Industrialising Nigeria through auto industry: A dream in limbo
The automotive industry is celebrated across the world as one of the most important industries. In 2017 alone, the world association of car manufacturers, Organisation Internationale des Constructeurs d’Automobiles (OICA) revealed that about 73.4 million cars and 23.84 million trucks were produced in the world. These vehicles are essential to the global economy and to the wellbeing of the world’s citizens. The average yearly turnover of the world automobile industry for 2017 was more than 2.75 trillion, which corresponds to 3.65 per cent of world Gross Domestic Product (GDP). If the sector were to be a country, its current level of GDP would be the sixth largest economy in the world.
In terms of job creation and multiplier effects on related sectors, OICA statistics showed that building 60 million vehicles would require the employment of about 9 million people directly in making the vehicles and the parts that go into them. The figure is about five per cent of the world’s total manufacturing employment. Indeed, it has been estimated that each direct automotive job supports at least another five indirect jobs in the community, resulting in more than 50 million jobs traceable to the industry. Activities in the sector are also elixirs for related sectors such as steel, iron, aluminum, glass, plastics, glass, carpeting, textiles, computer chips, rubber and the like.
In the United States, industry statistics show that the sector contributes 3.5 per cent to the overall GDP. The sector hires over 1.7 million people directly in designing, engineering, manufacturing, and supplying parts and components to assemble, sell and service new motor vehicles. The sector is estimated to spend $18 billion every year on research and product development – 99 per cent of which is funded by the industry itself.
In 2017, the automotive industry in South Africa contributed 6.9 per cent to GDP. This comprised of 4.4 per cent for manufacturing and 2.5 per cent for retail. Though contribution declined from 7.4 per cent in 2016, the total earnings from South African automotive exports stood at R164.9-billion ($11.7 billion) in 2017, comprising 13.9 per cent of South Africa’s total export earnings. A market research, ‘The Motor Vehicle Industry in South Africa 2018,’ showed that there are over 110 companies active in the manufacture of vehicles and components in the country. These include, importers, retailers, vehicle repair and auto salvage companies such as multinationals like BMW, Ford, Toyota and Volkswagen. It also gave information on recent investments by Mahindra, Isuzu, BAIC, BMW and Nissan.
Development of Nigeria’s Automotive Industry
ORGANISATIONS such as RT Briscoe, Leventis, UAC, SCOA and others started the development of the automotive sector in Nigeria in the 60s through menial establishment of automobile assembly plants using completely knocked down (CKD) or semi knocked down (SKD) parts. In the 1970s, the Federal Government entered the business when it sealed pacts with a number of automotive plants in Europe to set up assembly plants that will build passenger cars, trucks and light commercial vehicles, using completely knocked down parts. Around 1970s -1980s, the FG signed a pact with the European Original Equipment Manufacturers (OEM) and set up two car and four light and heavy assembly plants. The plants were assembling vehicles from Completely Knocked Down (CKD) parts.
The plants included Peugeot Nigeria Limited (PAN), Kaduna; Volkswagen Nigeria Limited (VWON), Lagos; Anambra Motor manufacturing Company (ANAMCO), Enugu; Styer Nigeria LTD, Bauchi; National Truck Manufacturer (NTM), Kano; and Leyland Nigeria LTD, Ibadan. Government privatized the firms in 2007.
In 1982, in a bid to give some boost to the industry, the FG signed a pact with five other international automotive concerns. The intent was to establish Isuzu plant in Maiduguri, Mazda in Umuahia, Mitsubishi in Ilorin, Nissan in Minna, and Peugeot in Gusau. But the plan was only a mirage. By the 1990s, utilisation of the assembly plants dropped to record low of about 10 per cent. What followed was a total collapse of the sector.
Prior to the collapse, the plants reportedly had the capacity to produce 108,000 cars, 56,000 commercial vehicles, 10, 000 tractors, 1,000,000 motorcycles and I, 000, 000 bicycles yearly.
Introduction Of NAIDP And State Of The Sector
NIGERIA is Africa’s largest economy and most populous nation. In 2013, Nigeria reportedly imported vehicles, mainly fairly used, worth $6.2billion. In 2014, passenger vehicles were the second-largest import category in Nigeria after petroleum oils or bituminous minerals. A publication by PricewaterhouseCoopers (PWC) had noted that used vehicles accounted for about 74 per cent of vehicles imported into Nigeria in 2014. Indeed, a survey conducted by Deloitte in 2016 had noted that only 2 per cent of Nigeria’s population was able to afford new vehicles, adding that business owners accounted for 70 per cent of overall purchase of new vehicles.
While remarkable efforts are being witnessed in other African countries, especially South Africa, Egypt and Kenya, the case in Nigeria’s automotive industry has remained elusive. In 2013, when the government introduced the National Automotive Industry Development Plan (NAIDP), the projections were to create an enabling environment for manufacturing of Nigerian-made vehicles, turn the country into an automotive hub capable of exporting vehicles to other West African countries and beyond. The vehicles were expected to be of international standard and be made available to ordinary Nigerians at very competitive prices since local human and material resources would be used.
The FG at the time, led by President Goodluck Jonathan, saw the need to design and implement policies, programmes and strategies for an effective, competitive and diversified private sector, which could boost non-oil revenue. The National Automotive Design and Development Council, the implementing body of the policy was formed by Act no. 83 of 30th May 2014 from the merger of the National Automotive Council and the Centre for Automotive Design and Development as a parastatal of the Federal Ministry of Industry, Trade and Investment.
Through the automotive policy, the federal government noted the importance of the automotive industry in the industrial development of the country. With inputs from the Nigerian Automobile Manufacturers Association (NAMA) and other organisations involved in the industry, the automotive policy for Nigeria was drafted and subsequently received presidential approval. The policy document was formally launched on May 28, 2014 backed by Act No. 6 of 2014.
The aims of the policy were to ensure the survival and growth of the automotive industry using local, human and material resources with a view to enhancing the industry’s contribution to the national economy, especially in the areas of transportation of people and goods.
The basic elements of the objective, among others, were provision of automotive vehicles for urban and human areas; accelerated technological development of the Nigeria economy; increased employment opportunities; conservation of scarce foreign exchange; establishment of integrated Automotive Industry in Nigeria; and standardisation and rationalisation of the Nigeria automotive industry.
Commentators from PWC and Delloite had noted that Nigeria was capable of becoming an automotive hub in Africa. The forecasts made on the backdrop of the automotive policy were premised on the economic outlook, Nigeria’s growing population and projected middle class. A report released by PWC on the sector equally factored growth of ride sharing apps such as Uber, EasyTaxi, GoMyWay and Jekalo, concluding that locally assembled or produced vehicles could hit 6,866,000 units by 2050 in a rapid growth scenario, 4,162,000 in medium or 1,803,000 in slow growth.
The introduction of the NAIDP brought about increased activity in local vehicle assembly. The NADDC had said that about 35 companies have been granted licenses to assemble/produce vehicles; some original equipment manufacturers have been represented, with some already setting up assembly plants operations. However, few years on, the increased number of local vehicle assemblers has yet to translate to meaningful results on the road, national economy, employment, as well as industry development, especially spare-parts, technology transfer, and research and development.
While the Economic Community of West African Nations (ECOWAS) adopted the policy as a priority, the FG, in a bid to make the policy work, hiked tariff for importation of fully built new vehicles, as well as fairly used vehicles and granted waivers for locally assembled vehicles. It also banned the importation of fairly used vehicles through land borders. Currently there is import tax (duty and levy) of 70 per cent on new vehicles, import tax (duty and levy) of 35 per cent on commercial vehicles while that of used cars 35 per cent.
The policy has remained in the eye of the storm since it was introduced. Most stakeholders have been divided, with some insisting that while the intentions of the document was laudable, the mode of implementation would not achieve anything meaningful. Indeed, the fact that the policy exponentially hiked the price of cars by almost 200 per cent led to further criticism.
While stakeholders were struggling to put a face to the policy, the decline in economic activities, visible in real gross domestic product (GDP) contraction of – 2.24 per cent (year-on-year) in the third quarter of 2016, the huge disparity between the Naira and major currencies and the scarcity of foreign exchange plunged the development of the sector to a record low in 2016. The development drastically affected demand for cars as the purchasing power of Nigerians dropped.
Similarly, while most stakeholders regarded the progress in the sector as ‘motion without movement’ and called for full implementation of the policy, others noted that a total review of the policy was necessary, especially as there had yet to be visible effects in terms of employment, contribution to GDP or entire growth of the sector.
However, the NADCC listed some of the achievements of the policy introduction to include, the commencement of work by existing assembling plants including PAN (former Peugeot) in Kaduna, ANAMMCO in Enugu (which produces Shacman Trucks of China) and Leyland-Busan in Ibadan. It further disclosed Innoson Vehicles Manufacturing (IVM) added cars to its commercial vehicle assembly operation just as Nissan, VW, Hyundai, Kia cars and SUV, Shacman, Sino FAW and MAN Trucks and Ashok-Leyland buses were now assembled in Nigeria.
The council equally stated that 12 new companies, including Honda and Century Auto (Toyota), TATA, Coscharis Auto (FORD, Joylong, Dongfeng), Globe Motors (Higer), Leventis (FOTON-Diamler), Kewalram Chanrai (GM, Mitsubishi), Tilad (Shinery), and Aston have been given bona-fide manufacturing status and were on track to start assembly operations.
NADCC stated that over N12billion soft loans had been provided to 35 companies in collaboration with the Bank of Industry to revamp activities of vehicle and motorcycle assembly plants, adding that the manufacture of tyres, brake pads, batteries, filters, plastic and rubber parts, paints and the like were also supported.
For the Director-General, NADDC, Mr. Jelani Aliyu, it may not be totally correct to say there was lull in the automotive industry as total of nine auto manufacturing companies are currently assembling vehicles in the country.
Aliyu, however, stressed that to give impetus to the industry, the Automotive Industry Development Bill, which was passed by the eighth National Assembly and is awaiting the assent of President Muhammadu Buhari, ought to become law. Aliyu said: “As you are aware, the auto policy is a set of fiscal incentives that are designed to boost production. The big question is, are we after short-term benefits? The only way we can ensure that this country continues to be a successful nation is to provide industrialisation and provide jobs. The only way we can provide jobs is to boost industries and support those local and international investors coming into Nigeria to produce.”
Last week, renowned French automobile brand, Renault, which was formerly distributed by CFAO group and later Dana Motors, returned to the country through a pact with Coscharis Motors Plc, one of the subsidiaries of the Coscharis Group.
Assemblage Licenses Without Meaningful Value
WHILE the NADDC and some stakeholders are celebrating number of licenses that have been offered and plants that were set up, some industry experts said that most of the plants being talked about were the worst globally and may not add any value to the nation’s economy.
A Senior Lecturer at the Covenant University, Ota, and automotive communication consultant, Oscar Odiboh, said Nigerian auto assemblers are running glorified manufacturing plants, adding that most of the assembly plants set up in the country lack the standard to compete globally, and could hardly be called assembly plants. Odiboh said, “What we have at the moment are not real assembly plants, they are glorified joineries. About 65 per cent of our assembly operations are manual, while 70 per cent of employees are casual.
Former Managing Director, Peugeot Automobile Nigeria (PAN) Ltd., Ibrahim Boyi also gave an indication that all is not well in terms of backward integration, which would have created value for the country. He added that most of what was currently happening in the sector were still at the basic level.“Many auto companies, without meeting the criteria for investments and standard development of auto plants, have been granted licenses as bonafide manufacturers, enjoying concessions and incentives under the policy, to the disadvantage of companies that actually made investments and own proper auto plants,” he said.
Boyi, who was vice president of NAMA, said that at semi knockdown level, very little value would be added to the development of the sector, especially in the areas of components and skill. He said: “It is the basic level of assembly, at which all the vehicles would have been completed abroad, but then dismantled minimally and shipped for reassembly in Nigeria. There is no room for any local component addition.
“Unfortunately, under the NAIDP, no clear rules exist for such mandatory migration from semi knock down to complete knock down. Auto companies are happy to set up semi knockdown plants and enjoy all the incentives and concessions provided, at the expense of the development and deepening of Nigeria’s automotive sector.”
The challenges highlighted by the experts are direct opposites of the objectives set at the inception of the policy. If the 10-year plan were to be properly implemented, most of the assembly plants were expected to have moved to complete knockdown stage where they would add value to the sector by growing local content and increasing employment figures.
Bleak economic outlook worsening growth
NIGERIA’S economic outlook has remained bleak after surviving recession and shock from the sharp decline in commodity prices. The development and indeed, the current administration’s supposed fight against luxury, anti-corruption as well as the CBN policies have reportedly affected the sector. While selling about 50,000 units of brand new vehicles in Nigeria in 2013, automobile distributors recorded decline to less than 10, 000 units sold in 2018. And there are yet indications that the situation could worsen due to uncertainty over the status of the Nigerian Automotive Industry Development Plan Bill.
Similarly, the Nigerian Ports Statistics from 2012 to 2017 revealed that importation of vehicles to Nigeria declined drastically, with only 1,216,131 used and new vehicles imported into the country from 2012 to 2017. Vehicles came through Apapa, Tin Can, Onne, Calabar and Delta ports. The report added that vehicle importation into the country has been on a downward spiral from 2013.
A visit to most of the plants also revealed that some were operating at 95 per cent below installed capacity. Shrinking sales, caused by lack of vehicle finance schemes and the state of the economy, the inability to access foreign exchange, and harsh operating environment combined to lead investors to the edge of exiting the country or changing their business portfolio, stakeholders said.
Former Chairman of the Auto and Allied sector group of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Oseme Oigiagbe, believes that the economic realities adversely affected the growth of the sector.
“The automotive sector is down. The monetary policy of CBN and the fall in the value of naira have made the price of cars go up by over 200 per cent. The economy is very bad and because of that, consumers have less money to spend,” Maryann Chukwueke, who returned to Germaine Auto Centre Limited as Vice President, said.
Between Customs, Finance Ministry and Automotive Sector
UNDER the current policy, commercial vehicles would attract 35 per cent duty without a levy while cars are to attract 35 per cent levy charged on the fully built units (FBU). Fully built new vehicle attracts 35 per cent import duty and 35 per cent levy. Meanwhile, there is zero percent incentives, five per cent, and 10 per cent respectively to assembly plants, who imported completely knocked down parts (CKD), semi knocked down parts I (SKDI) and semi-knocked down parts II (SKDII) for assemblage.
There has been a running battle over revenues generation for government and the growth of the automotive sector. The Customs office and the Ministry of Finance had maintained that the introduction of the automotive policy remained a critical challenge, especially the waivers granted to local assemblers. But some stakeholders noted that the waiver is being abused. The Managing Director, VON Automobile Nigeria Limited and Chairman, NAMA, Tokunbo Aromolaran, noted that though the Federal Government had a long-term view of developing the auto sector, the Ministry of Finance and the Customs don’t see the same long-term vision.
“They see just a short term revenue scope, and that is why we get complaints like, ‘Oh the budget of customs this year is not going to be achieved because you have given these guys lower tariffs.’ They are not seeing what we expect to add to the GDP of this country by local production. So, they put everything possible in the way to hinder the growth of this industry.
“Our goods stay in the ports for two to three months and they won’t allow them out because we are enjoying special rate of duties, as conferred by the Auto Policy. In the end, what we don’t pay in duty, we pay in demurrage – because at the end of the day, they don’t want to understand why your goods were delayed. This is because one arm of the government cannot listen to the other or understand that all of this is about moving the nation forward,” Aromolaran said.
Effects Of Smuggling
As part of attempt to encourage local producers, the Federal Government raised tariff for used cars to 35 per cent, with a plan to further add 35 per cent so as to discourage people from patronising fairly used cars. Most stakeholders insist that the import of cheap fairly used cars remain a critical threat to the growth of the local automotive sector.
Since most of the vehicles come into the country through land borders or are smuggled, the Federal Government placed an outright ban on importation of all types of vehicles into the country through the land borders in 2016. Aromolaran however noted that the industry is still suffering because the smugglers bring in vehicles without paying any duties while the government still wants cars to be cheap. “We have said it several times that if we can double our production, we are in a position to produce cars whose prices would be able to compete with these second hand cars,” he said.
Single Digit Loans For Car Buyers
AT inception of the auto policy, government had entered discussion with investment bankers from South Africa to provide credit schemes that would enable Nigerians buy brand new vehicles but the discussion has remained as elusive as the policy. Just recently, Aliyu disclosed that the FG opened talks with three banks in Nigeria to facilitate the establishment of single-digit interest loans for buyers of new vehicles being assembled in Nigeria. The banks include Wema Bank, Jaiz Bank and Stanbic IBTC Bank. Though most auto dealers had introduced finance schemes in the past, the interest remained discouraging despite the fact that the scheme captures a very limited class of the society.
Chukwueke noted that the lack of credit facilities remained worrisome, stressing that unless a single digit interest rate was introduce, driving volume and attracting investors, especially spare parts manufacturers, would remain elusive.
Other Challenges And Possible Solutions
In a bid to boost investor confidence, the automotive bill was introduced and has been passed by the National Assembly. While awaiting presidential assent, most stakeholders believe that the bill if passed would transform the automotive industry and attract foreign direct investment in auto businesses and allied sectors.
But stakeholders harp on the need to address the nation’s harsh business environment and infrastructural challenges. Boyi noted that policy prescriptions to activate market and demand for new automobiles, such as the vehicle acquisition finance, government patronage and control of smuggled vehicles, have not been implemented, stressing that the development adversely affect the new vehicle market in favour of used vehicles.
The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, also asked government to review the policy, especially with a view to reducing the import tax. He canvassed for the tax (duty and levy) of 70 per cent on new vehicles to be reduced to 35, import tax (duty and levy) of 35 per cent on commercial vehicles downwards to 25 per cent, while that of used cars should be reviewed from current 35 per cent to 25 per cent.
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