New automotive policy and lessons from the past

There are very strong indications that car buyers in Nigeria will be made to pay more for both new and used cars from 2014 following the new national automotive policy released last month by the federal government.

Under the new automotive policy, duties on both new and used cars were upwardly reviewed to 70%; 35% levy and 35% duty, from the previous 20% flat rate. While duty for fully built buses meant for commercial purposes will now be 35% instead of the previous 10% duty.

According to the federal government, these prohibitive tariffs are intended to encourage a local vehicle manufacturing industry. Also, the policy would help reduce the growing demand for foreign exchange, thus pushing up the value of the Naira.

The new automotive policy has jolted automobile dealers and intending vehicle consumers across the country. With the new duty regime it is most likely that prices of imported new cars currently hovering between N3m and N5m will shoot up to between N4.8m and N8m; while used cars (tokunbo) currently being sold for a minimum of N800,000 will go for a minimum of N1.28m.

There are fears that this new policy will lead to higher prices for cars and vehicles and high cost of living for Nigerians. Operating costs will definitely be higher for many small and medium businesses as their cost of purchasing utility vehicles will go high. Importers of both used and new cars may be forced to cut corners by diverting their import transactions to neighbouring ports. This will definitely lead to huge loss of revenues for Nigeria.

There are strong concerns that the pace of implementation of this new automotive policy is too fast. There are prerequisite conditions that are not yet in place. These include constant power supply, functional and reliable steel industries, automotive allied industries that can produce component parts like clutch cables, brake pads, fenders, oil and fuel filter. Analysts are equally worried if the required human capital is sufficiently available.

It would be recalled that prior to the 1980s, local assembly plants thrived in Nigeria – Volkswagen, Daimler Benz and Peugeot. Following the austerity measures and adjustments of the 1980s, most of the vehicle assembly plants became distressed as a high cost operating environment led to low domestic patronage and consequent low capacity utilisation. Even local manufacturing of tyres has since suffered in the face of massive imports of used and new tyres.

While we commend the vision to revive local manufacturing of cars in the country with attendant positive multiplier effects on the economy on a medium and long term, we however warn that government should tread with knowledge, caution and commensurate speed to avoid holes and conduits that will frustrate noble intentions.

Lessons of our past vehicle manufacturing experience must be fully digested. Issues of relevant human capital, availability of raw materials and component parts, and an overall conducive policy environment must be and tackled.

We must say that it is not enough to have good intentions. What is crucial is that a workable plan for the achievement of these intentions is created and properly implemented taking proper consideration of the realities of the Nigerian experience and environment.