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FRESH BEGINNING FOR NIGERIA'S AUTO INDUSTRY

By NBF News
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Vice President Mohammed Sambo
The unexpected move a fortnight ago by government towards bailing out the ailing automotive industry has, once again, rekindled the hope of the revival of a sector globally regarded as vital to the development of the economy, but largely neglected by successive administrations in the country.

Vice President Mohammed Namadi Sambo had at a meeting with the management of PAN Nigeria Limited, Bank of Industry (BOI), Federal Inland Revenue Service (FIRS), Bureau for Public Enterprises (BPE) and Union Bank of Nig Plc in Abuja, set up a committee to identify factors militating against the industry and recommend appropriate remedial measures.

The committee which submitted its recommendations last weekend, was chaired by the Minister of State for Commerce and Industry, Mrs. Josephine Tapgun, with other members drawn from the Vice President's office, Ministries of Commerce and Industry and Finance, the National Automotive Council (NAC), BPE, FIRS, BOI and Union Bank.

From PAN Limited, Kaduna, to Innoson Vehicle Manufacturing Company Limited (IVM), Nnewi and from NAC in Abuja to the Nigeria Automotive Manufacturers Association (NAMA) administrative office in Lagos, Government's intention has been largely greeted with optimism which is buoyed by the Vice President's specific charge to the committee to advise it on how best to create a clement environment for the auto manufacturers through policies, viable product models and relieving incentives.

One of the optimists is the Executive Director of Nigeria Automotive Manufacturers Association (NAMA), Mr. Arthur Madueke, who recalled that the Vice President was until recently the governor of Kaduna State, where PAN Nigeria Limited, is located, and by that proximity understands the perilous state of the auto industry, which snuffed life out of almost all the six auto manufacturing plants set up by the federal Government between the mid 70s and the early 80s as components of its development plans.

To Madueke, the plan to address the issues in the industry 'is a welcome development'. In sharp contrast to the lukewarm reaction of a few who say 'we have heard it many times before', Madueke believes the Federal Government should be given a chance, since the President and the Vice President seem to have realized that the industry is in dire straits.

But, what were the factors that conspired to make it difficult for the auto plants to survive after the buoyancy that lasted till the late 80s ? Chief among them was the unfair advantages the fully built imported vehicles enjoyed (and still enjoy) in form of low tariff differentials. Also contributing were dwindling patronage, especially by all tiers of government and their agencies who account for the bulk of vehicle purchases in the country, as well as poor infrastructure which, along with the weakness of the naira vis-à-vis the value of international currencies, jerked up the prices of the locally made vehicles.

The industry has since the late 80s been in serious distress; weighed down by many debilitating factors, and despite repeated cries by the stakeholders for the intervention of government through the creation of an enabling environment, the sector has largely been neglected, leading to a situation where imported brands thrived in the market to the detriment of the locally made products. The inevitable consequence? The gradual death of many of the existing plants and the allied (downstream) industry.

The cradle of the industry in Nigeria can be traced back to the commercial investment of UAC, a conglomerate which in 1959, set up a plant through one of its departments, Niger Motor. Niger Motors produced Bedford trucks using semi-knocked down kits. The company has over the years undergone many metamorphosis to become today's GM Nigeria, jointly owned by General Motors of USA and UAC of Nigeria Plc.

Auto manufacturing was never given priority in the scheme of things at the federal level, until the establishment of six assembly plants (two for cars and four for trucks), namely, Peugeot Automobile Nigeria Limited (now PAN Nigeria Limited), Kaduna in 1975; Volkswagen of Nigeria Limited (VWoN), Lagos); Anambra Motor Manufacturing Limited (ANAMMCO), (Emene-Enugu) in 1980; Steyr Nigeria Limited, Bauchi; National Truck Manufacturers (NTM, Kano for Fiat); and Leyland Nigeria Limited, Ibadan.

At the peak of their operations, both PAN and VWoN met the local demand for cars to a very considerable extent, while ANAMMCO with an installed capacity of 7,500 vehicles per annum (in a single shift) along with NTM and Steyr, could make about 50,000 trucks. The local industry then had an installed capacity for 10,000 tractors per annum, thanks to Steyr.

Up to the mid 80s, PAN had local input manufacturers and suppliers in all parts of the country. That was the era when the middle-class still existed and every new employer's dream was to own a Peugeot 504 or a Volkswagen Beetle - both which were priced well below N10, 000 then. The network of suppliers was sustained because the volume was right, and was, therefore, every investment was worth it.

But, by the late 80s, a few years after the stifling impact of Gen Ibrahim Babangida's structural adjustment programme (SAP) and the cumulative negative effects of the 'anything-goes' attitude of successive regimes, started taking its toll on the industry, the signs of the bad days ahead were already showing. The steady decline in the patronage of locally made vehicles following inflationary trend which jerked up vehicle prices and weakened the purchasing power of the average buyer, never abated. Rather, the fortunes of the auto makers deteriorated till today.

Presently, no assembly plant in Nigeria is operating at up to 10 per cent of its installed capacity. It is, therefore, not surprising that in the past few years, vehicle imports averaged 100,000 units annually with the so called fairly used ones accounting for about 90 percent. In fact, in the past 12 to 15 years, 90 percent of automobiles sold in the Nigerian market was not made in the country.

Beyond the general inflationary effect of SAP, unregulated importation of new and old vehicles from all over the world, lack of clear-cut policies for the industry, absence of patronage from even the government that has stakes in some of the plants, decay of infrastructure and the inability of government to ensure the availability of basic raw materials and ancillary needs, made survival difficult for the plants.

The unfavorable differential between the duties on CKD used by the local manufacturers and fully built up units (FBUs) imported by marketers which the latter argue should be at least 40 percent, did not help matters. Ditto for the disdainful attitude of some Nigerians, to made-in Nigeria vehicles, which they regarded, and still regard, as inferior.

These factors explain why the local plants accounted only for about eight percent of the market share three years ago, down from 10 percent in 1996, and 66 percent in 1988 - a decline which has persisted till today.

These are draw-backs which the stakeholders say the Mrs. Tapgun-led committee was expected to recognise in drawing a blue-print for the impending government rescue plan for the industry. The NAMA Executive Secretary told Daily Sun that the specific steps which government needs to take include:

•Activate Gazette No 28 of 1994, which requires government and all its agencies and parastatals to source all their vehicles from the local plants, but which has never been implemented.

•Ensure a wide duty differential between fully built imports and CKD sets for local manufacturing of vehicles. For instance, in Malaysia, CKD attracts 35 percent duty against 105 to 165 percent for fully built vehicles (differential of 70 to 130) in favour of the CKD importers (local auto plants).

•Ensure easy access to finance, in form of soft funds which will attract low interest rates.

•Grant pioneer status to new plants like Innoson Vehicle Manufacturing Company Limited (IVM), Nnewi; which means exemption from taxes and certain charges for a number of years, to enable them stabilize.

•Improve electricity supply and other facilities that lead to the high cost of locally made vehicles.

Speaking during a telephone interview before the Tapgun committee submitted its recommendations to government, the Director-General of NAC, Engr Aminu Jalal, hinted that the report was going to contain a recipe on how to rescue the auto industry through the creation of an enabling environment.

Jalal whose Council was represented in the committee, was also optimistic that government would consider favourably the recommendation that serious steps be taken to bail out the industry.

Auto industry analysts are of the opinion that PAN deserves special doses of encouragement for keeping the assembly lines active with the production of new generation cars like the 307 sedan. Moreover, even against daunting problems that stared at the new owners of the Peugeot plant, Alhaji Sani Dauda and ASD Motors, following the privatization of the company in December 2006, the management has continued to invest heavily in boosting production activities.

They are also of the opinion that new comers in the industry like Innoson Vehicle Manufacturing Company, which is an entirely private sector investment driven by a young entrepreneur, Chief Innocent Chukwuma, also need to be encouraged. Despite the obvious crisis in the industry, the Nnewi auto maker is said to have invested hugely in a plant which has started rolling out a range of high quality (mini, medium and luxury) buses, SUVs and pick-ups.

Sadly, like the older generation of auto manufacturers, there are indications that the Innoson plant is already being encumbered by challenges, such as access to zero-or -low interest funds, high cost of production and high charges on components. This is why it is being argued by stakeholders that new entrants, who defiled the odds to venture into the industry, need tax holidays, patronage and unhindered access to finance, as much as the older generation of plants.

Chief Chukwuma told Daily Sun on phone that his Nnewi plant is already producing 'very high quality vehicles', which some transporters now use for long distance trips to many cities in the country. Apart from mini, midi and luxury buses, Innoson makes SUVs (spot utility vehicles) pick-ups, and has plans to start the production of special purpose vehicles like refuse collectors. The vehicles will also be built to be able to compact and dispose the refuse.

But the Innoson Chairman pointed out that the cost of production is too high, urging government to accord his new auto company tax and duty relieves, in addition to making interest-free funds available.

According to him, government should encourage and patronize Innoson and other local plants, because unlike the importers of fully built vehicles, the Nigerian manufacturers make huge investments, employ thousands of workers and contribute to the growth and development of the economy, despite the harsh operating environment.

'Let me tell you something, I would have been better off importing built-up vehicles or other finished products, but I chose to set up a plant to generate employment and contribute to the economy. I am an industrialist and all I always think of is how to manufacture things. So we deserve to be encouraged', Chief Chukwuma remarked on phone.

Madueke advised government to borrow a leaf from countries with successful auto industries, like India and Malaysia, that have policies in place to encourage the local manufacturers. The Malaysian industry, for instance, is younger than Nigeria's, but is today far more vibrant, with exports to many parts of the world (including Nigeria). The success of the Malaysian Proton is credited to the former Prime Minister, Mahathir bin Mohammed, whose visionary regime set up the plant and gave it all the encouragement it deserved, including high tariff on imported vehicles.

Auto industry analysts are of the opinion that now that government has received the recommendations of the Tapgun committee, it has been equipped enough to ensure that the mistakes of the past will be used to guide the industry through the pitfalls of the present.