Nigeria Auto Policy: A timeline of inconsistency

National Automotive Policy

For most countries seeking industrialisation, the automotive industry has always come not only handy, but also helpful to reach industrialisation goals. From the developed economies through the very dynamic BRICS countries to the developing MINT nations, in which economist Jim O’Neill fixes Nigeria, the automotive industry always plays a significant role in the industrialsation of the countries and their gross domestic product (GDP).

In fact, development economists recommend the automotive industry as an economy of focus for countries seeking to achieve industrialization. The Economic Community of West African States (ECOWAS) in 2015 adopted the automotive and machinery industry as one of the four regional priority sectors. The reason is not far-fetch. Automotive manufacturing creates millions of jobs, while helping a country save in significant terms, foreign exchange. When on exportation level, it can help nations up their foreign trade and attain balance, if not a plus on the international trade scale.

Needless to mention the developed economies of the world, it is pertinent to observe that the BRICS—Brazil, Russia, India and South Africa are countries with significant GDP from automobile industries. Some of them are now moving up to even manufacturing airplanes. Among the MINT countries—Mexico, Indonesia, Nigeria and Turkey, Nigeria emerges least industrialised, still struggling to build a virile automotive industry more than 56 years after its first indulgence in motoring.


In the beginning…1960- 80

The advent of the automotive industry in Nigeria can be traced back to the early 1960’s when private companies, such as UAC, Leventis, SCOA, BEWAC and RT Briscoe, pioneered the establishment of automobile assembly plants that used completely knocked down (CKD) or semi knocked down (SKD) parts, on a very limited scale. These were the companies that ventured into the country’s automotive assemblage industry during the first phase of Nigeria’s National Development Plan. Without government’s clear support, the industry only managed to exist.

With government involvement in the 70’s and 80’s, a broader platform was made available for negotiation with a number of automotive plants in Europe to set up two car and four truck plants using completely knocked down parts. During this period, the Nigerian automotive industry had the capacity to produce 108,000 cars, 56,000 commercial vehicles and 6,000 tractors annually. However, from the 1980’s, the industry shrunk from 90 per cent capacity utilisation to 10 per cent capacity utilisation.

Federal government’s involvement in the automotive industry began under the Second National Development Plan spanning 1970-1974. Prior to that time, all we had were sales outlets. If there was any room at all for growth, it was rubbished by the protracted civil war that plunged this nation into darkness and set the plan back by many decades. In the Second National Development Plan, two passenger car assembly plants were established. As an impetus to this Second plan, the Third National Development Plan was initiated in 1975, and was expected to last till 1980, that is 1975-1980. Under this plan, four commercial and truck plants came into the fray. They were Volkswagen of Nigeria Limited (VWON) in Lagos; Peugeot Automobile Nigeria limited (PAN); Kaduna, Anambra Motor Manufacturing Company (ANNAMCO), Enugu; Styer Nigeria   limited in Bauchi, National Truck Manufacturers (NMT) in Kano and Leyland Nisara Limited in Ibadan.

The Federal government had declared that it was entering the automotive industry to aid the quick integrated development of the industry by exercising some measures of control over both the passenger cars, and commercial vehicles arms of the industry. It further stated the need to accelerate the pace of local parts incorporation by halting the trend towards a proliferation of makes and models, thereby ensuring that parts can be locally manufactured in commercial quantities. This was to be done in order to stimulate the growth of indigenous automotive component manufacturing and ancillary industries. This would ensure higher local content, greater standardization of technology and a more efficient utilization of costly equipment in the industry. Had the Federal government pursued these objectives vigorously, it is assumed that a hundred per cent local content or component incorporation could have been achieved by now.


The National Automotive Fund dries up!

Perhaps, most industry stakeholders have forgotten the National Automotive Fund, especially with the recent changing of name from National Automotive Council to National Automotive Design and Development Council (NADDC), which is now the new name of the council.

Following the failure of the several phases of the auto policy, Nigerian began to import used cars popularly called “tokunbo,” as inflation takes toll on the Naira and the people’s purchasing power dwindled. This failure of the auto policy, combined with the importation of fairly used cars at massive rates didn’t augur well with the sector. To discourage this importation of cars, a two per cent levy charged on all imported vehicles into the country, christened the National Automotive Funds, was set up.

This was meant to support the industry, especially to form a pool of fund that can aid investors in the automotive manufacturing industry. Many years after, the modern Nigerian automotive industry is yet to take off. The pace of development has been rather protracted and slow, particularly in the area of local content. Today, the fund is no more and could be accounted for by the NAC despite the fact that multiples of scores of billions of naira went into it. 


Democracy and the auto industry

With the coming of democracy in 1999, there were promises of revival of the auto industry. There were plans on ground to revive the country’s steel rolling mills thereby providing ample raw materials for the industry. But all that also failed.


As part of plans to discourage importation of used vehicles, the Olusegun Obasanjo administration in January 2002, banned importation of cars that are over 15 years from the date of manufacture. This decision was however not in any direct connection with existing automotive policy, as the government claimed, as reasons for the ban, that unserviceable cars are being dumped into the country and that these vehicles contribute to the rate of vehicular accidents on the Nigerian roads.

By 2010, during the administration of Goodluck Jonathan, the National Automotive Council (NAC), an agency charged with the responsibility of supervising policies and programmes for locally assembled vehicles and components brought the attention of stakeholders on the need to revive the industry. It was highly held that the revival of the automotive industry would create jobs for the teeming unemployed youth population and save the country huge capital flight, which helping to achieve industrialization and development goals.

Eventually in October 2013, the Jonathan government announced revival of Nigerian Automotive Industry Development Plan (NAIDP), laced with punitive tariff on imported fully built vehicles, but habouring big tariff rebate for SKDs meant for assemblage of vehicles in the country.

The objective of the automotive policy is to restore assembly and develop local content, thus, creating employment, acquiring technology and reducing pressure on the country’s balance of payment.

By the coming year 2014, at least, five of the country’s previously existing automobile assembly plants have resumed operations, having been upgraded, while seven dormant plants were resuscitated.

Director General, National Automotive Council (NAC) Engineer Aminu Jalal, said in his address at the restart of production of Volkswagen vehicles at the Volkswagen plant, Lagos, Nigeria, that 40 countries produced almost 90 million vehicles, last year, valued at over $2 trillion.

He said the industrial value added to GDP of South Africa in the corresponding period is seven per cent and more than 10 per cent in some European countries; over 10 per cent for Japan and over five per cent for the USA. According to him, the Philippines is the latest country to inaugurate an automotive policy in 2015.

He said, “The Nigerian automotive policy was launched as part of the Nigerian Industrial Revolution Plan (NIRP) to increase the contribution of the manufacturing sector to the country’s GDP from 6.8 per cent in 2014 to above 13 per cent by 2017.”

Jalal, at the venue of the United Nations Conference on Trade and Development (UNCTAD), lamented the volume of FOREX expended on vehicle, parts and tyre imports, saying that Nigeria, in 2013, imported vehicles worth N1.2 trillion ($6.2 billion) and spare parts and tyres worth N260 billion ($1.3 billion).




Nigeria records 67% reduction in new cars import, amidst sharp practices

With the high rate of tariff, 70 per cent on imported fully built cars and buses and only 10 per cent on SKDs, more automobile assemblage companies came on board. Dealership companies began to clinch assemblage deals with parent companies for several models.

With Stallion Motors leading in number of locally assembled models through its Nissan Motors Nigeria, Hyundai Motors having VON as their production plants, many other auto makers have found Nigeria as a new emerging market with great middle class power. Nigeria’s own indigenous Innoson Motors hit the ground running, with several models, including SUVs. Kaduna’s Peugeot had also bounced back assembling its 301 model.

By middle of 2015, the country saw a whopping 67 per cent reduction in importation of new FBUs, as the auto makers focus more on importing SKDs for local production. But it did not end there. Some of the auto assemblers were importing FBUs for other models in the line and merely removing their tyres and declaring them as SKDs to take advantage of the loophole in the auto policy. Some of them now face litigations for allegations related to their roles in tariff evasion.

Perhaps, the dearth of foreign exchange played a part in the 67 per cent reduction of imported vehicles, as importation of new cars by Nigerians and Nigerian automobile dealers in 2015 dropped by a whopping 67 per cent to 15,031 units from the 2014 imports of 45,618 cars. However, this may have, outside other teething problems, suggested that the auto policy was beginning to have impact on the Nigeria’s automobile industry.

With Nigeria’s annual new cars import around 50,000 units before the revival of the policy in October 2013 and its subsequent full implementation by the Nigerian Customs Service at the ports by the 4th quarter of 2015, the figures suggest that the country’s National Automotive Policy which discourages importation of fully built cars and buses had begun to have the intended impact.

Indeed, the dearth of dollar, resulting from the Central Bank of Nigeria’s restrictive measures affected importation of goods into the country across all facets, but the huge fall in importation of cars tells something more than the issue of dollar.

Toyota’s head of Marketing, Mr Andrew Ajuyah, who alluded to the figures at a recent industry forum in Lagos said “This year marks the full implementation of the auto policy and that accounts for the drop in car imports in 2015.”


The beautiful prospects

By mid-2015, the auto policy had left clear evidence of growth, amidst a number of industry and customs issues. Suffice to mention that since the implementation of the NAIDP, the policy has attracted a number of top automotive brands into the country with about 10 brands assembled in the country as at 2015. According to a document of the National Automotive Design and Development Council (NADDC), not less than 30 other brands, including trucks and buses have signed commitments with technical partners and have already obtained licenses to assemble passenger cars, sports utility vehicles (SUVs), buses and trucks in the country. The NADDC estimates annual imports at about 400,000 vehicles valued at $3.45 billion out of which about 50,000 units are new cars.

The council believed the automotive industry, which currently employs around 2,600 workers, has the potential to generate 70,000 direct jobs, as well as employ about 210,000 indirectly.

By the same time, a recent report by PwC, which projects Nigeria as Africa’s next automotive hub, the auto policy envisages triple scenario, in which the first projects rapid growth, where there is proper implementation of NAIDP, especially with the protection of the borders and strong government support, putting real GDP growth at 6.6 per cent till 2020, 5.1 per cent till 2030 and 5.4 per cent till 2050 making it among the ten largest economies by 2050. This scenario predicts that Completely Knocked Down (CKD) production will begin in 2019, real manufacturing will start in 2023, and used imported vehicles phased out by 2034, while production with Semi Knocked Down (SKD) will have been outgrown.

The second scenario projects medium growth, with partial implementation of the policy by subsequent administrations with moderate government support. Here, real GDP growth is pinned at 6.6 per cent till 2020, 5.1 per cent till 2030 and 5.4 per cent till 2050 making it among the 10 largest economies by 2050. In this scenario, production with CKD begins in 2019, while real manufacturing starts in 2025, with used imported vehicles phased out by 2040 and production with SKD ceasing by 2041.

The third scenario, which is pegged at slow growth with inconsistency in government auto policy resulting in the stagnation of the industry and minimal government support, has real GDP growth at 5.6 per cent till 2020, 4.1 per cent till 2030 and 4.4 per cent till 2050. With the industry at the risk of stagnation, CKD production will begin in 2024, manufacturing will start in 2030, importation of used vehicles will be phased out by 2044, while SKD will be phased out in 2045.


The self-sufficiency question and the entry of Chinese brands

With the revival of the auto policy, which came with heavy tariffs on imported cars as a measure to discourage their importation, Nigerians raised concerns over the ability of the local assemblers in the country to make enough cars for the country’s prospective car ownership population.

However, with 10 brands of cars and SUVs being assembled in Nigeria at various plants belonging to major players who were hitherto representatives of the global automobile names, there was a quick answer to the question of self-sufficiency.

Car brands currently being assembled in the country include those being produced by industry leader, Stallion Group, which include some models of Nissan, Hyndai, Honda and Volkswagen, which are being assembled at the company’s VON Centre in Lagos. The group’s latest subsidiary, Zahav Automobiles, with plants at Ikotun, Lagos came to the industry with four Chinese brands and more, which were already becoming visible in Nigerian automobile market. Zahav assembles the Changan brand coming with multiple models, such as the Eado, the Foton brand, the BAIC brand and the Stallion brand. For all of its brands, Stallion had for 2016 over 40,000 units target. Nigeria imports an annual average of 50,000 units of cars.

In its range of locally assembled models, PAN Nigeria Limited has the Peugeot 301 and 508, while a large number of models are now paraded at the Innoson Vehicle Manufacturing Company (IVM) plants in Nnewi, eastern Nigeria. KIA Motors targeted 5,000 units for 2015 for all of its models, numbering four being assembled at its Isolo-based plants with about 80 per cent indigenous labour, comprising graduates of industrial and mechanical engineering from three Nigerian universities, namely, University of Ibadan, University of Benin and Ondo State University.

Also, PAN Nigeria based in Kaduna assembled nearly 4,000 units of the 301 in 2015. The company’s general manager, industrial division, Engineer Augustine Okolo who disclosed in an interview with LEADERSHIP at the PAN headquarters in Kaduna, said in the next two years, the company would manufacture at least 15,000 cars per annum.

“I also see a PAN where utilisation of infrastructure will hit minimum of 75 per cent; where employees will be way above 3,000,” he said.

“The way the company is going, I have no doubt, for its fast return to the glorious days, except the government truncates this policy,” he added.

Okolo who is also the national chairman, Automotive Engineering Institute said PAN being in the vanguard of the auto policy will herald the accomplishment of the policy in the next few years, when a made in Nigeria car can sell as low as N1 million because the cost of a car is a function of the volume the company produces.

“If the volumes are high, the local content would be high and the cost of a unit of car will come down. Our projection for this year is close to 4,000. By next month we will be manufacturing the Peugeot 508,” he said.

He stressed that without the auto policy, the automobile sector would go nowhere.

“It (auto policy) is the only way for Nigeria, if it must develop the automobile industry. It has opened a platform for investors in auto sector to come in. No one invests in an area where he’s not sure of a good return. The auto policy has created an environment for investors to thrive,” he noted.

He advised opponents of the policy to desist from frustrating its implementation, saying that nothing good comes easy.

“The government is also contending with forces and as a matter of fact, the forces are quite formidable. If the forces against appreciate the fact that there are some gains,” he said.

Nigeria’s leading automaker and largest distributor of new vehicles in the country, Stallion Nissan Motors Nigeria Limited built about 6,000 cars and SUVs in 2015, winning a global sales award from Nissan Japan and as at its new operational year ends in March 2016, it is looking beyond the volume for the previous year.

The feat is a huge leap from 600 units which the company built in its first year when it started local production. The Nissan Patrol, a high-end jeep favoured by government officials, Nissan Almera and South African-modelled MP 300 pickup are the three Nissan brands being built in Nigeria currently by Stallion NMN.

The company’s group managing director, Mr Parvir Singh said the federal government has taken care of certain aspects of the country’s new National Automotive Policy with which it seeks to develop production of cars and buses in Nigeria.

Assuring of the quality of cars and other vehicles assembled in Nigeria, the Stallion boss said, “Government is monitoring every aspect of the process and every progress made gets certification from government. Manufacturing passenger vehicles is highly complex, unlike commercial vehicles. Vehicle manufacturing is a good process of industrialisation and nobody can short-circuit the process. This process is what we are following,” Singh said.

On the 50,000 annual car import figure, Singh said, “The figure is even little for some three manufacturers. What I think we need now is more investment in social infrastructure by government. There is dearth of local skills and so we engage expatriates for now.”


Nigerians’ love for tokunbo as top challenge

As sweet as the story goes, many Nigerians are not convinced that new cars can be cheaper than their imagination, or perhaps, they have over the years, grown better measure of confidence on cars built overseas. So, the used cars, commonly known as tokunbo keep coming in.

Importation of used cars managed to beat the tenets of the auto policy. With Nigeria lifting limit on age of used vehicles from 10 to 15 years, most of the used cars come into the country at a ‘not too good age’ and therefore attract little tariffs. This is perhaps where Nigerian prospective car owners find great reprieve and the trend form a top challenge to the auto policy.

According to a Customs source, most of the cars come in through the land borders over-aged and a pantry rate is paid on them “just to avoid smuggling.”

“The prohibitive tariff placed on imported cars is limited to new ones from 2015. Some of the old vehicles are over aged. So, Customs just collect duty to discourage smuggling,” said spokesman of the Seme Border command, Mr SK Taupyen.

According to him, a total of 35,441 vehicles were cleared through Seme Border in 2015 with a cumulative duty paid value (DPV) of N5.89 billion.

With the NAIDP, the country’s automotive policy grew to fruition and saw a hike of tariffs on imported cars from 20 per cent to 70 per cent, which was fully implemented in the last quarter of the year. Through the year earlier, imported cars attracted 35 per cent duty and levy fees. This impacted negatively on the businesses of the vehicle terminals in Tin Can Island Port, Lagos. Such ports include the PTML and Five Star Logistics, which are currently technically out of business.

The policy is to encourage local assemblage of cars and buses as it stipulates only five per cent and 10 per cent tariffs for semi knocked down parts (SKD1) and SKD2 respectively. The policies allow zero tariff for completely knocked down parts (CKD).

Consequently, while importers of new cars and buses managed to patronise Nigerian ports, importers of used vehicles ultimately resorted to bringing the consignments through the land borders, having destinated their cars to seaports in Benin Republic or Togo.

What is more? As more players hook up to the NAIDP, the Q1 of 2016 saw a burst of Chinese automobile brands in the country. As it is with many products from China, the science and art of economics was playing out with the Chinese automobile brands, with several models introduced by leading industry players, Stallion Group and Elizade Motors at the tail end of 2015.

Stallion’s daughter automobile manufacturing company, Zahav Automobile Company Nigeria Limited, with plants in Ikotun, Lagos, is the local assembler of Foton Tunland pickup, the Changan and BAIC models, as well as the indigenous Stallion Force pickup.

Already, the company is positioning the Foton Tunland and Stallion Force pickups to give the likes of Hilux, L200 and other competitors a run for their money in 2016. The Chinese brand also has the CS2 Foton passenger bus assembled at the Ikotun plant, which is poised to take off a huge market chunk from Toyota’s Hiace and the likes.

A good number of sedan and sports utility vehicles (SUV) models were coming out from the Zahav plants this year. They include the Changan models- CS35 an SUV, the Changan Eado, a city sedan and the BAIC models which are majorly the D-series, all being assembled in Nigeria.

Coming in relatively very cheap, these Chinese vehicles essentially share the DNA of two renowned automobile manufacturers – Daimler Automotive Company, maker of Mercedes, and Cummins Engine Company, as the Chinese automakers, Changan Motors and Beijing Automotive Industry Holding Company Ltd (BAIC) are in technical partnership with these global automobile names to enhance a globally accepted quality.


2016: Prospects crash into recession

The latest policy efforts of the Federal Government, namely the 2013 revived auto policy was beginning to yield beautiful stories, but all that now appears to be crashing into recession. Investigations by SHIPS & PORTS DAILY  revealed that foreign exchange constraints and the general economic downturn have led to a dip in importation of semi knocked down parts (SKDs) and fully built vehicles (FBUs) by 60 per cent.

Vehicular sales by automakers and dealers have also gone down by 50 per cent, as Nigerians focus more on foods and cutting down cost on luxuries, according to a leading industry player, Toyota Nigeria.

This situation has pushed automakers into refocusing more on after sales, as many Nigerians would rather have their old vehicles maintained than to buy a new one.

Apparently reeling out the frustration of players in the industry, the Managing Director of Toyota Nigeria Limited (TNL), Mr Kunle Ade-Ojo, who gave the depressive figures described 2016 as tough year for the company and the industry.

He said that owing to the foreign exchange constraints, level of importation of new vehicles had dropped by over 60 per cent between January and September, with retail sales dipping by 50 per cent.

With fears that the forex constraints may extend to 2017, the Toyota boss said corporate bodies who are big buyers of vehicles now resort to cost-cutting measures to remain in business.

“Prices of vehicles had doubled as a result of the forex constraint. As auto companies, we buy forex at black markets to increase turnover and avoid loss. But Toyota in Nigeria, we are built on a solid foundation and years of planning. We have also adopted cost-cutting measures and all these are helping  us to absorb the economic shocks now,” Ade-Ojo told journalists during the company’s annual press briefing last Wednesday.

Nigeria’s leading local automobile assembler, Stallion Nissan Motors (Stallion NMN) has sterilised operation for some models due to difficulty in importing SKDs.

The company’s spokesman, Mr Manny Philipson said auto makers are sharing big “in the gloomy situation of the market.”

“Now automakers can’t import SKDs and demand has shrunk.  Nigerians now have very low disposable income and whenever disposable income is low, demand for vehicles also goes down. People will continue to use the old vehicle they have and do not buy new ones,” Philipson said.

The auto makers are now focusing on aftersales services. The Toyota boss, Ade-Ojo said despite maintaining a four per cent rise in market share in 2016, the company would focus more on after-sale services by January 2017, bearing in mind that most corporate bodies and government agencies which formed the largest chunk of its clientele, would use their vehicles much longer.

Philipson also said Nissan is thinking towards same direction, but feared that demand for aftersales services by vehicle owners has also dipped.

“You think that ordinarily people will come to maintain the ones they have; yes they are coming but some of them cannot pay the bill because cost has also gone up. People who put like four, or five vehicles on the road at the same time, you know, one for the wife, one for the children and another for the man himself and yet another for the family, they have reduced considerably because of cost.

“Whatever money you have now, you want to channel it to feeding. So we are also badly affected by the situation right now. The market is gloomy. People can’t even buy used vehicles now because prices of second-hand vehicles have gone up really big,” Philipson said.


The ban of imported vehicles through land borders

All for the soul of the motoring industry, the Federal Government rose Monday December 5, 2016 to place a ban on importation of vehicles through the land borders.

The ban was equal to a Presidential Directive restricting all vehicle imports to Nigeria to seaports only. The order takes effect from 1st January 2017.

“The restriction of importation of vehicles follows that of rice, whose imports have been banned through the land borders since April 2016,” a statement by the Nigeria Customs Service announcing the ban said.

But like the rice ban and that of frozen chicken, where both products still flood the Nigerian markets till this day, stakeholders have raised doubts about the effectiveness of the implementation of the automotive import ban policy, suggesting a significant downward review of the automobile imports tariff system.

“Banning of vehicles importation through the land borders makes smuggling a more attractive business to the smugglers. I am not sure the Customs Service can contain the aggressiveness of the smuggler who depend on the illicit trade as his only means of survival. The best option is to reduce the tariff on imported vehicles to allow their free flow from the seaport. That way, no importer will then want to import through the land borders,” said Uche Block, a freight forwarder and CEO Chinex Investment Nigeria Limited.