The Nigeria Automotive Industry—Policy, History And Development
The National Automotive Policy
- After the comatose of the once vibrant Auto industry in Nigeria, the Government recognized the importance and basic role of the automotive industry in the industrial development of Nigeria by resuscitating the standing technical committee on national automotive industry in 1990.
- The NAC (National Automotive council) with inputs from the Nigerian automobile manufacturers association (NAMA),and other organizations involved in the industry drafted the automotive policy for Nigeria.
- Presidential approval for the policy was given on December 30,1992 and later endorsed by the transitional council on august 10 1993. (www.nac.org.ng/industries_policy)
- The policy document was formally launched on august 23, 1993. The document provided for the establishment of the national automotive council as a parastatal of the federal ministry of industry.Act No. 84 of august 25, 1993 backed up the establishment of the council.
The trust of the national automotive policy was to ensure the survival, growth of the Nigerian automotive industry using local, human and material resources. This is with a view to enhancing the industry's contribution to the national economy, especially in the areas of transportation of people and goods.
The elements of the objective included:
- Provision of automotive vehicles for urban and human areas.
- Accelerated technological development of the Nigerian economy.
- Increased employment opportunities for Nigerians.
- Conservation of scarce foreign exchange.
- Establishment of integrated Automotive Industry in Nigeria.
- Standardization and rationalization of the Nigerian automotive industry.
- Increased private sector participation in the establishment of the auto industry.
- Technology acquisition; and
- Creating conducive operational environment through the introduction of appropriate fiscal policy and monetary incentives.
National Automotive Council (NAC) - Policy perspective
In many countries around the world, the automotive industry plays a strategic and catalytic role in economic development in respect of the employment creation, GDP contribution, small, medium and micro-enterprises (SME) development in respect of automotive parts, components and services, skills development, and the acquisition of technology.
According to the NAC, an automotive industry will create significant good quality employment and a wide range of technologically advanced manufacturing opportunities. This industrial base can then form the foundation of other modern advanced manufacturing activities. For example, commercial vehicle production will lead to the manufacture of agricultural, mining and railway equipment, military hardware and transport.
Nigeria is one of the most populous economies in the world and with economic growth, the demand for vehicles will grow significantly. The effect of this on the balance of payments will be significant and potentially destabilizing. Other large economies tend to have automotive industries and can thereby mitigate the balance of payments effects of this very large industry by providing a significant part of their automotive needs through domestic production as well as exports to compensate for imports.
The above according to the council, are compelling reasons for considering the strategic importance of the automotive industry in Nigeria.
There have been previous programs in the past as stated earlier, but adjustments were not made to ensure the growth of these programmes. After extensive consideration and consultation with those involved in other programmes around the world, a new programwas developed by the Federal Ministry of Industry, Trade and Investment and the National Automotive Council.
In developing industrial strategies it became evident that Nigeria needed to use its tariff structure to achieve industrial policy objectives without unduly raising the domestic price structure. To this end negotiations took place with ECOWAS to allow for such a tariff policy for strategic industries. The automotive industry is one of these industries in Nigeria.
The plan encompasses the following below elements which will ensure competitiveness and increase productivity of the sector:
- Industrial infrastructure
- Skills Development
- Investment Promotion
- Vehicle Purchase Scheme
The Federal Government of Nigeria in 2013 approved a New Automotive Industry Development Plan (NAIDP) to transform the Nigerian automotive industry and attract investment into the sector.
The Auto Sector is a key component of the Nigerian Industrial Revolution Plan (NIRP). The NIRP is a 5 year programme developed by the Federal Ministry of Industry, Trade, and Investments to diversify Nigeria’s economy and revenues through industry and to increase manufacturing’s contribution to GDP from 4% in 2014, to 6% by 2015, and finally above 10% by 2017.
The Nigerian Market for automobiles is substantive and can readily sustain an automobile industry. In 2012, the Country imported about $4 billion worth of automobiles of which about two thirds were used vehicles (United Nations Conference on Trade and Development).
The estimated annual vehicular demand for new vehicles is over half a million made up of 100,0000 new and up to 400,00 Used (NAC) As at 2012, the population of the middle class was 38 million (Federal Ministry of Industry Trade and Investment) and growing, assuring sustained market for the automotive industry.
According to research work by the Lagos Business School, the market size for automobiles in Nigeria can easily reach the 1 million units mark annually if there is an affordable vehicle credit purchase scheme. Cost of asset financing at the moment is prohibitive so most Nigerians save up to buy cars on a cash and carry basis.
Over the last few decades in Nigeria the tariffs on vehicles have gradually been reducing, with the current level of 20% duty on passenger vehicles making it impossible to compete against more established automotive industries in other economies.
However, the potential market size for vehicles in Nigeria makes it an industry in which Nigeria should have a competitive advantage since the auto industry is strongly driven by economies of scale. In addition Nigeria has a strong hydrocarbon value chain potential that can underpin an automotive components sector based on plastics and related materials that are heavily used in modern vehicles.
Following the successful experience of economies such as Australia, South Africa and Brazil the NAIDP raises tariffs for vehicles but allowing gives rebate for those Original Equipment Manufacturers (OEM) that produce vehicles in Nigeria.
Along with the other incentives for investment that are set out, the tariff mechanism incentivizes local production of vehicles and components. The approach taken is realistic in view of the federal government in that it accepts that the installation of productive capacity will have to be done in stages as the complementary energy, logistical and maintenance infrastructure is developed.
As in other programmes this phasing is achieved through allowing for the importation to progress from Semi Knocked Down vehicles (major parts of the vehicle are imported along with components) to Completely Knocked Down (components are imported and assembled).
The NAIDP was designed in such a manner that it mitigates against a rapid increase in vehicle prices by linking tariff rebates to local production. The NAIDP sets tariffs at a maximum of 70% (35% duty plus 35% levy) for fully built up cars and 35% duty without levy for commercial vehicles in the first phase. This level will decrease as the sector grows and becomes more competitive. Completely knocked down parts (CKD) and semi-knocked down parts (SKD) for assembling will be charged 0% and 5%-10% duty.
As an incentive measure, local manufacturing operations are allowed to import fully built cars (FBU) without the levy and commercial vehicles at 20% in proportion to their local production as detailed in table below. Tariff on these inputs will increase as well once local manufacturing capacity strengthens. The objective of this policy is to establish vehicle assembly plants that source many of their local content locally.
The 10-year Nigerian Automotive Industry Development Plan, 2014 to end 2024.
Criticism of National Automotive policy
There have been several reservations about the new policy as it brings about a change from the norm, several loopholes have been projected in the policy as well as resistance from a lot of auto dealers especially for the used and pre- owned vehicles.
Joel AkhatorOdigie , the Coordinator, Human and Trade Union Rights at Africa Regional Organization of the International Trade Union Confederation (ITUC- Africa), Lome, Togo has strong views against the policy as detailed below in excepts of his paper.
Odigie questions the government’s ambition about a made-in-Nigeria car, asking how many jobs will be created by a local car assembly plant with very low downstream activities (production), same for upstream activities (marketing) in the value chains?
He stressed that this policy will only bring about an assembly plant car brands whose parts were never made or fabricated in Nigeria. He further stated that the sad reality of the policy is that it will grant interested car manufacturing brands all manners of tax concessions to the point of allowing them to engage, practically, in goods dumping.
For instance he continued, the concession that allows potential car assembly plant to bring in totally knocked down parts at 0% tax tariff is alarming. The other tariffs for the other parts that will be imported will enjoy similar incredible knock-down rates.
These so called tax incentives are monies that would have gone into financing government spending on social provisions as part of the fight against poverty and inequality. Furthermore he added, studies have shown that businesses do not want incentives, but infrastructures. According to Odigie, in essence, responsible companies are ready and willing, prefer functional infrastructures (electricity, durable roads, security, portable water, human capacity) rather than be given incentives and left to be a municipal.
Linked to the issue of incentives and tax concessions that this policy is willfully giving away is that there is the feeling that [foreign] capital is compassionate. He stated that, It must be clear that capital is a coward. It will never go anywhere it is not safe. Equally, too, policy to attract foreign capitals to complement local ones should never be conceived from the perspective that such monies coming to benefit the recipient economy. Rather, such capitals come because they are sure they will make profit and not a charity. When the environment for profit extraction becomes less conducive, such capitals will run away!On capital movement,Odigie postulated that profit repatriation, and technology transfer, the policy as proposed by Olusegun Aganga, the Minister of Trade lacks some logical reasoning.
Similarly he suggests that, to increase car importation tariff by 70% of the value is anti-poor, especially where bank credit/loan system in Nigeria is arbitrary, exorbitant and unbearable. In societies where cars are locally manufactured and sold, most cars are bought on credit facilities with bearable and flexible repayment arrangements.
In Nigeria, interest rates on loans hover around 21-29% beside hidden charges. Besides, credit facilities are given mostly to big businesses, formal employees and governments, whilst the majority of the people in the informal economy literally have to pass through the eyes of the needle to secure loans from banks. And when you compare the scenario to the situation of the over 30% of the armies of the unemployed in Nigeria, then you can better comprehend that this is an anti-poor, pro-rich/elite policy. At best the present middle class and governments at the various tiers will be the clients of these car assembly plants. In essence, one can say that the policy puts the cart in front of the horse.
Last month’s election of MuhammaduBuhari might change direction in view of this new policy. While nothing has been released on the actual course of the automotive policy, the new government might change the approach, timeline and change in import duties.
According to Alh. LanreShittu, CEO Lanreshittu motors a major vehicle importer, “the economy will bloom because of the new regime and change in policies that will come with it. Right now demand for cars are low and importation in cars has reduced but the coming changes will drive people to buy more cars as the economy improves” As stake holders we are watching closely to see the direction in this matter….
In conclusion, Nigeria’s economy has continued to expand in recent years especially with the rebasing of the GDP and new businesses and new sectors springing up every day, opening up the market as evident in the entrant of Carmidi.com.ng in the e-commerce space creating more avenues to increase competition and vehicle purchase platforms is also contributing its quota to developing the Automotive industry.
Information document on the Nigerian Automotive Industry Development Plan- NAC, JUNE 2014
The New National Automotive Policy and Nigeria Industrialization -Joel AkhatorOdigie, April 2014
Lagos Business school ; Economic review - 2014.
United Nations Conference on Trade and Development- website