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AUTO industry begging a tow

When the Federal Government announced a new auto policy for the country in 2013 and began its implementation in 2014, many Nigerians saw it as the way forward in solving the problem of high cost of new automobiles in the country. However, three years down the line, Nigerians are yet to feel the benefits of the policy. Rather than bring down the prices of new vehicles, the prices have sky-rocketed beyond the reach of the fast-fading middle class.

•A Ford auto assembly plant…confusing auto policy stifling development in the sector

THE much-talked about Federal Government’s new auto policy was initially welcomed by most automobile manufacturers because they thought it would serve to prevent the country from becoming a dumping ground for used cars from abroad.
But the reality currently is that the enthusiasm that greeted the policy is gradually fading as most automobile manufacturers are already feeling disenchanted, even convinced that the policy might not work afterall. This is apparently due to perceived government’s inability to provide the enabling environment for the successful implementation of the policy.
Frequently cited as pitfalls associated with the policy are access to foreign exchange, non-availability of finance for prospective buyers of new cars at low interest rates and non-provision of infrastructure for the assembly plants, among others. It should be recalled that shortly after the introduction of the policy, Nissan Motor Company was the first to grab the opportunity as it entered into alliance with Stallion Motors to set up a plant in Nigeria at the old Volkswagen of Nigeria premises along the Lagos-Badagry expressway.
Nissan dumped its former partner in Nigeria, CFAO Motors (Alliance Autos) as a way of demonstrating its commitment towards taking a huge chunk of the Nigerian auto market share being controlled by Toyota.
Infrastructure for the assembly plant
It immediately announced the setting up of Nissan plant and rolled out the first set of Nissan Patrol SUVs from the assembly line a year later. The company had high expectations that, given the Nigerian population and its position in sub-Sahara Africa, there would be huge business potentials for its products which cut across various kinds of automobiles, including Sedans, Sport Utility Vehicles and a wide range of commercial vehicles.
Other automobile manufacturers such as Hyundai, Volkswagen, Honda, Ashok Leyland, represented by the Stallion Group, Ford, Kia and some other Chinese makers, joined in setting up plants. But few of the automakers who really understood Nigeria and how seriously it takes its policies were cautious, and decided to watch and study how the policy will fare. General Motors and Mercedes Benz which left the country due to poor patronage of their locally assembled products in the past were among companies that decided to watch as things unfolded while Toyota Nigeria Limited decided to toe the same line. Even Ford which set up a plant in Lagos made it clear that the plant was purely by their dealer in Nigeria, Coscharis Motors, which was part of the reason their other dealer, Briscoe Ford, left the dealership.
No doubt, the fear of the automakers was that the policy was yet to be made a law by the National Assembly and could be jettisoned like the others in the past. From the look of things, it seems that their fears may have materialised with the slow pace of progress being recorded by the policy in the last three years. According to the policy, Fully Built Units, FBU, cars attract a duty of 35 per cent and another 35 per cent levy, making it a total of 70 per cent duty for them to bring in a fully built brand new car. Also FBU commercial vehicles attracted 35 per cent duty without levy.
Further clarifications made by the then Minister of Finance, Dr. Ngozi Okonjo-Iweala, on the policy were that local assembly plants would import their Completely Knocked Down, CKD, at zero per cent duty while Semi Knock Down ones, SKD, would be imported at five per cent duty.
The minister further stated that assembly plants shall import FBU cars at 35 per cent duty and 20 per cent duty for commercial vehicles without levy in numbers equal to twice their imported CKD/SKD kits, adding that the above measures were to create an environment to support existing assembly plants and attract other Original Equipment Manufacturers, OEM, who have expressed interest in Nigeria.
Completely Knocked Down
The tyre sector was not left out as the policy harmonised the 20 per cent duty and five per cent VAT payment on car, lorry and bus tyres while importation of machinery and equipment for tyre production attracted no duty. Up to this moment, however, no tyre company has set up a plant in Nigeria because of the fear of what happened to Michelin and Dunlop in the past. The policy gave pioneer status to all tyre plants and local tyre manufacturing plants were to import tyres at five per cent duty in number equal to twice their production for two years from the date of commencement of production.
As soon as the pronouncement was made by the government, many auto companies swung into action. Within a space of one year, no less than 30 companies were licenced by the National Automotive Design and Development Council, NADDC, to set up plants. They wanted to take advantage of the policy which permits them to produce one and import the same number at 35 per cent duty. But while they were setting up these plants foreign exchange scarcity and further devaluation of the naira hit the industry like a Tsunami.
While most of the companies could not source forex to bring in equipment for their plants, those that started production earlier and imported huge chunk of vehicles could not sell what they had produced and imported during the period because of recession. It has become very difficult for companies to reflect, or even private individuals as the average price of the smallest car in the Nigerian market at the moment such as the Kia Picanto goes for as much as N5 million.
Even those that had assembled cars in their Nigerian plants cannot sell them because the purchasing power to do so is no longer available. The only option left seems to be bank finance which is difficult to come by as the banks are not even able to do so because of the current recession.
One would be glad to get an interest rate as low as 25 per cent with other hidden charges. Even an earlier plan by the NADDC to bring in a South African bank, Rank Bank to handle the auto finance in Nigeria at a low interest rate has not yet materialised many months after they started discussions with the bank.
Purchasing power
As a result of this, many stakeholders in the autmobile sector have expressed fears that the policy might fail again and spell doom for the country’s transportation industry given the importance of the sector. It is a known fact that there is hardly any country in the world that is doing well economically that has no thriving automobile sector. The few examples include the United States, Britain, France, Japan, Germany, South Korea and lately China. These countries boast solid automobile sectors. In Africa, South Africa is doing well with its auto sector which is the second highest employer of labour in the country.
Speaking on how bad the policy had fared, the Chairman of the Auto and Allied sector group of the Lagos Chamber of Commerce and Industry, Dr. Oseme Oigiagbe, stated that the implementation of the policy has been more of ‘motion without movement’, blaming the slow progress on lack of auto finance and other factors. “The implementation of the policy has been more of motion without movement. Vehicle finance scheme programme with consortium finance group led by Rank Bank would have sparked up the consumer demand and eased the vehicle acquisition opportunities, but it is yet to take off,” Oigiagbe stated at the Nigeria Transport Awards and Lecture in Lagos recently.
He blamed the implementation of the policy on poor infrastructure, high interest rate as well as poor regulatory concern, adding that the local component manufacturers seem to be in a dilemma and unable to rise to the occasion. He warned that “until the auto industry is made a priority of government and a special purpose vehicle is set up to drive its development agenda, the value chain potentials of auto sector may remain unexploited”.
He further noted that a vibrant local auto industry will boost manufacturing activities in the country, develop the industry as a key contributor to the GDP and create many jobs. He listed other benefits to be derived from a vibrant industry to include conservation of scarce foreign exchange, development of local skills and competency for production and after sales and acceleration of technological development and technology acquisition.
According to him, other benefits are establishment of integrated automotive industry in Nigeria, provision of clusters, standardisation and rationalisation of the Nigeria automotive industry, increased private sector participation in the establishment of auto industry and creating conducive operational environment through the introduction of appropriate fiscal policy and monetary incentives.
The implementation of the policy can so far be described as partial, resulting in regrets and lamentations from automobile companies that have invested heavily by setting up plants using borrowed funds from banks and other sources.
At a quarterly media meeting with Mr. Kunle Ade Ojo, Managing Director of Toyota Nigeria Limited recently, he noted the prevailing frustration among most players in the industry. According to him, sales figure of vehicles in the first quarter of 2017 stands at an all time low of 2000 vehicles compared to 5500 units sold within the same period last year.

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