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Investors split on duty cut for imported vehicles

By Femi Adekoya, Adaku Onyenucheya (Lagos) and Kingsley Jeremiah (Abuja)
30 November 2020   |   4:30 am
The proposed policy in the 2020 Finance Bill that seeks to slash duties and levies on imported vehicles has raised conflict of opinions among investors.

• Customs agents, freight forwarders, NECA, others hail plan
• It’ll kill local industry, job, says LCCI, others

The proposed policy in the 2020 Finance Bill that seeks to slash duties and levies on imported vehicles has raised conflict of opinions among investors.

While some argue it will stifle local automobile industry and worsen unemployment crisis, others hail the idea, saying it will boost the economy.

The controversy came just as the Federal Government tried to push the policy by explaining that it was meant to cushion harsh socio-economic situation in the country.

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

Vice President Yemi Osinbajo had explained in Abuja last Monday 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 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, the national need would not be met if vehicles were not imported.

The new policy, according to him, does not mean that the government has jettisoned its commitment to boosting local production. Also, Minister of Finance, Budget, and National Planning, Zainab Ahmed, had told journalists that the reduction in import duties and levies would lead to reduction in transportation cost. 

“The reason for us is to reduce the cost of transportation which is a major driver of inflation, especially food production,” she had explained.
The Director-General, National Automotive Design and Development Council, Jelani Aliyu, who had last year hinted that about nine automotive manufacturing companies were assembling vehicles in Nigeria, did not respond to phone calls and messages from The Guardian on the new development. Aliyu had listed the companies as Peugeot Automobile Nigeria, Nissan Motors, Honda Motors, Innoson Vehicle Manufacturing Company, Hyundai Motor Company, Ford Motor Company, GIC Motor Companies Ltd, JAC Motors and Kia Motors.   

A number companies equally assemble trucks, including Dangote, while Bua had recently indicated interest in the industry. A Memorandum of Understanding was reportedly signed with Volkswagen and over 21 companies were said to have been licensed to build vehicles in the country.  

Before Nigeria shut its borders, there had been outcry against the increasing rate of smuggled vehicles into the country due to the high import levy and tariff.  Comptroller-General of the Nigeria Customs Service, Hameed Ali, had at some point noted that the 35 per cent levy discouraged importers and created opportunities for neighbouring countries. 

THOUGH some operators in the Nigerian automotive industry and experts have raised concerns about amendments to some aspects of the policy — especially as it relates to levies — some members of the organised private sector believe the decision may spur growth and competition.

With the coming into force of the implementation of the African Continental Free Trade Area (AfCFTA) Agreement by January 1, 2021, the stakeholders cited the imperative for the country to streamline its tariff lines, in compliance with the protocol.

The rise in duty and depreciation in value of naira drove prices of new cars far above the purchasing power of the fast diminishing middle-income earners.

Automobile dealers also witnessed a significant decline in sales volume due to higher landing cost of imported vehicles, which has been further amplified by higher tariffs.

Nigeria recorded a total sum of N1.28 trillion as the value of “used vehicles” (popularly known as Tokunbo) and motorcycles imported in one year (Q3 2019 – Q2 2020), compared to N899 billion recorded in the corresponding period (Q3 2018 – Q2 2019), implying an increase of 42%. This is according to data obtained from various foreign trade reports released by the National Bureau of Statistics (NBS).

The surge in importation of used vehicles and motorcycle has been significantly driven by e-hailing car and bike services, one of the two fastest-growing businesses in Nigeria, due to rising urbanisation, growing youth population, surging number of internet and smartphone users and increased investment.

In November 2013, the Federal Government had announced the introduction of a new automotive policy, which was geared towards discouraging the importation of wholly assembled automobiles and encouraging local manufacturing.

Specifically, the policy allows local assembly plants to import completely-knocked-down vehicles at zero per cent duty, and semi-knocked-down vehicles at 5 per cent duty, while importers pay a 70 per cent duty on new and previously-owned vehicles.

The policy’s main thrust was to encourage local car production/assembly plants while cutting importation through raising import duties.
Seven years after, the policies have failed to achieve the desired outcomes, as Nigeria’s domestic vehicle production capacity remains under-utilised. The economic slump that the country suffered shortly after the automotive policy was introduced hindered resuscitation of the industry.

At about N160 to the dollar in 2013 and presently almost N500, stakeholders note that the auto sector’s woes have been complicated by the slow backward integration exercise.

Minister of Industry, Trade and Investment, Adeniyi Adebayo, had, at the year’s general meeting of the Manufacturers Association of Nigeria (MAN), announced plans for a fresh start for the auto industry.

According to the minister, the bill prepared by the former administration was not received at the National Assembly; hence the plan to engage all stakeholders in the industry to get it right this time round.

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

“We have decided to engage all stakeholders in the industry. It is like starting afresh and getting it right. The last one that was done was not done well. We have to get it right this time. We are going to engage all the stakeholders, and in the next couple of weeks, I will be visiting all the assembly plants,” he had said.

AMONG those that have expressed support for the move to reduce charges on imported vehicles is the National President of the Association of Nigerian Licensed Customs Agents (ANLCA), Tony Nwabunike. He stated that the reduction in levies clearly showed government had the welfare of masses at heart. Arguing along the line of the Federal Government, Nwabunike said Nigeria did not have the capacity to manufacture cars to meet local demand.

He observed that, although Innosson had worked hard to get it right, other local assemblers had not shown similar acumen. Describing the move by Federal Government as good, he said the masses would benefit from more importation of vehicles.

“The local manufacturers or assemblers cannot meet the demands of the masses, they shouldn’t bother much about it,” he said. Similarly, the Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, welcomed the idea. He said current high tariff had resulted in massive smuggling of vehicles and loss of revenue to government, making auto dealers that complied to suffer over the years because they could not compete with car smugglers.

He, however, advised policymakers to be cautious not to jeopardise existing investments in the auto assembly sector. He added that the tariff concessions given to importers of vehicles should be extended to the auto assembly firms in the country.

The National Coordinator of Save Nigeria Freight Forwarders, Importers and Exporters Coalition (SNIFFIEC), Dr. Osita Chukwu, also applauded the move. He said importation of good cars would reduce cost of transportation towards overcoming economic recession. He urged government to make the plan a reality by ensuring its passage and transmission to relevant agencies for implementation. Local manufacturers, he said, should not be threatened by the proposal since it was only meant to complement their effort.

“How many cars can our local automobile companies produce? Nigeria is 200 million in population and let’s assume that 80 million use cars, how many can our local companies produce and how many people can afford those cars?

“The least car is sold about N5 million, who can buy that car? Some people are buying fairly used imported cars for N1.5 million. If the cars coming from outside are cheaper, then we will use them.”

In a chat with The Guardian, the Director-General of the Nigeria Employers’ Consultative Association (NECA), Dr. Timothy Olawale, also applauded the policy direction, even as he expressed optimism that the fiscal measure, among others, was in tandem with NECA’s advocacy campaign and would stimulate aggregate demand, boost agricultural value chain and reduce transportation/haulage cost.

Nevertheless, he noted that as an emerging economy, with huge potential of becoming an epicentre of industrialisation and technology hub, there is need to ensure survival of the automotive industry, which is believed could play strategic and catalytic role in economic development by creating massive employment in the value chain and contribute to the GDP growth tremendously.

Olawale then called for the review of the National Automobile Development Bill, which was earlier passed by the 8th Assembly but declined accent by the President, citing the need for critical stakeholders’ re-consideration.

“We believe it is apt for this current National Assembly to give life to the actualisation of the multiplier impact inherent in the Bill for immediate passage. If passed into law, it will lead to the creation of more decent jobs, stimulation of the value chain, diversification of the economy, provision of affordable vehicles for average Nigerians and promotion of foreign direct investment in the country, as well as significant savings in the foreign reserves,” he said.

He advocated use of high-level technology in policing the country’s borders and improved monitoring by incorporating a national automotive repository portal, which should serve as Vehicle Identification Number (VIN) for all duly imported and locally assembled vehicles.

A stakeholder, Maryann Chukwueke, noted that the development would reduce prices of vehicles, which went up due to the extant policy. According her, cars are currently not being manufactured in the country because the operating environment is not ripe to attract original manufacturing companies.   

“If the volume of business goes up, that will help expand the economy. It will spur other businesses linked to the automobile industry, for example the forwarding and clearing business, oil and gas and others. With the development, 2021 may be a good year for the automotive industry despite all the issues that the pandemic has caused. We are looking for more from government to enable entrepreneurs to come up so that the country can come out of recession,” Chukwueke said. 

BUT faulting the policy, the National President, African Association of Professional Freight Forwarders and Logistics of Nigeria (APFFLON), Frank Ogunojemite, said Federal Government erred by not also not extending same gesture to ambulances and other essential medical equipment, which would boost health services in the country, especially in the face of the COVID-I9 pandemic

He also doubted the sincerity of government, saying: “Let’s see if this reduction will take place because I believe it won’t. Let us face reality rather than fallacy, when will the policy take effect? It is impossible for government to waive duty on those vehicles. I do not see reality in this.”

He also feared the policy would harm the ailing local automobile industry, thereby creating more unemployment problems due to lower activities by automobile plants.

“The government should try to emphasise how to develop the general economy of the country, not just to wake up one day and make some laws. If government wants to reduce duties on some vehicles, they should take care of indigenous manufacturers and motor dealers who have imported their goods into the country at exorbitant costs, otherwise their businesses will collapse.

The Manager, Client Services, Inspired Cars, Iwayeye Olatunji, also expressed fear that the policy might adversely affect local automobile manufacturers and car assemblers if steps were not taken to protect them.

To prevent this, he urged government to provide incentive, tax rebate and reduce tariff for local automobile manufacturers and assemblers.
“A lot of what local car dealers assemble is still brought from outside the country. There is this high demand for foreign exchange. The black market rate is up and how many of them can access it on time. All these things have to do with getting what you need for your business on time,” he said.

Similarly, the National Deputy President, Air Logistics, National Association of Government Approved Freight Forwarders, Segun Musa, urged government to encourage indigenous car assemblers and manufacturers by creating an enabling environment for them through “tax rebate aside duty incentives, to improve on the quality of locally manufactured vehicles and to make them competitive.”

He argued that although indigenous automobile companies could not satisfy local consumption, they were only few per cent below demand.

“We also need to acknowledged the fact that the problem of automobile manufacturing is not only tax, but the source of money required in the manufacturing sector.”

He urged government to facilitate low-interest loans for local firms as done in other climes. Another industry player, Tony Arenyeka, told The Guardian the lack of trust, policy summersault and government’s refusal to assent to the automotive bill discouraged original manufacturers from the country. He also accused government of defending the immediate gains it would make at the port against the long-term gains from building a sustainable automotive industry. 

Arenyeka claimed industry players were not carried along in taking the decision and might be disregarded by the ministry of trade, industry and investment, which should have given such a directive. 

“The government has not taken this decision with the viewpoint of industry development. That has been the issue. The decision is being taken without other industry considerations. That underlines why the President has not signed the auto policy for the past five years. 

“The global players do not believe in the industry. There must be an industry focus support from the government. All that is going on currently is because they are losing money at the port, they are not minding those who have invested. All the stakeholders were supposed to meet at a roundtable before this decision is reached,” he said. 

Former chairman of the Auto and Allied sector group of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Oseme Oigiagbe, noted that the development would increase pressure on foreign exchange as importers would require more forex for vehicle and spare parts import. 

He argued that with a weakened purchasing power and economic realities, increasing demand for vehicles may remain elusive, a development, which could mean double jeopardy for the economy. 

Oigiagbe noted that the reduction would lead to unhealthy competition capable of killing the progress already recorded on the local plants. 

“The exchange rate problem will worsen. There will be pressure on the exchange rate as people try to import vehicles. There are a lot of other situations that the environment will face by the change in policy. It is not likely that the volume of new vehicles will increase in the market because of other prevailing challenges,” he said.