• Thursday, March 28, 2024
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BusinessDay

Now that President Buhari has rejected the Auto Policy/Bill

Muhammadu Buhari

On 19th June, a BusinessDay reporter had “authoritatively” reported that the NAIDP bill was on the President’s desk for assent and that this was a “piece of good news”, allegedly coming after delays caused by a series of political intrigues and interventions from certain powerful stakeholders who felt threatened that their stronghold on auto trading may be affected with the passage of the bill.  Last week, President Buhari rejected 17 bills passed by the 8th National Assembly – including the Nigeria Automotive Industry Development Plant Fiscal Incentive and Guarantees Bill (the Auto Policy Bill).

The cabal theory – In my opinion, the Business Day write up was short-sighted and biased and I hope it was the reporter’s under-informed opinion, because if there is a cabal amongst auto dealers against the auto policy/bill, why did Nigeria Automotive Design and Development Council (NADDC), the midwife for bringing the bill to life, advertise for a review in February 2019? Why did both the Nigeria Customs Service and the Nigeria Ports Authority call for a review of the policy?

 

We were not against the auto policy – For clarity, most of those opposed to the auto policy and bill are opposed to it in its current structure and format. This was (and still is) because the auto policy draft bill were adventures in very basic policy formulation, strategy and legal drafting – full of assumptions and presumptions that considered  only one part of the auto industry value chain and failing to acknowledge that we were dealing with an industry that the whole country (transporters, passengers, commuters and entrepreneurs) depend on. The bill as drafted was not in the best interest of the auto industry nor the country.  The now rejected bill called for the registration of auto dealers, but there were no defined guidelines for this. Interestingly, the 8th NASS that presented the bill for assent in 2018, allegedly purchased new vehicles worth N6.6bn from 32 different dealers – 30 were not registered on the BPP’s database of federal contractors and seven of the 30 are not even registered with the Corporate Affairs Commission. In fairness, the FRSC purchased  77 pick-up trucks for the Federal Road Safety Corps (FRSC) in April. Going forward we would like to see all new Ministers, Directors General, members of the National Assembly and Governors man up and buy the vehicles assembled in Nigeria.

 

Collateral damage – The bill sought for eye watering hikes in duty rates (from 22% to 70% in one instance). A stepped increase would have been a more reasonable plan. The duty hike was pushed through without notice, then got caught in the Naira devaluation – this should have been sufficient reason for an immediate review as the increased duty saved forex, but killed off imports for the dealers, ramped up smuggling, cut into the port activity and squeezed income for the Nigeria Customs. The government saved forex and lost the support of key participants in the success of the policy. The policy was undermined by the devaluation of the naira, the economic recession, a smart move by Benin Republic in dropping its transit charges (and exploiting our porous borders) and the absence of a credit facility to help acquire the now 3 times more expensive vehicles. By the time the bill landed on President Buhari’s desk, the NADDC has issued 58 licenses, but not up to 10 actually assembled and in less than 1,000 unit capacity – in a market where assemblers need 50,000 units each to be competitive and profitable.

 

Finance and forex issues – The NAC Automotive Development Fund was set up to help develop the automotive industry, including the acquisition of tools by technicians. A 2% levy was charged on all imported vehicles, auto components, spare parts and raw materials for the auto motive sub-sector. By 2015, the fund was N18bn and funds were meant to be available at 7.5% and 10%. Assuming there have been disbursements, there would have been repayments. Under a new bill, such fund should be a key component t in the funding scheme. NADDC seem determined to sign up a finance house from South Africa under the old policy without robustly exploiting the NAC fund. In addition, the government will need to resist the temptation of lip service and demonstrate real support for the development of the auto industry, including a review the inclusion of major auto components (steel, plastic and rubber) on the  ”exempted from forex” list.

 

A new, improved auto bill – It’s unlikely that old NASS will re-table the bill, since committees will definitely change and some members are not even back as Senators or Federal Representatives. Whoever tables a new bill should know that in reality, we do not need 58 assembly plants. Nigeria can survive with 10 assembly plants turning out 50,000 affordable new vehicles each, supported by the controlled importation of pre-owned and mechanically approved vehicles by properly registered pre-owned vehicle dealers, to be eventually phased out as assemblers attain critical mass and the used car dealers convert to selling new cars – and importing 15yr old vehicles currently allowed by the government is just mechanical and environmental suicide – think 3 years, but introduced in stagers over the next 4 years. A new bill should fundamentally include a platform to offload the old vehicles, a credit facility to purchase the newer vehicles – and more proactive ways to control grey imports like certification at origin.  The whole country depends on automobiles, but we need to be more creative in thinking – more buses and trucks to support the commuters, the farmers and the entrepreneurs; more realistic duty rates to reduce smuggling, greater regulation to start the phase out of used vehicles, more affordable finance options, wider engagement across the auto value chain.

 

President Buhari has signed Nigeria up to African Continental Free Trade Agreement (AfCFTA). With 55 member states, a market of more than 1.2 billion people and a combined GDP of $3.4 trillion, the stakes are high. Nigeria cannot miss the opportunities and the auto industry should sit front centre. Any forward looking government would know that the proposed auto bill and the auto policy driving it were both flawed and we are glad that President Buhari and his advisers saw this. That bill shouldn’t have been assented to, it wasn’t. We now have the opportunity to review it. I hope it is.

 

Bambo Adebowale

Adebowale is Chairman, Automobile and Allied Sector, Lagos Chamber of Commerce & Industry