‘Nigeria losing over $8billion to non-passage of auto policy’, imports 400,000 used vehicles annually

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Luqman Mamudu is the former Director of Policy and Planning Department, National Automotive Design and Development Council (NADDC). In this interview with Charles Okonji, he gives a bird’s eye view of the nation’s auto policy vis-à-vis the challenges in the sector. Excerpts:

It has been argued that the non-passage of the automotive policy bill will further hamper the development of the auto sector. What is your take?

It definitely will hamper and actually already slowing down activities in the real sector apart from limiting inflow of foreign direct investment. Most Original Equipment Manufacturers (OEMs) plan long term and are therefore more comfortable with assurance of policy endurance which this bill guarantees. This is provided for because we do not have a long term policy development choice which minimises impact of changes in regimes. It means that our reputation for sustaining policy is poor ever since the International Monetary Fund (IMF) pushed us to abandon long term planning. Most OEMs are therefore waiting in the wings for this legislation to commit their resources.

Secondly and very key, is a provision in the bill to facilitate Nigeria Customs administration with clear definitions of Semi Knocked Down (SKD), Completely Knocked Down (CKD) and local content development import incentive program . In this regard, the tariff technical committee and NADDC is expected to provide for the dedication of Chapter 98 in the tariff book. Right now, there is so much confusion arising from ignorance about definitions, who is entitled to what, etc. It has led to industry crippling delays to the embarrassment of stakeholders as the public and enemies of the policy now begin to question its relevance. While others are asking for its review, some are insisting on outright suspension. Luckily I was recently invited to chair an Ad-Hoc committee by Bureau of Public Enterprises (BPE) under the Vice President Office to Review the policy. There are instances where assembly plants are only able to do single circles of import a year! and sometimes, while struggling to do this their annual renewable license expires. Their goods are stuck in the ports and the process for renewal is bugged with bureaucracy and the inevitable consequence of huge demurrage bills. This is apart from the prohibitive logistics costs. The existing players are definitely frustrated and those waiting in the wings are hesitant.

As the former acting DG of NADDC, can we have your response on the position of NADDC when you left?

Haven acted as a DG, though briefly, before handing over to the present DG who was already appointed but yet to resume. The policy has five pillars and the bill was one of the most critical of them. We pursued its passage desperately such that by October 2017 when I exited, the bill had successfully passed the two chambers of the Legislature. It was just remaining to be cleaned by the legal department before presentation to the President for consideration and assent. But I learnt some overzealous officials derailed the process. I was delighted to know, just this week, from the Director General of NADDC, Mr Jelani Aliyu, that this confusion has been cleared and that efforts are in top gear to get it to the President’s table. I have no doubt that it will be signed considering the commitment of this government to economic diversification.

What can you say is responsible for the underdevelopment in the sector?

Nigeria automotive sector activities were really basic in the colonial period including during the first National economic plan 1962-1968, where private companies such as the British Engineering West Africa Automotive Company (BEWAC), CFAO and others were mostly engaged in the import of Fully Built Up vehicles (FBUs) automobiles but with very marginal assembling operations. It was Chief Obafemi Awolowo who worked with technocrats and Nigeria economists including Professor Adebayo Adedeji, Allison Ayida and Phillip Asiodu that made the industry a priority in the 2nd National Develoment Plan 1970-1974. This saw the establishment of two car plants; Volkswagen of Nigeria, and Peugeot Plant. The 3rd National Development Plan saw the establishment of four commercial vehicle plants; Styre, Fiat, Mercedes and Leyland. In the 80s Nigeria had installed capacity to meet nearly all our automotive needs by the listed government joint ventures with OEMs and some private companies. The gap was filled with import quotas; not without some controversies though. The plants all had their local content development programs. Peugeot for instance had about 68 local content suppliers including Paints, Windscreen and all side glass, wire harnesses, batteries, tires, Radiators, seats and seat belts, Engines sleeves etc.

However, in 1985, the IMF convinced us to abandon National planning and embrace free market economy. Since the industry was still at infancy and largely import dependent, its products became uncompetitive especially with imported second hand vehicles. Don’t forget that Nigeria equally devalued the naira. You know the rest story. Today the market remains dominated with vehicles from scrap yards of Europe, America and Asia. The automotive industry cannot survive where used vehicles are allowed free inflow.

As an authority in the auto industry, what will you advice the government to do in order to revitalise the sector?

The government got it right by launching an automotive policy in 1993 and by establishing the institutional framework for its implementation. NADDC, through legislation relaunched in 2014 a further consolidated policy rolling out the National Automotive Industry Development Plan (NAIDP 2014-2024). This policy has long translated into specific action but the problem is that the fiscal measures are firmly in place, and the accompanying programs which are actually the pillars have not received the desired attention. This include passage of the “Bill” that we have already mentioned, creation of a programme to moderate impact of restricting inflow of second hand vehicles, the establishment of an automotive credit purchase scheme/smuggling control measures, development of quality assurance capacity, and manpower development program. These are fully spelt out in the NAIDP. Copies are in the public domain. We had this and Business information document (BID) on the website as well www.naddc.gov.ng.

As at 2017 we already had installed assembly capacity for about 500,000 vehicles annually, but till date not up to 8 percent of that capacity is assembled because of gaps I had earlier identified. Notable global brands are already in the country, and in partnership with Nigerians which I describe as patriotic. There are more waiting, such as Nissan, Hyundai, Honda, Peugeot, Yutong, Sinotruck, amongst others are here. My fear is that if NAIDP programs are further delayed, with the prompting of those who hate the policy passionately, especially those who ignorantly insist that the fiscal measures constitute leakage in our revenue and therefore daily plotting to remove them will undermine the policy. The whole idea is to sustain fiscal measures which are bitter to importers of FBUs long enough for the industry to gain traction before reduction. This strategy has worked elsewhere, including South Africa and it will work in Nigeria if it is properly and timely implemented. I am this worried because we had openly presented our strategy at ECOWAS fora as a result of which the automotive industry was admitted as the 3rd Regional Industry Priority. Before we showed up, it was Food, Construction and Pharmaceutical. Recently, I heard of our neighbouring countries launching automotive policies. If the Pan Africa free trade agreement works, Morocco and others will flood this country with new automobiles before we say Car. I am not against the free trade anyway but I feel we should be ready to play as equals. We may end up importing from them if they get their act right faster.

In terms of value or money, how much does the country loss annually to import of automobiles?

According to NBS, it is about $8 billion annually. I know that we import above 400,000 vehicles annually. The sad part is that 89 percent of these are used vehicles. It simply means that we loss not only forex but create job opportunities for countries of Origin while subjecting our population to health hazards. Most of these vehicles no longer meet integrity tests in their home countries. SON should do something about this immediately. They should demand integrity certificate if they don’t already. Our balance of payment receives the most strain from this source. This will continue as the middle class grow. The first item they buy is car, and the irony of it is that we have crated local capacity. Don’t listen to those who tell you that the capacity is largely for SKD. The SKD is not a Nigeria term. It’s the baby step in developing the industry. It opens up the opportunity to step up to the next level. An indigenous company like Innoson Motor vehicle Manufacturing is already at CKD level and the PAN plant in Kaduna is a world class CKD plant amongst others. I don’t know what AMCON is doing with it.

Knowing that viable automobiles industry will create over 2, 500 components companies can you mention some of the companies and the amount of jobs it expected to create?

I do know that the automotive industry if well-established can account for up-to 12 percent of GDP. You know what that means. The component industry is actually where the jobs are created and local content being implemented. This is why it must be encouraged but you must first achieve good assembling capacity before you can attract components manufacturers to partner with Nigerians just as it is happening at the assembling level now. The automotive supplier chain is global. Once they notice the level of orders for SKD and CKD kits orders originating from Nigeria in critical mass, they will come here. They are already making serious inquiries. I heard the DG NADDC mention the desire of the South Africa Components manufactures to invest here.

I am a serious advocate for this and have recently taken the initiative with some local automotive dealers to set up a platform Resident Automotive Components Dealers Association of Nigeria (RACDAN) to nurture dealers’ way up to domesticating manufacturing of products of global standards for OEM and replacement market. We have applied for partnership with Standards Organisation of Nigeria (SON) to ensure members compliance. The development of specialist automotive supplier parks should be accelerated. I was delighted to read about an economic zone with 80% completion in Benin. This will attract components manufacturers.

Can you mention some of the content of the auto policy and what it stands to achieve?

The focus of the policy is to create the right environment for existing and potential players in the industry to produce and be competitive in the global automotive industry. The fiscal measures are expected to be moderated as the industry gain traction. In this regard, the NAIDP contains programs, like I said earlier, to address quality, infrastructure, manpower development, and market and investor confidence.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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