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Plan to slash vehicle duties continues to rattle auto industry

By Benjamin Alade
04 December 2020   |   4:15 am
The plan by the Federal Government to reduce duties and other levies on certain imported vehicles has continued to receive mixed reactions.

An assembling plant.

The plan by the Federal Government to reduce duties and other levies on certain imported vehicles has continued to receive mixed reactions.

While some argued that it would stifle the local automobile industry and worsen the unemployment crisis, others hailed the idea, saying it would boost the economy.

The controversy comes just as the Federal Government continues to explain that the policy is meant to reduce the impact of the harsh economy on the people.

In the draft 2020 Finance Bill, the Federal Government proposes a reduction in duties on tractors and vehicles for transportation of goods from 35 to 10 per cent while and the duties on vehicles for transportation of persons (cars) were reduced 35 to five per cent.

Vice President Yemi Osinbajo had explained in Abuja at the opening plenary of the 26th Nigeria Economic Summit (NES#26) that the decision to slash duty on imported vehicles was not an attempt by the government to kill the nation’s automobile manufacturing industry but to reduce the cost of transportation in the face of growing economic challenges.

He also argued that with an annual demand of about 720,000 vehicles, as against 14,000 local production capacities, the national need would not be met without importation.

Findings by The Guardian showed that the sale of brand new cars had dwindled drastically with all auto dealerships selling less than 10,000 units of vehicles yearly as against 50,000 units being sold four years ago.

Yearly, the purchasing power of Nigerians reduces even as prices of new vehicles continue to increase.

In a report by Deloitte titled, ‘Nigeria’s automotive industry plans: What exactly are the expectations’ the local assembly of cars in Nigeria could also lead to significant savings in the foreign reserves. In 2012, Nigeria spent about $3.5 billion on car importation.

Data obtained from the National Bureau of Statistics (NBS) shows that Nigeria spent a whooping sum of N1.08 trillion to import used cars (popularly called ‘Tokunbo’) and motorcycles (Okada) in one year (October 2018 – September 2019).

According to the various NBS reports, used cars and motorcycle importation rose from N252.3 billion in the fourth quarter (Q4) of 2018 to N301.8 billion in Q3 2019.

Stakeholders said the current dismal performance of the industry was traceable to the absence of a legal framework in form of a policy to attract Original Equipment Manufacturers (OEMs) into the country.

According to them, the resounding echoes of the need to review the policy to satisfy short-term aspirations will ultimately lead to policy summersault and erode the investments in the industry if proper attention is not given.

To ensure a backward integration through the auto industry, they noted it was important that the industry is dependent on the domestication of car manufacturing in the country.

Besides, they said the policy formulation was well thought of and in line with the stakeholders yearning for the development of the industry through industrialisation.

The Comptroller-General of Customs, Col. Hameed Ali (rtd.), had in 2019 urged the Federal Government to revisit the auto policy, especially the duty charged on used vehicles.

Some of the industry players, who spoke to The Guardian, said the auto policy has literally addressed the shortfall of the new tariff regime and expressly stated that for the policy to materialise, the importation of cars through land borders should be banned.

Marketing Manager, Kia Motors Nigeria, Olawale Jimoh, said the recent move to slash the tariff on imported cars from the initial 35 per cent to five per cent as contained in the 2020 Financial Bill is worrisome and calls for a critical review.

Jimoh said there is no denying the fact the present auto policy wherein the tariff and levy amount to 70 per cent have posed some challenges to the affordability of imported used cars, making the new policy a timely one.

He, however, said rather than giving incentives to auto dealers for importing vehicles, a tariff cut should be extended exclusively to only local plants to make them competitive and provide affordable made-in-Nigeria cars. While we are not averse to the call for a review, the elements of the review must be directed towards industrializing the economy and keeping the local manufacturers competitive in the market.

According to him, the recent trend has been quite worrisome for all investors and major stakeholders in the auto industry and it is a rude shock, owing to the fact that fears were initially allayed that the auto policy will be implemented under this present administration. Regrettably, he said, the fear is gradually becoming a reality with this recent move.

Sadly, he said the trend had always been a vicious cycle and we keep doing the same thing over and over again. Rather than towing the way of our chequered history looking for a quick fix and further deepening our economic crisis thereafter, the government needs to re-evaluate its plans and look for a lasting solution.

According to him, there are no countries that develop its economies being the dumping ground for vehicles but rather a manufacturing economy. “We can’t continue to remain a consuming or a solely importing country; we need to indigenously grow the economy to allow backward integration,” he added.

Jimoh said the revenue that the government is so eager to shore up with the reduction of the tariff on imported used vehicles will only be a short-term amelioration, the government can rather allow the auto policy to thrive and support it with actionable executive orders rather than the lip service approach that had hitherto fraught the implementation of the policy. The industry is capable of proving quite a number of companies along the value chain, which will widen the tax net of the country.

Chief Executive Officer of West Atlantic Cold-Chain and Commodities Limited, Henrii Nwanguma, welcomed the idea, stating that local automakers will be badly hit initially if the government does not respond to it well.

Nwanguma said the government should do all it can to improve the cost of doing business through translating our hydrocarbon assets into the cheapest and available energy for manufacturers; through patronage of locally made in large volumes; through tax incentives, among others.

According to him, private players like Innoson Vehicle Manufacturing Company should grow big and source cheaper funds via public listing possibly in many African jurisdictions.

He said they also need to introduce efficiency in their operations like automation, develop a vehicle financing arm with the cheap funds they will get from listing and from global financial institutions for consumers to buy more and pay over time, improve quality, expand commercial arrangements that drive fleet ownership like the ride-hailing service they just introduced in Enugu.

“I suspect the AfCFTA regime about to kick off in January 2021 is a major reason as a harmonisation of duties and tariffs across all 54 participating countries must occur.”

In his words: “If all duties and tariffs are harmonised, what remains is the efficiency of port operations and the charges, which I’m not sure anyone can control externally.”

“Beyond Customs tariffs, the ball is in the court of the various logistics operators to ensure for in-bound and out-bound cargo. We have aspirations to be a major transportation hub for West- and Central Africa.

“It will not happen by luck but through well thought out and flawlessly executed plans and programmes including creative and transparent subsidies to operators and manufacturers,” he added.

Dean, School of Transport, Lagos State University (LASU), Prof. Samuel Odewumi, said as to the thinking of government, it is the issue of myopic perception of policies.

Odewumi said short-term gains for those in charge today. Once other policy makers with different interests get into positions of authority they reverse existing policy to satisfy their own interests.

According to him, the Tokunbo proportion is very large. “I don’t have exact figures but my estimate will put it at well above 70 per cent. Except for government purchases for their officials and politicians how many honest earners can afford brand new cars.”

He said the argument of Nigeria’s duties being the highest is valid but was there no reason or thinking before fixing it that high. Was it not said it was to encourage local production and provide jobs.

“Are there no more unemployment? Are there no more reasons to promote local production, he queried.

The university don said there is no subsisting transport policy; there has been a draft since three years ago yet to be ratified. The policy draft is already getting obsolete without becoming operational. “If you don’t have a policy, you can only proceed on disjointed incrementalism with costly errors of reviews and reverses as witnessed on the Lagos-Ibadan rail.

“My take is that there must be in place a Transport policy that will guide the sequence of development. Secondly, a local capacity should be encouraged for Transport infrastructure construction and maintenance,” he said.