Its back

A policy designed to develop local capacity in vehicle manufacturing impacts stakeholders differently, writes OBODO EJIRO.

“This government has made business bad for us,” says Billy Kanayo, a used-car dealer at the Berger area of Lagos State. “Tell me, where are the cars government claims are being assembled in Nigeria?”

“Does Olusegun Agangan, Minister of Trade and Investment, drive in such cars,” another dealer who pleaded anonymity asks, as he laments the impact of the new National Automotive Policy (NAP) of the Federal Government on his business.

The used-car dealers of Berger are not alone, as this is the standard response of dealers across the country to the new automotive policy which is being implemented to revamp vehicle manufacturing in Nigeria.

The policy imposed a new import duty on fully build units passenger cars of between 20 and 35 per cent while a 10 per cent flat rate was imposed on commercial vehicles but this was jacked up to 70 per cent and 30 per cent for passenger vehicles and commercial vehicles respectively. This has imposed higher prices on imported cars and decline in business for dealers.  

But few know that the policy is not a direct child of the Goodluck Jonathan administration. It was initially considered (and implementation started) in the 1990s.

Back to the future

“Government recognized the importance and basic role of the automotive industry in the industrial development of Nigeria. [It therefore started the process of revamping the automobile industry] by resuscitating the Standing Technical Committee (STC) on National Automotive industry (NAI)” in 1990,” states the National Automotive Council of Nigeria (NAC), a parastatal of the Ministry of Trade and Investment, on its website.

The Standing Technical Committee (STC) on National Automotive Industry (NAI) with inputs from the Nigerian Automobile Manufacturers Association (NAMA), and other organizations involved with the industry drafted the new automotive policy for Nigeria.

Presidential approval was given in 1992. The policy was also endorsed by the transitional council of 1993. The policy provided for the establishment of the National Automotive Council of Nigeria (NAC) as a parastatal of the Federal Ministry of Industry and Act No. 84 of August, 1993 backed the establishment of the NAC.

Motivated by what changes in fiscal policy achieved in local cement and sugar production, the federal government decided to replicate that success by implementing policies that it believed would boost local vehicle manufacturing.

The stated target of the National Automotive Policy is to develop industrial infrastructure and local skills/capability in vehicle manufacturing, promote investment promotion and establish a national vehicle purchase scheme that would empower ordinary Nigerians to buy the made in Nigeria vehicles. Steps have been taking to achieve these goals.

Some of the existing auto-clusters are already being revamped and plans to construct new ones are being finalized. The plan is that the three existing auto-clusters in Nigeria, Lagos-Ogun-Oyo, Kaduna-Kano and Enugu-Anambra, will serve as established zones around which NAC will facilitate more investments by international Original Equipment Manufacturers (OEMs).  The NAC is in discussions with some state governments to facilitate other auto clusters.

To develop skills and local capacity, the Industrial Training Fund (ITF) is working with SENAI of Brazil to design auto training centres similar to what exists in Brazil. These will operate in existing auto clusters. They will not only train Nigerians to maintain and service vehicles, but also teach them to manufacture spare parts.

On the demand side, there are plans to set up an asset management company that will provide loans and finance for Nigerians so they can buy the vehicles.

Mr. Aganga believes that Nigeria is on the right track. “Nigeria spends $6bn yearly importing cars,” he declares and “this policy will help to save some of those funds as well as create higher quality jobs for locals, better than just selling used cars.” Apart from this, he says that the vehicle finance scheme will guarantee a four-year car loans at moderate interest rates.

At a meeting with vehicle manufacturers, dealers and licensed customs agents recently, he told participants that ten more auto plants have finalized plans to begin operations in Nigeria before year end, 2015. While Mr. Aminu Jalal, Director-General, National Automobile Council says “at least 12 automobile manufacturing firms have indicated interest in setting up vehicle assembly plants in Nigeria.

For a start, the old assembly plants such as those of Leyland and Leventis Motors are being revived. But Nissan has commenced the roll-out of the Patrol sport utility vehicle in Lagos. Three new auto assembly plants, including Hyundai have commenced operation. In spite of this, there are deep concerns about the chances of success of the new policy.

Echoes of a bleak past

This is not the first time Nigeria has poured out maps which were designed to lead to a vehicle manufacturing Eldorado. In the 1970s, a partnership between the Nigerian government and foreign companies led to the establishment of six assembly plants scattered across the country: Peugeot Automobile Nigeria Limited (PAN) in Kaduna, Volkswagen of Nigeria Limited (VWON) in Lagos, Anambra Motor Manufacturing Limited (ANAMCO) in Emene, Enugu, Steyr Nigeria Limited in Bauchi, National Truck Manufacturing Limited in Kano for Fiat, and Leyland Nigeria Limited in Ibadan.

All of them collapsed for reasons ranging from lack of effective demand and raw materials and inability to keep up with changing technology. Those who criticize the new policy wonder what has changed between then and now.

A group which has posted anonymous advertorials in national dallies has identified such problems as the poor state of electric supply in the country, low level of technological knowhow among locals, poverty, and the speed with which automobile technology has evolved in the last decade as possible factors that will inevitably torpedo the new policy.

The group is not alone in its criticism, the National President of the Association of Nigerian Licensed Customs Agents (ANLCA), Prince Olayiwola Shittu, says the policy is negatively affecting members of his association. His members have had fewer cars to clear and this has adversely affected their income.

“We have always been critical of this automotive policy and we have not changed our position.

By the time April comes and the 35 percent levy is added, it will be a problem because there will be no cargo through here, our people will lose jobs and we will lose the whole revenue he said.

But those pushing the policy are not deterred. They have gone ahead to implement fiscal measures to support it, vowed to check smuggling, made commitment to policy consistency and are promoting investment activities.

Many believe that if the government does the right things, the policy may well be a step in the right direction.

The benefit of doubt

“The new policy will open a window of opportunities for leasing to increase its penetration and significance in the automotive industry…” the Equipment Leasing Association of Nigeria (ELAN) says in a communiqué released after a session held to discuss the impact of the new policy on its business. ELAN adds that “[though the policy] may as well present some challenges; the automotive industry is of immense strategic importance to the economy, creating employment and overall development.”

Also, while speaking to BusinessDay on a different subject, the Managing Director of Nigeria Fonderies Limited, Vassily Barberopoulos, remarked that “if the policy is taken seriously by all stakeholders, it could work. It’s great that they have started by bringing in knocked down part for reassembling, who knows, with time, they may begin to manufacture small part locally”. He however cautioned that no significant progress can be made if the steel industry is not developed.

The sequence of implementation of the whole gamut of changes (which are to guarantee the success of the policy) will span a period of 11 years.

Between 2013 and 2015 the plan is to create an environment to allow existing assembly plants to survive and attract other OEMs like Nissan, Renault, GM and Toyota who expressed interest in Nigeria.

Between 2016 and 2016, the government plans to enhance the operating environment for vehicle manufactures so as to allow existing assembly plants grow and continue to attract other OEMs. In particular, local content suppliers will be encouraged within the period. While between 2019 and 2024, more incentives will be given to institutes to deepen local content.

The negative impact on small businesses of the implementation of the first stage of the policy was instantaneous. Vehicle prices went out the roof, the number of cars imported was “reduced by half,” (according Mr. Asconio Rosso, Managing Director of Port and Terminal Multiservices Limited in Lagos). That is what affected the businesses of used car dealers like Mr. Kanayo and his colleagues at Berger.

“In the past one year,” says Mr. Kanayo, who has been in business for 18 years, “the number of cars we have sold reduced compared to other years, and we now need more capital to run our businesses. These days, customers prefer to buy from Benin Republic just to cut cost, it’s President Jonathan’s fault,” he concludes.

But the logic that underlies the policy assumes that in the long run jobs of higher quality and skills will be generated through the new policy.  Therefore the immediate impact of the changes in tariffs would be more than compensated by the manufacturing environment which the policy will inevitably create.

It has been estimated that at full capacity, the Nigerian automotive industry has the potential to create 70,000 skilled and semi skilled jobs along with 210,000 indirect jobs in the SMEs that will supply the assembly plants, 490, 000 other jobs would also be created in the raw materials supply industries.

Considering the high number of vehicles brought into the country annually, if locals stick to what is made locally, made in Nigerian vehicles will not lack patronage. In the nine months between January and September 2012, the Nigerian Automobile Manufacturers Association announced that Nigerians imported 96,629 vehicles, 22,192 of which new while 74,437 vehicles were used.

Undoubtedly, Nigeria is the biggest market for used and new automobiles in Africa. But recent data show that the number of vehicle brought into the country reduced by 20% in early, 2015. But the other major effects of the new vehicle policy may not be known in the interim.