy. For instance, not long after it came into force, the economy started wobbling, due largely to an economic recession caused by the collapse in global oil prices.

The drop in export earnings resulted in the devaluation of the naira and shortage of foreign exchange that motor assemblers require to import components. Also, demand for new cars has diminished with falling disposal incomes, driving consumers to the used car market.

As Yusuf put it: “The automobile sector was hit by the double shock of currency depreciation of over 80 per cent over the last six years and an import duty hike to 70 per cent on new cars and 35 per cent on used vehicles and commercial vehicles.”

He said though the economy has witnessed an increase in the price of vehicles by between 200 and 400 per cent over the last five years, not many investors and Nigerians have the capacity to pay these outrageous prices.

Yusuf regretted that even prosperous corporate organisations are now buying used vehicles for official use, noting that the implication of the scenario for operational costs of organisations is worrisome.

The LCCI boss maintained that the auto policy, in its current form, is not in consonance with the Nigeria Industrial Revolution Plan (NIRP), which is the main industrial policy document of the current administration. According to him, the NIRP espouses the strategy of resource-based industrialisation.

Yusuf also stressed that the auto policy in its present form is most inappropriate for an economy that is heavily dependent on road transportation and so, should be reviewed.

Whither vehicle

refinancing scheme?

The Federal Government has yet to make good its promise to roll out a vehicle refinancing scheme to enable Nigerians buy cars and other locally manufactured vehicles at affordable rates.

Recall that the former Minister of Industry, Trade & Investment, Dr. Olusegun Aganga, had announced that a vehicle refinancing scheme would allow Nigerians buy vehicles of their choice and pay for them over a period of four years.

He said then that the government was in discussion with both local and international banks to set aside a vehicle refinancing fund that Nigerians can access at not more than 10 per cent interest per annum.

But six years after he wetted the appetite of Nigerians, the scheme is yet to come on stream. And while prospective car owners await its take-off, the cost of new vehicles in Nigeria remains astronomically over and above the sale in their countries of origin.

However, NADDC Director-General Jelani Aliyu recently said the scheme implementation will commence before the end of June. Aliyu, an engineer, who spoke to reporters in Abuja last week, shortly after inspecting the newly introduced Honda HR-V into the market, said the Council had reached an understanding with three banks that would give loans to eligible Nigerians after they must have deposited 10 per cent of the cost of the vehicle.

He said the loans would be provided by the banks to Nigerians at a single digit interest rate of eight per cent. “We are working with three banks to offer vehicle financing and this is the type of vehicle that we hope will be part of that scheme,” Aliyu said.

Heartache over poor

infrastructure

Those who said faulty implementation of the policy was responsible for its poor performance believed that from the onset, the Federal Government put the cart before the horse when it rolled out the policy without a clear roadmap on how to fix the nation’s decrepit infrastructure particularly power.

The thinking is that lack of critical infrastructure, particularly electricity supply remains one of the greatest hurdles before the realisation of the strategic objectives of the auto policy. With power output less than N5, 000 megawatts, the government put the wrong foot forward when it came out with the policy without first addressing this power gap.

According to experts, a steady electricity supply is critical to the operations of any manufacturing entity, including auto manufacturing. Independent generation of electricity by auto companies is believed to have pushed up prices, which are ultimately, borne by end users, thereby eroding part of the gains of setting up the auto plants.

However, the Federal Government recently said its plans to embark on a holistic review of the NAP, noting that this was necessary in order to weed out abuse by assembly plants and ensure that the gains of the policy are felt by Nigerians.

Minister of Finance, Hajia Zainab Ahmed, who made this known, said the auto policy is yet to achieve optimum result and restore the automotive industry for indigenous vehicle production for Nigerians.

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