• Sunday, February 25, 2024
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BusinessDay

Nigerians steer away from cars on tariff hike, FX scarcity

Prices of cars in Nigeria

Babatunde Akeem is a 42-year-old cab driver who has been in the ride-hailing business for the last 10 years.

Akeem has used over five different cars for his ride-hailing business, two of which were Volkswagen Golf cars, popularly known in Nigeria as ‘Pure water’, one of the cheapest cars and mostly used by low-income Nigerians in the early 2000s.

Then, the price of a foreign-used Volkswagen Golf car hovered between N350,000 and N450,000. But now, the market price has grown by over 340 percent to N2 million and above, depending on the model and the year of the car.

This development shows that paying high Customs tariffs on imported cars, inflation and dollar scarcity in Africa’s biggest economy have been having a huge impact on the costs of imported goods in recent times. Today, cars are beyond the reach of millions of Nigerians.

“I bought my first foreign used Volkswagen Golf car in 2011 at about N350,000 and in 2014, when I sold my first car to replace it with another foreign used Volkswagen Golf car, I bought my second car at N450,000,” said Akeem.

He said his clients who would want to buy cars for themselves are unable to do so as prices of both new and used vehicles keep surging.

Just like many Nigerians today, Akeem’s love for the Volkswagen Golf cars has evaporated and he has shifted to Toyota as he now uses a Toyota Corolla car for his ride-hailing business. He said he shifted to Toyota when Volkswagen Golf became very expensive in the market.

“A foreign used 2005 model of Volkswagen Golf car now goes for as high as N2.5 million, which means that the car is no longer within the reach of the poor. Generally, almost all cars are now very expensive in Nigeria. This is why many people opt for Nigerian-used cars to meet their car needs. Even the Nigerian-used cars are now sold in millions of naira,” Akeem said.

Those days, he said, many Nigerians liked to use the Volkswagen Golf car because it was economical, affordable, fuel-efficient, and had cheap spare parts for ease of maintenance.

BusinessDay findings show that prices of foreign used and Nigerian-used cars have skyrocketed over the last eight years.

For instance, the Volkswagen Golf car, which sold for between N400,000 and N450,000 in 2015/2016, now goes for N2.4 million and N2.6 million; the foreign used Toyota Camry model car, which was sold for between N750,000 and N850,000 in 2015/2016, now goes for between N3.5 million and N3.7 million.

While a foreign-used Honda Accord car that was sold for between N750,000 and N800,000 within the same time, now sells for as high as N4.5 million and above.

In addition to inflation, the Nigeria Customs Service, in 2022, introduced an automated valuation system for imported cars known as Vehicle Identification Number (VIN) valuation system, which led to a hike in tariffs for imported cars.

Tony Anakebe, a Lagos-based Customs-licensed agent, said the introduction of VIN valuation by Customs for determining the duties payable on imported used and new cars not only increased the import duties on cars but also resulted in a drop in the volume of cars coming into the country.

According to him, the new valuation system means that duties payable on imported cars now come directly from Customs headquarters in Abuja.

Due to high tariffs, he said, many car dealers have either reduced volume or left the business.

Confirming that the hike in tariff has led to a drop in volume, Sunny Ugorji, another Customs agent, said the new valuation system has also benchmarked the Customs duty payable on cars coming into the country.

Citing an example, he said an importer of a Volkswagen car now pays over N700,000 as import duty to Customs.

For instance, the volume of imported cars declined in the first quarter of the year to a total of 51,782 units of vehicles from 97,132 units of vehicles that were imported in the same period in 2022.

FX volatility is also responsible for the increasing prices of cars and other commodities in the market, especially imported items.

In 2015, the naira-dollar exchange rate hovered around N197/$-N200/$ at the parallel market but today it has depreciated to around N745/$.

Read also: Rising inflation puts new, ‘Tokunbo’ cars out of reach

By implication, car dealers will now require more money to buy a car compared to the amount required to buy a similar car in 2015. This has further increased market prices and reduced the purchasing power of importers, leading to a decline in the volume of imports.

Reacting to this, Adekunle Oloyede, area controller of the Tin-Can Island Port Command of the Nigeria Customs Service, said the exchange rate has a great impact on the tariff importers pay on imported cars.

According to him, the exchange rate was formerly at N400/$ between 2020/2021 but today the rate is way over N740/$ at the parallel market and it affects the tariff importers pay.

“If you were clearing a car at N300,000 Customs duty before now, but with an increase in the exchange rate, it will no longer be N300,000. Also, if you were buying a vehicle at the exchange rate of N350/$ before, but the black market today is N745/$, which has automatically more than doubled the amount,” Oloyede added.