Nigerian Auto Industry In Limbo

The news of the coming into effect of the Finance Act 2020 following its passage by the National Assembly and speedy Presidential assent only six days later has been received with a mixed reaction of anger, disappointment and frustration in the Nigerian auto industry.

Against the provisions on the 2014 National Automotive Industry Development Plan (NAIDP) {auto policy} documents, the controversial Act reduces duty on imported buses from 35 percent to 10; slashes levy on fully built cars from 35 percent to 5 percent; and trucks from 35 percent to 10 percent.

This is contained in Part VI of the Finance Act 2020 under Customs And Excise Tariff {Consolidation}, etc, section 38, sub-sections A to D.

But, reacting to the act which came into effect just last week, industry stakeholders say the incentive to importers of fully built up {FBU} vehicles represents a policy summersault, which has been the bane of development in many sectors, especially the auto industry.

One of them, Dr. David V. C. Obi, declared that the Federal Government has finally killed the industry which has been struggling to survive over the years due to government’s tepid implementation of the NAIDP introduced by the previous administration.

Obi, a highly respected stakeholder who until recently was the Chairman of the Auto Group of the Manufacturers Association of Nigeria {MAN}, said: “This is the clearest signal from the government that they do not care about the development of the local automotive industry. The levies and duties were enshrined in the auto policy, in some cases bringing the total payments on imported fully built vehicles to 70 percent.

“This was with the view to making locally assembled vehicles competitive and preferable in terms of prices {against the imported options}. But, tell me, with this generous incentive to the importers of FUB, how can the local vehicle plants compete? This means goodbye to the local plants, because they can’t compete. They will definitely close shop, unless something is done.”

To Dr. Innocent Chukwuma, Chairman of Innoson Group, owners of Innoson Vehicle Manufacturing Company Limited {IVM}, Nnewi, it is shocking that the Federal Executive Council did not realise the enormous harm the inclusion of the reduction of import duties and levies in the Act, would do to the domestic auto plants.

“I was among the people in the industry who raised their voices against the planned reduction of duties and levies on imported vehicles. I warned that it was going to kill the auto plants, because it is a huge incentive to the importers who have little or no contribution to the economy. What this reduction will do is to further empower importers to kill the local auto industry by driving them out of the market.”

Also reacting, the Managing Director of Lafbart Innovations and Consulting Ltd, Olufemi Olafunmiloye, described the reduction as being “very, very unfortunate,” and capable of taking the domestic auto industry many years back, adding that it will harm the industry in many ways, if not reversed.

“The development is very, very unfortunate. As far as the auto industry is concerned, what the government has been doing is take one step forward and take 10 steps backward. This favour to importers of FBU vehicles is an indication that the development of the industry is not considered a priority by our leaders,” Olafunmiloye whose Lafbart produces tricycles and other vehicles in Akure, lamented yesterday.

The auto makers argued that slashing import duty and levy on buses and passenger cars as contained in the recent 2020 Finance Bill is not only a disincentive to their own investments, but would discourage those who would have been encouraged by the auto policy provisions to make fresh investments.

The Federal Executive Council {FEC} had on Wednesday, November 18, 2020, approved the reduction in duties and levies as part of the bill which was later passed by the National Assembly.

Vice President Yemi Osinbajo explained later that a situation where the local auto plants contribute only about 14, 000 units out of a total of 720, 000 the country needs annually, was one of the reasons for the adjustment in import charges, assuring that government would introduce a policy to ensure that official vehicles are sourced from the local plants only.

But, the Lafbart Managing Director said the argument was faulty, because the auto makers in Nigeria have much higher combined installed capacities {for sundry vehicle types} than the figure the Vice President quoted, adding that the plants produce according to demands.

“Moreover,” he stated, “even as the auto plants have the capacity, how can they go on producing when government policies favour importation?”

Dr. Chukwuma echoed the point that auto makers only produce according to demands, and do not lack the capacities to meet the nation’s vehicle needs. He disclosed that Innoson alone is capable of meeting huge demands of various IVM vehicle models, whether sedans, buses, pick-ups or SUVs, “if we are challenged with patronage.”

He further stated, “Recently, we {Innoson} invested heavily in designing and producing hundreds of units of two new affordable vehicle models – IVM Connect with a price tag of N4.5 million; and seven-seater IVM mini bus going for N5 million. And they are there for immediate delivery. So, how can the government say we don’t produce enough?”

He recalled that last year, his company launched an empowerment {ride-hailing} scheme in Enugu with 500 units of the IVM Connect for about 500 youths who are expected to make daily returns of N6, 000 for about 30 months, after which they take full ownership of the vehicles.

The scheme, it was learnt, will gradually be made available to other parts of the country.

He stated that he and other vehicle manufacturers invested billions of naira in their plants, fearing that the investments would be lost to government’s policy inconsistency

“What we are going to witness from now is a situation where fully built vehicles will flood the Nigerian market and result in the shut-down of local plants that are currently going through very difficult times.”

Also commenting on policy summersault by government, the Chairman of Coscharis Group, Dr. Cosmas Maduka, said, “We have seen this happen several times. In our previous interview, didn’t I share our experience in the automobile industry with you – how we invested billions of naira in building a Ford plant in Lagos that is producing very few units due to poor auto policy implementation by government?

“If President Goodluck Jonathan had remained in office, what is happening now in the auto industry wouldn’t be happening, because his government had a clear goal. The government made it clear that they would not buy any vehicle that was not produced in Nigeria, and they actually matched their words with action by patronising vehicles made in Nigeria, in order to help the industry.

“But, it is not same with this administration, because they didn’t continue with that philosophy, and the industry is dying.”