The faltering National Automotive Policy

The new National Automotive Policy has been described as a deliberate government effort to rescue the automotive sector of the economy by promoting local vehicle manufacturing and discouraging the importation of vehicles.

The objectives, according to its architectsinclude provision of mass employmentfor Nigerians, conservation of foreign exchange used to buy foreign made cars, as well as a quantum leap in the quality of vehicles on our roads.

Under the tariff-based policy, duties jumped from 20 percent on passenger cars (PC) and 10 per cent on commercial vehicles (CV) to 70 per cent and 35 per cent respectively.Today, an indigenous company, Innoson Vehicle Motor Manufacturing (IVM) in Anambra State, is churning out Made in Nigeria buses and Sport Utility Vehicles (SUVs). That is very good but Nigerians want to get news of a hundred Innosons manufacturing vehicles as a result of the policy, not just one or two manufacturers.

With all the burdens the automotive policy has placed on Nigerians, that is the very least that is expected. But as it is today, the automotive policy is replete with failures and should either take a new direction or be scrapped altogether.

Two years after its coming to existence it has failed to yield the expected dividends as local production of cars and vehicles which is the biggest element of the policy is largely not being met.

Nissan came in, promising to provide affordable locally manufactured cars, but so far that has been a mirage. So far the policy has given Nigerians moreproblems than solutions.

 

There has been a drastic reduction in revenue at the ports, which is directly affecting operators of the the maritime sector with the massive diversion of vessels laden with cars to neighbouring West African ports.

Due to the near total unavailability of locally made cars, these same cars that aresent to ports in neighbouring countries are eventually smuggled into the country. While Nigeria’s neighbours grow fat as a result of these diverted vessels, Nigeria doesn’t get any duties, maritime companies face bankruptcy, unemployment booms and supportbusinesses face increased hardship.

 

It doesn’t help that the few vehicles produced in the country are sold not at cheap prices but exorbitant prices. Both Nissan and Innosson have priced their private cars at above one million naira. Meanwhile, what the vast majority of Nigerians need are cars they can buy for about N500, 000 or less.

 

It is surprising that officials of the National Automotive Council, who are supposed to be championing the automotive policy are frequently seen in foreign made cars. So they are not being the change they want to see, and the policy is turned into a ‘do as I say – not as I do – affair’. By now the Federal Government should have backed up the automotive policy by stipulating thatall official government vehiclesused in government business must be locally made. At least that would send some business to Peugeot Automobile Nigeria, Innoson and the like. But for some reason, that has not been done.

 

Obstacles

One obstacle to the local manufacturing of Made in Nigeria cars is that since investment cannot be legislated foreign investors will only come in fully committed when they are convinced that their investment will be safe and in an environment that will support maximal returns on their investment. A safe and supportive business environment is not what is widely perceived by foreign automotive investors when they look at the current state of Nigeria.

President of Ford Motor Company (South Africa), Mr. JeffNemeth who visited Nigeria last year made this clear when he said Ford would not be rushed into setting up a vehicle assembly plant in Nigeria without a fully developed and functional support service system such as good roads, efficient railway networks and constant electricity.

“You don’t want to import parts for ever. All the support structures have to be in place such as the IT, road, rail and power; that, I have not seen,” he said. The truth is that the support services are not just there right now.

Nemeth also pointed out that Nigeria’s current demand for vehicles is too minuscule to attract massive investment commitment to locally manufactured cars.

“What are the sales opportunities in Nigeria right now? You are just selling about 100,000 new vehicles annually. That is rather too small for all the industry players to share and break even if they must assemble the vehicles in your country,” he said.

He suggested a way out, which is for the country to have a free-trade agreement with its neighbouring nations to ensure free movement and an expanded market for Nigerian produced vehicles and other goods within the West African region. That agreement is currently not in place and is not in sight.

Before the government can expect foreign investors to really drive local vehicle manufacturing, it needs to do its homework and pay its dues in developing our economy. The current automotive policy is modelled after South Africa, as if to say; if South Africa can do it, then we can also do it. But it cannot be done except effort has been put to develop the economy to an extent in which acritical mass for profitability within the market can be reached.

Ford, given a choice of helping either Nigeria or South Africa to locally produce vehicles will chose South Africa, because even though Nigeria is Africa’s biggest economy, the 10% market share Ford has in the Nigerian vehicle market amounts to a paltry 10,000 vehicles; while the 12 percent of the market share it has in the South African market amounts to a whopping 650, 000 vehicles.Even talking about potentials, we are nowhere near being convincing -South Africa’s installed electricity capacity is 45,700 megawatts that is steady, while Nigeria’s power generation hoversunsteadily at between 1000 and 3000 megawatts.

So, until Nigeria’s economy develops as well as it is growing, the government cannot really expect foreign car companies to bring in the massive vehicle manufacturing investments it dreams of in its automotive policy.

A sound automotive policy goes beyond raising tariffs.It must be preceded or accompanied by a holistic approach to the development of the economy, and while Nigeria’s economy has grown impressively, it has not developed very much.

It was wrong for government to suddenly introduce thisimport substitution policy, as the conditions for success don’t exist yet.

What should be done?

  • Government and the National Automotive Council should implement the policy not with a sense of immediacy, but within a phased period of at least 10 years with stages attained based on a ‘pass and be promoted model’.
  • The Government and the National Automotive Council should set up a forum to regularly consult with stakeholders on the policy, as no entity can boast to know it all. The recent town hall meeting organized jointly by Ships and Ports Communication Company and the National Automotive Council is a good start.
  • Rather than import substitution, immediate attention should be paid to areas where Nigeria has a comparative advantage, like the area of production of rubber and encouragement of the less-capital-intensive local manufacture of vehicle tyres.


Copyright Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.

..