Nigeria tariff slash on imported car upends previous auto policy

Several investors in Nigeria’s national automotive sector are highly enmeshed in fears of uncertainty about their investments in the sector, as the implementation of the Autopolicy suffers further setbacks, especially coming into full force of Finance Act 2020.

Section 38 of the finance Act particularly slashed import duty for vehicles from 35 percent to 5 percent. Industry sector players say this would discourage indigenous manufacturing, local content promotion and job creation as well as erode the gains the federal government has so far recorded when it signed the National Automotive Act 2013.

“This new policy introduction is obviously not well thought out. The Government goes all over the place looking for investors in order to create jobs in the local economy. Now you come out with a policy that endangers. Vehicle assembly and manufacturing in Nigeria. People invested their money running into billions, and you come back again saying this cannot be that you’re reversing the policy. It doesn’t work anywhere in the world,” Alfred Okugbeni, the Chairman of Sino-Truck Nigeria told BusinessDay.

He recalled that a few years ago, Toyota decided to make investments in West Africa and chose Ghana ahead of Nigeria, regardless of the fact that Nigerians buy 90 percent of vehicles that come into West Africa.

“They chose Ghana for the single reason of policy stability,” he noted. According to him, “At that time, the government went to Toyota and tried convincing them to come to Nigeria that this is where the market is. They insisted and had their investment in Ghana. Now, they’ve been proven right.

Sharing a similar experience on the negative impact of the Finance Act and continued policy summersault has had on the automotive policy, the Chief Executive of ‘God is Good Motors Chidi Ajaere told BusinessDay that the finance Act 2020 has dealt a blow on the company’s manufacturing plant where billions of naira has been invested.

He said: “As a company I believe in Nigeria and I want my investments to be here, I had invested billions in car manufacturing plant here, but look at how policy summersault has dealt a blow to the company’s investments. I invest here because I believe in this country. But how does the government convince investors to invest in Nigeria with this kind of approach?”

The automotive policy which commenced in 2013 among other things imposed some 35 percent duty on vehicle imports to encourage the implementation of its auto policy which aims basically at encouraging indigenous local production, and developing local content which creates thousands of jobs in the automotive downstream sector.

However, Buhari’s administration has proposed to slash those levies, including import duties on tractors, transport vehicles, and others with claims to help further cushion current socio-economic conditions in the country occasioned by the coronavirus pandemic.

Government said the duties and levies on motor vehicles were cut down to reduce the cost of transportation by reducing the cost of vehicles.

Industry watchers have however argued that the government’s approach through the finance Act 2020 is not well thought out, raising concerns of huge investors running in billions which the national automotive policy has attracted.

“”Now that the import duty has been removed, what happens? And the plants would close down, over N346bn was borrowed by these vehicle plants which they ploughed into local manufacturing. So, when they close up, they will not be able to repay their loans and if they’re not able to pay their loans, the banks are in trouble.”Oghene Egoh, a member of the federal House of Representatives said in a programme monitored by BusinessDay.

BusinessDay findings revealed that local automobile firms had attracted 1 billion dollar investment in 2019 due to ‘Made in Nigeria’ campaign that induced strong sales to the police and some government ministries.

The law maker further lamented that the new waiver would put thousands of jobs at risk amidst the worst unemployment levels in the country’s history put at 27.1 percent.

He believes that the government can use enabling policies to assist the underdeveloped automobile industry to scale up production to meet the 776,001 deficits currently witnessed in the country.

Luqman Mamudu, a former director of Policy and Planning at the National Automotive Design and Development Council told BusinessDay that the finance Act has cancelled the Nigeria Automotive Program six years into its life span of 10 years.

“The 2020 Finance Act simply cancelled the Nigeria Automotive Program, which is the National Automotive Industrial Development Plan, six years into its 10 years life span. The concern is genuine because the act simply opened up Nigeria for uncontrollable import of fully built up new and pre-owned automobiles from other economies including her brother African countries.”

Luqman said: “The Assembly sector of Nigeria including the six plants privatised by the government assembles more than 1,200 vehicles annually (mostly by Pan and Innoson) before 2013 when the policy was launched.

“As today, total output is about 15,000 units of automobiles,3004 employed and over 1 billion dollar additional investment has been made with footprint of global brands like HONDA, NISSAN, FORD, KIA, SINO-TRUCK, MAN DIESEL,YUTONG BUSES to mention but a few on ground with a combined capacity of 500,001 automobiles per annum.”

He said: “What impact do you need when all the hitherto moribund original assembly plants privatised by the government have been revitalised with the exception of Styr Bauchi.

Automotive investment he noted is capital intensive and long term oriented, adding that six years is like early morning in the industry lifespan of an automotive programme.