• Thursday, February 29, 2024
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BusinessDay

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

Funding options for Nigerians who want to buy cars

Rising inflation in Africa’s biggest economy is putting the prices of new and used imported vehicles, popularly known as ‘Tokunbo’ cars, out of reach for millions of Nigerians, especially low-income earners.

Accelerating inflation and dwindling household incomes are eroding consumers’ purchasing power. Nigeria’s inflation, at 22.04 percent in March, far outpaced wage growth, according to data from the National Bureau of Statistics.

“I have plans on getting an affordable Tokunbo car this year to help in the delivery of orders to customers but my new findings showed I cannot afford it,” Tosin Onifade, an entrepreneur in the food delivery business, told BusinessDay.

A brand-new Kia Cerato 1.6-litre automatic transmission saloon car, which was sold for N3.96 million in 2015, now costs about N23.4 million, while a Kia Picanto 1-litre engine capacity, which cost N2.25 million in 2014, is now sold for N14.76 million, according to a 2022 price list of Dana Motors seen by BusinessDay.

“It’s frustrating,” said Chika Okorie, a young entrepreneur. “I’ve been saving for years to buy a car, but every time I get close, the prices go up again, and I’m back to square one.”

Oluwafemi Amisu, regional manager of Auto Auction Mall, said the high cost of purchasing a brand-new car, coupled with the absence of favourable vehicle financing options, means that many individuals cannot afford to pay the required amounts, and the interest rates on financing are not advantageous.

“There is a need to do something about the FX crisis because dealers don’t use the naira to trade; there should also be a regulated government-driven arm for the financing of owning a car, just like the developed world, where there is a mortgage,” Amisu said.

Mohammed Lawal, a dealer in fabrics, said due to rising inflation, he is not considering buying a ‘Tokunbo car’, adding that he would go for a “clean Nigerian used car”.

“My agent advised me to buy a Nigerian used car because of the high cost of imported cars,” he said.

Lawal added that the current economic situation in the country had completely eliminated the middle class.

“You are either rich and can afford a brand-new car or ‘Tokunbo’ car or you are poor and only resort to trekking and hopping on commercial vehicles,” Yunusa said.

A taxi driver, Omale Anibe, who uses an old model Mazda car, said he had plans to buy a new model of car for his transportation business.

He, however, said he had to cancel the plan because of the high cost of buying an imported car.

Data obtained from the National Bureau of Statistics showed the value of used vehicles imported into Nigeria decreased by 47 percent in 2022 to N325.05 billion from N617.48 billion in 2021.

According to a report by PwC, 63 percent of Nigerian households cannot afford to own a car without some kind of support. The report puts the total number of cars on Nigerian roads at 14 million, while used cars make up about 70 percent of vehicles sold in Nigeria.

Read also: The car is tokunbo: Slang in Nigerian English

PwC listed the United States, United Kingdom, and Germany as the major import routes.

In 2013, the federal government established the National Automotive Industry Development Plan with the aim of attracting foreign direct investment, curtailing the dependence on the importation of vehicles, and promoting local production of automobiles.

By virtue of the policy, 35 companies were licensed to assemble in Nigeria, while import tariffs on both new and used vehicles were increased to 70 percent.

“The policy had good intentions of reducing cost, however issues surrounding multiple taxations, difficulties along the ports corridors, fluctuation in the exchange rate, and ease of doing business among others keep increasing the cost of car ownership,” Amisu said.