Investors split on duty cut for imported vehicles
• Customs agents, freight forwarders, NECA, others hail plan • It’ll kill local industry, job, says LCCI, others
THE proposed policy in the 2020 Finance Bill that seeks to slash duties and levies on imported vehicles has raised conflict of opinions among investors. While some argue it will stifle local automobile industry and worsen unemployment crisis, others hail the idea, saying it will boost the economy. The controversy came just as the Federal Government tried to push the policy by explaining that it was meant to cushion harsh socio- economic situation in the country.
In the draft 2020 Finance Bill, the Federal Government proposes reduction in duties on tractors from 35 to 10 per cent; from 35 to 10 per cent on vehicles for transportation of goods; and 35 to five per cent on vehicles for transportation of persons ( cars).
Vice President Yemi Osinbajo had explained in Abuja last Monday at the opening plenary of the 26th Nigeria Economic Summit ( NES# 26) that the decision to slash duty on imported vehicles was not an attempt by government to kill the nation’s automobile manufacturing industry, but to reduce the cost of transportation in the face of growing economic challenges.
He also argued that, with an annual demand of about 720,000 vehicles, as against 14,000 local production,
the national need would not be met if vehicles were not imported. The new policy, according to him, does not mean that the government has jettisoned its commitment to boosting local production.
Also, Minister of Finance, Budget, and National Planning, Zainab Ahmed, had told journalists that the reduction in import duties and levies would lead to reduction in transportation cost.
“The reason for us is to reduce the cost of transportation which is a major driver of inflation, especially food production,” she had explained.
The Director- General, National Automotive Design and Development Council, Jelani Aliyu, who had last year hinted that about nine automotive manufacturing companies were assembling vehicles in Nigeria, did not respond to phone calls and messages from The Guardian on the new development. Aliyu had listed the companies as Peugeot Automobile Nigeria, Nissan Motors, Honda Motors, Innoson Vehicle Manufacturing Company, Hyundai Motor Company, Ford Motor Company, GIC Motor Companies Ltd, JAC Motors and Kia Motors.
A number companies equally assemble trucks, including Dangote, while Bua had recently indicated interest in the industry. A Memorandum of Understanding was reportedly signed with Volkswagen and over 21 companies were said to have been licensed to build vehicles in the country.
Before Nigeria shut its borders, there had been outcry against the increasing rate of smuggled vehicles into the country due to the high import levy and tariff. Comptroller- General of the Nigeria Customs Service, Hameed Ali, had at some point noted that the 35 per cent levy discouraged importers and created opportunities for neighbouring countries.
T HOUGH some operators in the Nigerian automotive industry and experts have raised concerns about amendments to some aspects of the policy — especially as it relates to levies — some members of the organised private sector believe the decision may spur growth and competition. With the coming into force of the implementation of the African Continental Free Trade Area ( AFCFTA) Agreement by January 1, 2021, the stakeholders cited the imperative for the country to streamline its tariff lines, in compliance with the protocol.
The rise in duty and depreciation in value of naira drove prices of new cars far above the purchasing power of the fast diminishing middle- income earners.
Automobile dealers also witnessed a significant decline in sales volume due to higher landing cost of imported vehicles, which has been further amplified by higher tariffs.
Nigeria recorded a total sum of N1.28 trillion as the value of “used vehicles” ( popularly known as Tokunbo) and motorcycles imported in one year ( Q3 2019 – Q2 2020), compared to N899 billion recorded in the corresponding period ( Q3 2018 – Q2 2019), implying an increase of 42%. This is according to data obtained from various foreign trade reports released by the National Bureau of Statistics ( NBS).
The surge in importation of used vehicles and motorcycle has been significantly driven by e- hailing car and bike services, one of the two fastest- growing businesses in Nigeria, due to rising urbanisation, growing youth population, surging number of internet and smartphone users and increased investment.
In November 2013, the Federal Government had announced the introduction of a new automotive policy, which was geared towards discouraging the importation of wholly assembled automobiles and encouraging local manufacturing.
Specifically, the policy allows local assembly plants to import completelyknocked- down vehicles at zero per cent duty, and semiknocked- down vehicles at 5 per cent duty, while importers pay a 70 per cent duty on new and previously- owned vehicles.
The policy’s main thrust was to encourage local car production/ assembly plants while cutting importation through raising import duties.
Seven years after, the policies have failed to achieve the desired outcomes, as Nigeria’s domestic vehicle production capacity remains under- utilised. The economic slump that the country suffered shortly after the automotive policy was introduced hindered resuscitation of the industry.
At about N160 to the dollar in 2013 and presently almost N500, stakeholders note that the auto sector’s woes have been complicated by the slow backward integration exercise.
Minister of Industry, Trade and Investment, Adeniyi Adebayo, had, at the year’s general meeting of the Manufacturers Association of Nigeria ( MAN), announced plans for a fresh start for the auto industry.
According to the minister, the bill prepared by the former administration was not received at the National Assembly; hence the plan to engage all stakeholders in the industry to get it right this time round.
Comptroller- General of Customs, Col. Hameed Ali ( rtd.), had also urged the Federal Government to revisit the auto policy, especially the duty charged on used vehicles.
“We have decided to engage all stakeholders in the industry. It is like starting afresh and getting it right. The last one that was done was not done well. We have to get it right this time. We are going to engage all the stakeholders, and in the next couple of weeks, I will be visiting all the assembly plants,” he had said. A MONG those that have expressed support for the move to reduce charges on imported vehicles is the National President of the Association of Nigerian Licensed Customs Agents ( ANLCA), Tony Nwabunike. He stated that the reduction in levies clearly showed government had the welfare of masses at heart.
Arguing along the line of the Federal Government, Nwabunike said Nigeria did not have the capacity to manufacture cars to meet local demand.
He observed that, although Innosson had worked hard to get it right, other local assemblers had not shown similar acumen.
Describing the move by Federal Government as good, he said the masses would benefit from more importation of vehicles.
“The local manufacturers or assemblers cannot meet the demands of the masses, they shouldn’t bother much about it,” he said. Similarly, the Director General, Lagos Chamber of Commerce and Industry ( LCCI), Dr. Muda Yusuf, welcomed the idea.
He said current high tariff had resulted in massive smuggling of vehicles and loss of revenue to government, making auto dealers that complied to suffer over the years because they could not compete with car smugglers.
He, however, advised policymakers to be cautious not to jeopardise existing investments in the auto assembly sector. He added that the tariff concessions given to importers of vehicles should be extended to the auto assembly firms in the country.
The National Coordinator of Save Nigeria Freight Forwarders, Importers and Exporters Coalition ( SNIFFIEC), Dr. Osita Chukwu, also applauded the move. He said importation of good cars would reduce cost of transportation towards overcoming economic recession.
He urged government to make the plan a reality by ensuring its passage and transmission to relevant agencies for implementation.
Local manufacturers, he said, should not be threatened by the proposal since it was only meant to complement their effort.
“How many cars can our local automobile companies produce? Nigeria is 200 million in population and let’s assume that 80 million use cars, how many can our local companies produce and how many people can afford those cars?
“The least car is sold about N5 million, who can buy that car? Some people are buying fairly used imported cars for N1.5 million. If the cars coming from outside are cheaper, then we will use them.”
In a chat with The Guardian, the Director- General of the Nigeria Employers’ Consultative Association ( NECA), Dr. Timothy Olawale, also applauded the policy direction, even as he expressed optimism that the fiscal measure, among others, was in tandem with NECA’S advocacy campaign and would stimulate aggregate demand, boost agricultural value chain and reduce transportation/ haulage cost.