The Federal Government’s automotive policy could have harmful effects on the economy, if certain aspects including the increase in the import tariff and levy on vehicles, are not reviewed, the Lagos Chamber of Commerce and Industry has said.
The LCCI at its second quarter review on the economy noted with concern that the recent increases in tariff might adversely affect the economy and the welfare of citizens.
“As a major stakeholder in the economy, the chamber welcomes a policy thrust that seeks to promote self-reliance because there is great value in domesticating spending. However, in pursuit of this laudable aspiration, proper policy sequencing is imperative. Import dependency is only a manifestation of deeper issues of low productivity and weak competitiveness.
“It is inappropriate to begin the pursuit for a self-reliant automobile sector with the imposition of high import tariff on vehicles when there are fundamental supply side issues to resolve. Without a good foundation, the superstructure cannot stand,” the President of the chamber, Alhaji Remi Bello, said.
The Federal Government had in October 2013, come up with a policy to encourage local production of vehicles and discourage importation, thereby increasing duty and levy payable on imported new and used cars from the 20 per cent to as high as 70 per cent.
The Minister of Industry, Trade and Investment, Dr. Olusegun Aganga, recently stated that the 70 per cent tariff would start with new vehicles imported from July 1, while the full implementation of the tariff on imported used vehicles had fixed for January 1, 2015.
The new auto policy is expected to gradually phase out used vehicles, popularly known as tokunbo cars.
Aganga had also stated that stakeholders and importers of vehicles had agreed to work with the Federal Government on the implementation of the new policy.
The LCCI however stated that the tariff review would have negative outcomes on the economy including increased smuggling of vehicles with corresponding loss of revenue to government.
According to the chamber, compliant enterprises in the sector may also be forced out of business because of the weak institutional capacity to enforce the new tariff as well as the porous borders.
Bello said, “There will be higher transportation costs with corresponding impact on inflationary conditions in the economy. This would happen because over 85 per cent of the freight in the economy is moved by road; so also is the movement of citizens.
“Vehicle ownership will be put further beyond the reach of the Nigerian middle class, especially in the face of poor credit access and high lending rates in the economy while there will be loss of maritime sector jobs to neighbouring countries.”
The chamber posited that the creation of a sustainable automobile industry should be predicated on the conditions including high local value addition and capacity for backward integration; strong engineering infrastructure, especially the iron and steel industry with the production of flat sheets, foundries and fabrication of vehicle components and development of a strong petrochemical industry to supply the plastic components in vehicle production.
Others are development of ancillary industries for the production of batteries, glass, radiators and tyres and provision of affordable finance for the investors as development of the sector would not thrive in an environment where the cost of funds is between 25 and 35 per cent per annum.
“There should be creation of sound infrastructure, especially power supply and transportation. There can be no enduring industrialisation without a strong power sector. There is also a need for effective public policy to promote patronage of locally produced vehicles, especially by government institutions,” Bello added.
He urged the Federal Government to draw appropriate lessons from the collapse of assembly plants in the recent past.
He also said the government should tackle the uncertainties in the business environment which had heightened investment risks.
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