• Thursday, May 23, 2024
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The Nigerian automotive industry: An eagle eye’s view

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Sometimes in October 2013, the Federal Government of Nigeria announced its National Automotive Industry Development Plan (NAIDP) to stimulate investment in local vehicle production/assembly. This Plan was initiated to bolster Nigeria’s economy such that some of the revenue which would otherwise have been flown abroad in exchange for used cars colloquially known as ‘Tokunboh’ vehicles would be retained within the economy.

The FGN’s resolve to encourage ‘home-assembled’ cars was reiterated more recently by Nigeria’s Minister of  Industry, Trade and Investment Dr. Olusegun Aganga  on September 11, 2014 while speaking at a Stakeholder’s  meeting organized by the Confederation of Indian Industries (CII). At that meeting, the Honorable Minister highlighted Nigeria’s potential for trade and investment cooperation with India in sectors like pharmaceuticals, Energy, Agriculture (with particular focus on sugar, cotton textiles and garments, leather and leather products, palm oil production); and automotive.

According to an official gazette of the National Automotive Council (which was also distributed to Stakeholders during this meeting), a total of about 400,000 vehicles (100,000 new and 300,000 used) valued at over N550billion (US$3.451 billion) were imported into Nigeria in 2012. According to the ‘Council’, if operated at full capacity, Nigeria’s automotive industry has the potential to create about 70,000 skilled and semi-skilled jobs along with 210,000 indirect jobs in the Small and Medium Enterprises (SMEs). There is therefore no doubt that, uninhibited, the Automotive Sector is an economic booster for Nigeria if there are no challenges such as inadequate power supply.

The role of inadequate power supply as an harbinger of the stunted growth of the Automotive Industry was recently re-echoed by the National Assembly when the Nigerian Automotive Industry Development Bill passed the 2nd reading stage. According to the National Assembly, the legislation, if it becomes law will only achieve its objectives if issues such as power supply are promptly rectified.

Reiterating this point, the President of the Nigerian Senate, David Mark said “On paper this is an excellent bill and there is absolutely no doubt about it, but what is more important is that it is not just this bill alone that will solve the problem of the automotive industry. Beyond this bill, practically on ground we are not just prepared because no investor is going to put his money here if you cannot guarantee him power. If he is going to run on generator 24 hours, he will never be able to compete in the international market. It is not a matter of producing rubber for Michelin, it is beyond that. DICON, which is in Kaduna today was established the same time with the one in Brazil and India. Today the equivalent in Brazil is building ships, aircrafts, armoured cars, DICON in Nigeria is producing furniture….”

What this means is that unless the reforms in the electricity sub sector is hastily concluded, reviving Nigeria’s Automotive Industry might just remain another white elephant project.

It is no longer news that having privatized its power assets, the FGN is now making concerted efforts to attain uninterrupted power supply in the country. However these efforts have not been shielded from the perenial challenges. Nonetheless, the consequence(s) of not ‘getting it right’ is the difficulty sectors such as the Automotive Industry now face.

It will be recalled that the Nigerian Automotive Industry dates back to early 1960s when private companies such as the UAC, Leventis, SCOA and R.T. Briscoe pioneered the establishment of Auto Assembly Plants using Completely Knocked Down (CKD) or Semi-Knocked Down (SKD) parts. Like the Oil & Gas Sector, Government, became involved in the industry between 1970-1980 when it concluded agreements with a number of Automobile Plants in Europe to set up 2 cars and 4 truck/light commercial vehicles assembly plants using Completely Knocked Down (CKD) Parts. The 2 car plants were Peugeot Nigeria Ltd. (PAN), Kaduna, and Volkswagen of Nigeria Ltd. (VWON) Lagos while the 4 truck plants were Anambra Motor Manufacturing Company (ANAMMCO), Enugu, Styer Nigeria Ltd., Bauchi, National Truck Manufacturers (NTM), Kano, and Leyland Nigeria Ltd., Ibadan. These car and truck/light commercial vehicle plants were all privatized by the end of 2007. However, not much has happened in that Sector thus boosting car importation business.

The Legislative/Regulatory Framework:

Apart from the pending Nigerian Automotive Industry Development (NAID) bill currently pending before the National Assembly and the National Automotive Council Act, there is paucity of legislations regulating the Nigerian Automotive Industry. What this means is that much of the activities relating to the industry are governed by government Policies/Directives such as:

National Automotive Council Act: This Act established the National Automotive Council, a body which regularly review the automotive parts/components development industry in Nigeria as well as evolve a local content programme applicable to the industry. The Council is also empowered to issue Regulations generally for effective implementation of provisions of the Act.

Standards Organization of Nigeria Act: The Act established the Standards Organization of Nigeria to standardize methods and products in Nigerian industries and to provide for other matters connected thereto. By the provisions of the Act, the Standards Council of Nigeria is empowered to establish industrial standards that regulates and ensures that all products produced in Nigeria are in accordance with the designated standards and specifications approved by the Council.

The Automotive Industry Development Plan: Government’s blue print to revive the Automotive Sector by taking advantage of its large domestic market, labour intensive characteristics, strong industrial linkages, existing installed base and export potential to other ECOWAS Countries.

Perhaps, in response to the dearth of Legislation/Regulation governing the Automobile Industry, the FGN makes allowance(s) for requisite incentives to boost return on investments (RoIs) in the Industry. Indeed, the Federal Government seeks to revive the market by putting the following incentives in place which are as follows:

Import duty for Completely Knocked Down parts (CKD) for vehicle assembly is 2.5% while that of fully built up units is 30%;

The mandatoriness of all government Ministries, Agencies and Parastatals to patronize the products of local automotive assembly plants;

Industrial establishments that have implant training facilities enjoy a 2% tax concession for a period of 5 years;

20% of investments in infrastructure, such as roads, water, and electricity are tax deductable;

Industries in economically disadvantaged areas are entitled to an additional 5% capital depreciation allowance over and above the initial allowance of about 25-30%;

Industries with high labour to capital ratio are entitled to the following allowances: those employing 1000 persons will enjoy 15% tax concession, those employing 200 or more will enjoy a 7% tax concession and finally those employing 100 persons or more have a 6% tax concession;

Engineering industry with a high local value added will enjoy a 10% tax concession for 10 years whilst those with up to 60% local raw materials utilization will attract 20% tax credit for 5 years.

Local Content Policies

In developing local capacity for the Automotive Industry, the FGN through the ‘Council’ has continued to improve local participation industry in its bid to bolster skill acquisition. It has done this in the following ways:

The ‘Council’ is expected to work closely with the Original Equipment Manufacturers (OEMs) investors to fill skills gaps in auto operations by ensuring that all lower skilled and mid-skilled roles are filled by Nigerians and with concrete plans to staff high-skilled positions with Nigerians over the first 4-6 years.

The Industrial Training Fund (ITF) is already working with SENAI in Brazil to design auto training centers similar to obtains in Brazil in the three existing Nigerian auto clusters. These centers will not only train Nigerians to maintain and service vehicles, but will also train them to manufacture spare parts;

The National Automotive Council is also partnering with the Nigerian Universities Commission by developing a curriculum for a degree in automotive engineering. Two Universities; Abubakar Tafawa Balewa University (Bauchi State) and Elizade University (Ondo State) already have plans to offer this programme. Similarly, the National Board for Technical Education (NBTE), Federal Ministry of Labour and Productivity and other Stakeholders have developed a new curricula for teaching automotive mechanics.

Conclusion

As laudable and sterling as the Federal Government’s effort to revive the Automobile Sector is, critical sectors such as the power must be taken into consideration as there will be no attraction to a proposed investor looking to investing in an industry which is driven predominantly on privately generated power. Akin to that is the need to ensure strict compliance with the knowledge transfer obligation to Nigerians. Perhaps, if this had been the case in the 1970s, there may not be the dire need to attract foreign automobile manufacturers at this time.

Finally, the FGN should consider a more robust legal and regulatory framework for the Automotive Industry. Although the Automotive Industry Development Bill is reaching an advanced legislative Stage, there is the need for government to continue its research on the best framework for the Industry and subject the Bill (which would hopefully have become an Act) to periodic review(s).

Tolulope Aderemi is a Partner at Perchstone & Graeys