Deji Alabi, Lagos
With the growing support for the downward review of import duties in the automotive policy currently on review, a lone voice has canvassed the retention of the duty to prevent job loss from the sector.
In all the arguments however, they all agreed that the automotive policy designed to engender backward integration in the industry has not achieved the intent of moving the nation’s auto sector forward.
The National Automotive Industry Development Plan (NAIDP) was introduced in October 2013, to encourage local manufacturing of vehicles and discourage importation of cars as well as gradually phase out used cars (popularly known as Tokunbo cars).
The policy makes provision for commercial vehicles to attract 35 percent duty without a levy. Cars are to attract 35 percent levy charged on the fully built units (FBU), in addition to the 35 percent import duty.
Also, the federal government gave incentives of zero percent, 5 percent, and 10 percent respectively to assemble plants who imported completely knocked down parts (CKD), semi knocked down parts I (SKDI) and semi-knocked down parts II (SKDII) to be used by local assembly plants attract.
Assembly plants importing FBU for cars pay 35 percent duty without a levy, whereas commercial vehicles attract 20 percent duty without a levy, in numbers equal to twice their imported CKD/SKD kits.
The policy which is currently on review by both the finance ministry and that of the Trade and Investment, is seen as counter productive, according to auto dealers, who noted that it has created N800 billion hole in the revenue to operators and the Federal Government through the Nigerian Ports Authority (NPA).
Automobile, Boatyard, Transportation, Equipment and Allied Senior Staff Association (AUTOBATE) while opposing slashing of the import duty, wants the government to revamp the steel sector to meet up with the demands of the auto industry instead of slashing the duty on imported vehicles.
“The government should endeavour to resuscitate Nigeria’s steel industry to provide materials for local vehicle manufacturing plants,” noted the Secretary-General, Sola Olurunfemi who cautioned the Federal Government from reducing duties on imported vehicles from 25 percent to 10 percent, noting that the slash will counter-productive on the local automobile industry
Olurunfemi stated that cutting down on duties would increase unemployment and that foreign companies such as TATA and Mandilas who are assembling vehicles could be forced to quit Nigeria.
Key stakeholders like Nigeria Customs Service (NCS) has urged the Federal Government to reduce automotive levy on imported brand new vehicles from 35 per cent to 10 per cent. In addition is the Lagos Chamber of Commerce and Industry which has equally called on government to reduce import duties to 15 per cent from the prevailing 25 per cent put in place by the Federal Government.
Government functionaries including the finance minister, Zainab Ahmed, and joined by Labour unions like former President, Maritime Workers Union of Nigeria, Tony Nted, National President, National CouncilA of Managing Directors of Licensed Customs Agents (NCMDLCA), Lucky Amiwero have all mounted pressures for its review.
Zainab Ahmed told InsideBusiness that neighbouring countries are giving vehicle importers incentives to berth Roll on Roll off (RORO) vessels in their port and this is greatly affecting income to government purse as importers have changed destinations from Nigeria.
“The auto policy is presently being reviewed because neighboring countries are giving incentives to vehicle importers to bring in their vehicles through their port because of our own rate.”
Though, she said the policy was introduced to trigger growth in the nation’s auto Sector with incentives to assemble plants by giving special rates to bring in Completely Knock Down) (CKD) to assemble in Nigeria, the prevailing situation has shown that it hasn’t achieved the desired result.
“We are seeing some abuse in that aspect (CKD special rate) but we have to do a holistic review of the auto policy to get optimum result and the target is to restore the automotive industry so that we have assemble plants being set up again that could lead to actively producing vehicles here in Nigeria for use of Nigerians.”
The former President, Maritime Workers Union of Nigeria, Tony Nted, who also spoke with insidebusinessonline on the review disclosed that the volume of vehicles imported into Nigerian Ports has ‘collapsed to an all-time low’, with consequent loss of jobs in the maritime industry.
He had noted that in the last few years, the number of vehicles arriving in Nigeria had shrunk by almost two-third, while the volume of cars smuggled through Cotonou continued unabated.
“It is therefore, necessary that the Federal Government reviewed its stance on the auto policy, not to inflict any more suffering on the workers, who are already having hard times from price increase.
National President, National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Lucky Amiwero, in a recent petition to President Muhammadu Buhari, lamented that the implementation of the auto policy is having significant impact such as the diversion of cars carrying vessels to neighboring West African ports as a result of high duty tariff on vehicles.
This has also led to the reduction of the maritime work force by 70 per cent, which affects mostly Licensed Customs Agents, Importer, dealer and Nigerians abroad.
The policy has also led to reduction of activities of terminal operators by 70 per cent, and the relocation of Nigeria freight components like terminal charges, ships dues and shipping company operation to other West African ports, which should have accrued to Nigerian port operators.
The Lagos Chamber of Commerce and Industry has joined the league of stakeholders in support of the review of the automotive policy.
Muda Yussuf, its Director-General lamented that five years after, the policy has not only failed to achieve the desired outcomes, it has adversely impacted the cost of doing business, welfare of the people, government revenue and the capacity of the economy to create jobs.
He added that the policy has also penalised stakeholders in the sector that are compliant with extant rules, taxes and tariffs applicable to the automobile sector.
According to him, the cost of vehicles had risen beyond the reach of most citizens and corporate bodies, adding that the impact has been largely negative with far reaching consequences.
The automobile sector, he said, was hit by the double shock of over 100 per cent currency depreciation over the last five years and an import levy of 50 percent on new cars and 25 percent on used vehicles and commercial vehicles.
He said this is in addition to the import duty of 20 percent on new cars and 10 percent on used vehicles and commercial vehicles.
‘’The auto policy was an import substitution industrialisation strategy to reduce importation of vehicles and incentivise domestic vehicle assembly.
However, import substitution strategy thrives in the context of high domestic value addition. It is within such a framework that the economy could benefit from the inherent values of import substitution which includes backward integration, multiplier effects, conservation of foreign exchange, job creation and reduction of import bills.
“The automotive policy, in its current form is not sustainable. It is also not in consonance with the Nigeria Industrial Revolution Plan (NIRP) which is the main industrial policy document of the current administration. The NIRP espouses the strategy of resource-based industrialisation. Five years into the implementation of the auto policy not much progress has been made, even though over 50 Vehicle Assembly plants licenses have been issued. Total annual sales of new cars in 2017 and 2018 were estimated at less than 10,000 units,’’ he added.
He said the high cost of vehicles has taken a toll on the economy, from a logistics point of view, even as all aspects of our economic and social lives had been negatively impacted by the situation.
He said manufacturers and other real sector investors suffer from high cost of delivery vehicles, sharp increases in haulage cost because of the high cost of trucks; school buses have become unaffordable by many institutions; many hospitals cannot afford ambulances; many corporate organisations have drastically cut down on their fleet.
He added that Nigeria has witnessed an increase in the price of vehicles by between 200 to 400 percent over the last five years.
The implication of the scenario for operational costs of organisations, he said, is worrisome and include high transportation cost resulting from the prohibitive cost of vehicles largely because of the high import tariff and levy, increase in smuggling resulting from the high import duty and levy as well as the huge duty differential with our neighboring countries, huge loss of customs revenue as vehicle imports from official channels drop and smuggling increases as well as considerable loss of maritime sector business to neighboring countries as more vehicle imports are diverted to neighboring countries.
Other implications are; severe adverse effect on automobile dealers in Nigeria as high cost of vehicles creates affordability problems, low sales and massive erosion of profit margins, loss of jobs in the nations maritime and allied sector following the sharp drop in vehicle imports and creation of opportunities for corruption and extortion by agencies of government because of compliance issues and the massive incentives for smuggling.
Recommending the immediate review of the policy, Yusuf said import levy of 50 percent on new vehicles should be reduced to 15 percent in addition to the 20 percent import duty.
He said import levy of 25 percent on commercial vehicles should be reviewed downwards to 15 percent; in addition to the 10 percent import duty, stressing that import levy on used cars should be reviewed from current 25 percent to 15 percent
According to him, government should give further tax concessions and waivers to the assembly plants in the spirit of the auto policy.
He said other incentives for assembly plants and tyre industries for acquisition of machineries and equipment should be retained as contained in the automotive policy, while similar incentives should be extended to the local production of vehicle spare parts.
He added that patronage of locally assembled vehicles by the government and its agencies should be more rigorously encouraged and enforced.
Vehicle purchase finance facility at single digit, he said, should be put in place to boost demand for automobiles, while age limit of used vehicles should be reduced gradually over time to lessen road safety risks.
‘’If these recommendations are adopted, there would be a great relief to the private sector from the logistics perspective; more jobs will be restored in the automobile business sector; smuggling will reduce; maritime sector activities will be boosted; car assembly plant will be better off with a five percent duty on SKD; the welfare effect on citizens will be positive; vehicle affordability by the middle class will improve; the transportation sector will benefit tremendously; smuggling of vehicles will reduce drastically; NPA and ports terminals facilities will be more optimally utilized for better revenue performance; and customs revenue from vehicle imports will improve considerably’’.
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