Making Sense And Nonsense Of The New Automotive Policy

Posted by African Examiner Articles/Opinion Monday, December 30th, 2013

By Theophilus Ilevbare

On January 1, Nigeria will begin the implementation of the new automotive policy. From the stable of the drum beaters of a failed transformation agenda comes a jejune framework that lacks a clear cut direction for our automobile industry. Every New Year is becoming notable for the take-off of all sorts of utopian policies wrapped around job creation to make it fly. The promise of jobs has an instant appeal to the teeming army of unemployed graduates across the country deeming their natural tendency to ask probing questions.

Nigeria’s Minister of Trade Olusegun Aganga

The new policy is aimed at discouraging importation of used cars and buses. The federal government has raised tariffs of duty and levy payable on imported cars from 10 per cent to 35 per cent and from 10 per cent to 35 per cent respectively, making a total of 50 per cent increase as duty and levy payable on cars imported into Nigeria. The duty on buses had also been raised from 10 per cent to 35 per cent without levy.

The government is making it look the way a commentator puts it: “Once there’s any government policy that will affect the average Nigerian negatively, officials will be kicking for its speedy implementation. Just because an average Nigerian can starve and save for years and be able to buy a used (tokunbo) car, it’s now time to impose a new policy painting it bright with job creation.” They make it look like every good thing should be reserved for them. Government always find reasons to heap their inadequacies on the masses.

As the new duty regime comes into force, there may be negative unintended consequences in other areas of the economy. The planned hike in import duty would bring about massive job losses, even as it promises creation of more. The country is about to witness a severe era of vehicle smuggling from neighbouring countries. The actual beneficiaries of the ban will be the police, customs and immigration officials who mount multiple checkpoints on the Seme and Idiroko border roads. The revenue that would have been channeled to government coffers will end up in the pockets of border security officials.

A similar policy in the 1970s during which new Peugeot and Volkswagen cars were produced locally and were affordable to average citizens failed for lack of infrastructure, non-implementation of government policy, inappropriate tariff regime, among others. By the 1980s, most of the companies had stopped operating because of poor domestic patronage, low capacity utilisation, a high-cost environment and a failure to implement the automotive policy of the time. Others have retooled for other lines of manufacture. How to create the industrial eco-system that will help articulate the admirable objectives enunciated in the presently presumptuous policy has been the bane of successive government.

The lethal combination between incessant power outages, dearth of investment funds and almost a total lack of skilled manpower that was responsible for the untimely death of the delusional predecessor policy will send this new policy to its early grave.

Getting an automotive policy going, as shown in the past, is not a daunting task for government. We only got to the “tokunbo” cul-de-sac because local auto plants and feeder industries that came to life on the back of the ambitious “import substitution policy” of the military governments ushered in an unexpected depreciation of our currency in the early 90s, coupled with other debilitating factors led to the total collapse of the auto industries birthed in the ‘70s and ‘80s.

Therefore, it is inappropriate for government to begin the pursuit for a self-reliant automobile sector with the imposition of high import tariff on vehicles when there are fundamental supply side issues to resolve as well as low local value addition and capacity for backward integration in the sector.

And insofar as the import substitution policy of yore failed because these feeder industries were non-existent, it’s almost certain that the present ruse of a policy too, will fail, as laudable as it seem on paper. Moreover, in most countries vehicles are manufactured, the assembly plants only constitute the zenith of an industrial pyramid of raw materials processors and parts-making industries.

The problem of the auto manufacturing industry in Nigeria is mainly lack of patronage and encouragement. We can recall in the past when government fleet consisted of Peugeot cars assembled locally. Civil servants were given loans to purchase cars from Peugeot Automobile of Nigeria (PAN). What do we have today? Government at all levels use imported vehicles in their convoys, as official vehicles. Same people promulgating the new policy are the ones driving all sorts of custom made vehicles around Abuja. No one cares about locally made cars. The new automotive policy is sheer hypocrisy! We don’t need a new law to get the auto industry going, just government driven patronage.

Beyond the promise that the automotive industry would create significant and good quality employment, what else?

Essentially, Nigeria has no local auto industry, so which local industry is being revived by raising tariffs? If few interested automobile companies build assembly plants in Nigeria and import all parts from other places where does that leave us? Will the locally assembled vehicles meet international standards? Will Nigerians get value for their money? Will the vehicles be durable?

We must build the requisite human capital, with the relevant automotive mechatronics capacity to engage the electronics and computing technologies that define the modern automobile industry. More time should have been given before implementation, for technical skills to be acquired in auto mechanics as no Nigerian university currently offers this as a course of study.

At this juncture, it is noteworthy that most of the figures bandied around by government are inaccurate and deliberately exaggerated to create the impression that so much is spent on importation. The much publicised N550billion (sometimes inflated to N1trillion) the country spends on importing vehicles annually is a deliberate miscalculation! If according to available figures, the country imports between 100, 000 used and 50,000 new vehicles respectively, doing the Mathematics using an average of N2.5million for every used vehicle imported, you get N250billion. Add the total cost for all new vehicles imported annually into the country, you get a figure which is a far cry from the N550billion quoted by the Minister of Commerce, Trade and Investment, Dr Olusegun Aganga. We live in a country where government officials bandy incorrect figures around, aware that Nigerians are too lazy to do the numbers.

This utopic automotive framework is a major policy somersault from same government that increased the number of years of automobiles imported to Nigeria from 10 years old to 15 years some time ago.

President Jonathan wants to do with the auto industry what he couldn’t do with the power sector, what he has not done with roads, health care and others. If his performance in office is anything to go by, the new automotive policy is one that is doomed to fail.

Theophilus Ilevbare is a public affairs commentator. Engage him on twitter, @tilevbare. He blogs at http://ilevbare.com.