The global automotive industry is 130 years old. In 2017, some 73.5 million cars and 23.7m commercial vehicles were produced by 40 countries worldwide. About a billion vehicles are in use worldwide and total annual output of the industry is over $2 trillion. In Africa, the automotive industry plays a strategic and catalytic role in economic development. In South Africa, the auto industry contributes 7% of GDP and 14% of its foreign earnings. In Morocco, a new factory with assembly capability of nearly 410,000 vehicles annually was opened by Renault in 2012. Another factory by PSA Peugeot-Citroën, is expected to start production this year, with a starting capacity of 90 000 cars/year and a 200 000 cars/year in future. In the 25 years since restarting its automotive industry, the Egyptian automotive assembly business has grown from just three plants relying on imported components, to 16 businesses with 26 assembly lines, manufacturing nearly 100,000 units of passenger cars, light commercial vehicles, trucks, and buses annually- supported by 300 factories that produce most automotive components.
In Nigeria, where 80% of the transport of goods, passengers and petroleum products are done by road vehicles, there is currently no local manufacture of vehicles, though there are 11.5million vehicles on Nigerian roads according to the National Bureau of Statistics (NBS)–a 61/’000 per capita ratios and great scope for any serious OEM in a country of 193million people.
Statistics from the NBS give the vehicle break down (pardon the pun) as follows – 6.7m commercial vehicles, 4.7m registered as privately owned, 135,000 registered as government owned and 5,834 registered for diplomats. Another way to look at this is in the realities – 6m vehicles needing proper repair/maintenance/parts from trained technicians/dealers, 3mvehicles needing replacement, 2million vehicles needing scrappage as irreparable, unsafe or environmentally unhealthy. Yet, there was a third way to dimension the numbers – the opportunities that abound within the Nigerian economy – 500,000 technicians (mechanics, vulcanisers etc.) that are required to repair/service 11m vehicles, 200,000 spare part dealers to supply parts to 6m requiring repairs, 21,000 car dealers to buy/sell 3million vehicles needing replacement, 30 banks – to finance vehicle acquisition and 29 insurance companies to insure the 11m vehicles.
The used vehicle dilemma
With a weak Naira, restricted access to forex and poor infrastructure, assembly plants will struggle to set up and compete. Invariably, the vehicles being assembled will be unaffordable. On the other hand, used cars are outselling new ones 35:1 – a result of lower duty, porous borders and an insane regulation that allows vehicles aged 15yrs to be imported. There are 42m used vehicles in use in Africa (OICA 2014) and Nigeria alone has more than 10m of them.
The National automotive policy was re-launched in 2013 to support and grow the local auto market, save needed forex and drive local content in component manufacture and technical expertise. A plan for implementation – the National Automotive Industrial Development Plan (NAIDP) was launched with fiscal guidelines and programs to run initially for 10 years with periodic reviews. Expectations of the policy included N650billion ($3.35bn) in saved import duty, 410, 000 newer and safer vehicles to be introduced, 10% contribution to GDP, employment for up to 70,000 skilled workers and additional 200,000 workers from value chain enterprises that would support the assembly plants. At a stage, a N1.5million car was touted.
At the 16th Abuja Motor Show in 2014, the then NAC (now NADDC) DG claimed that the policy will eventually create an additional 700,000 jobs and boost both petrochemical and tyre sectors. Even the House of Representatives Committee on Industry commended the Federal Government on the introduction of the automotive policy, saying that the new measures would help transform the automotive sector, attract new investments into the sector, protect local automotive manufacturers and create employment (not surprising, the legislators were going to soon receive new cars tagged: ‘utility/committee’ and acquired under a payment scheme.
So, what’s the issue?
In the last couple of years, I have had the opportunity to engage with a number of players across the entire auto value chain. My current thoughts (as they might change) are that the plan of revival of the auto industry being proposed by the government are not sufficiently thoughtful and the implementation not robustly thought through, so when the Hon Minister of trade admitted during a Lagos Chamber of Commerce dialogue that the implementation of the auto policy was poor, many industry stakeholders heave a sigh of relief – that finally, after 5 years of the policy’s first announcement, the government had started to listen.
The government’s approach to the development of the auto industry has been driven mainly by the belief that the auto policy will be the catalyst for developing the auto industry. The idea itself wasn’t so bad on paper, but was basic in concept and hadn’t taken economic realities into account. Timelines were not measurable or not measured, expectations were not monitored appropriately and in one or two instances, gaps in the processes ignored.Take a look the current auto policy, then go to any of Nigeria’s highways, motor parks, dealer showrooms or mechanic’s workshops and you will immediately see the disconnect between the policy and the realities – income levels, vehicle costs , proliferation of refurbished/fake parts and unrealistic regulation, to the extent that 17% of the 10,000+ road accidents recorded by the FRSC in 2018 were as a result of defective vehicles that should have been curtailed by the policy and a problem that needs to be addressed in synch or in sequence with the development of the auto industry.
The various policies and pronouncements affecting the auto industry have over the years, been good, bad and out rightly unspeakable, some deployed in isolation of the realities and only good as an academicdiscourse. A look at the more recent pronouncements for instance:
- Circular 12237/S.403/VOL.1/206dated Nov 19, 2010and signed by the then Finance Minister, partly read “… extension of the age of used motor vehicles to be imported into the country from 10 years to 15 years from the year of manufacture…”
- CBN letter TED/FEM/FPC/GEN/01/003 dated Jan 20, 2014 drawn up to relaunch the auto industry, including a Credit Purchase Scheme and patronage by government**.
- Ministry of Finance letter BD/FP/DO/09/1/224 of Feb 28,Feb 2014 announcing revised fiscal policy measures for the automotive industry – 35% duty + 35% levy for cars, 35% duty for commercial vehicles, 20% duty on tyres, 0% duty on CKD parts etc.
- CBN letter TED/FEM/FPC/GEN/01/010 of 23 Jun 2015 restrictingrubber and plastic products (key components in the manufacture of vehicles and Tyres) from accessing the CBN forex rate.
**interestingly, if the Bureau of Statistics is to be believed, the Nigerian government’s 150,000 registered vehicles, isn’t enough to consider “patronage by government” a catalyst for the auto industry. A much more influential buyer is the National Association of Transport Owners, who should be on the NADDC implementation committee of the auto policy.
There will be arguments from some quarters that the government is trying its best. I don’t doubt that. What I doubt is whether there has been sufficient consideration of the industry variables, before decisions aremade. Currently we have 54 assembly plant licences issued for a total capacity of 400,000 combustion engine vehicles; a long list of barely recognisable OEMs and brands; limited support for the existing auto businesses in terms of finance and infrastructure and the curious result of supporting the industry and attacking it at the same time, going as far as authorising the Customs Department (not the motor dealer), to publish the prices of vehicles.
This is compounded by the myriad of port and terminal charges – documentation charges, administrative charges, MOWCA Levy, Indirect Import Delivery Charges, NIMASA Sea Protection Levy, Terminal Handling Charges (and that’s just for the Port). Then there are the “inspection” agencies – NIMASA, NN, NIS, NDLEA, SON, STOAN, NAFDAC etc. Officially, clearing goods through Nigerian ports should take 2 days, but if you make it in 2 weeks its considered good. In fact, a report by the Organised Private Sector, supported by the Centre for International Private Enterprise, showed that “Trading Across Border”, a World Bank indicator that measures the efficiency of ports, ranked Nigeria 183rd out of 185 countries in 2017.
The result is to drive Nigerians to the used car (Tokunboh) market as policies, pronouncements, a weak economy and a convoluted business environment give us a reality check the government won’t acknowledge. It’s not news that commercial vehicle owners, middle and working class Nigerians will struggle to acquire or change their vehicles without a robust financing structure. In a recent dialogue with the Hon Minister of Trade, organised by the Lagos Chamber’s Auto and Allied Sector, Prince Adedoyin Ajibola (National President of the Association of Motor Dealers of Nigeria) said that most Nigerians would stick to used cars due to cost and cost of finance.
lessons that need to be learnt
- To support the development of the NAIDP, the NADDC is building seven automotive training centers, in each of the six geopolitical zones, and the seventh in the FCT. This is a good move, but a political one because the concentration of vehicles is not equally spread. The result will likely be over use in some areas and under use in others. A more practical decision would be to build the centers where they are required, or to partner with existing organizations, so that the government can benefit from scalable skills and technology.
- the NADDC also announced that the Federal Government is to kick-start a pilot programme on electric vehicles (EV) in line with the global trend in vehicle electrification. I believe that the reason for the pilot program should be the need to develop the industry and prepare the country for the coming in technology and the environment, not because it’s the latest trend.
- The government is training about3,000 youths in mechatronics across the country under the Presidential Social Investment Programme, N-Power. I would expect this to also consider the 200,000+ existing mechanics already trained through apprenticeship schemes and registered with bodies like Nigerian Auto Technicians Association (NATA) and the Motor Mechanic and Technicians Association of Nigeria (MOMTAN) and a structured form of government support extended to them especially during their apprenticeship.
What am I saying?
Well, think about it. Your generator in the house is fueled and turned on by the mai guard – semi literate and untrained. It is serviced by a brilliant young man who has just completed an apprenticeship scheme and can fit all his tools in a rucksack. If the maiguard isn’t around, you are shafted. Ironically, you then issue a tender for a generator service contract for your office and compose a list of conditions that include a professionally kitted out workshop, a CAC registration, FIRS VAT and tax clearance certificates, 3 years financials and a registration with an association of professionals.
We are saying we want to develop an industry, but what we are doing is counter to that very plan. So is the story of Nigeria’s auto industry.
BAMBO A. ADEBOWALE
Adebowale is chair of the automobile section of the Lagos Chamber of Commerce and Industry
