Nigeria can assemble 150,000 new vehicles by 2015– NAC
While the federal government is determined to return Nigeria to its old glorious days as an automobile manufacturing nation under the new automotive policy, this move has been greeted with a lot of altercations especially from franchisees. Recently, MIKE OCHONMA raised a number of issues before Luqman Mamudu, director, policy and planning department National Automotive Council onboard South African Airways Johannesburg-Lagos bound flight.
Where are we presently in terms of duty and duty regimes
Used vehicles import will continue to attract 35 percent duty only without levy till December 2014. This has been the case since January 1st 2014, being the effective date of fiscal measures.
What were the reasons for extension?
In the implementation schedule of NAIDP, it was anticipated that by July 1st 2014, the existing local assembly plants and new entrants into the industry would have ramped up sufficient capacity to meet the expected upsurge in demand if the importation of used vehicles is restrained by imposition of 35% levy.
But evidence on ground suggest that this had not happened due to bureaucratic constraints which impacted negatively on investors’ confidence and therefore limited investment commitment or hesitation to invest at all by OEMs. Equally anticipated was the establishment of a National Automotive Credit Purchase Scheme for made in Nigeria vehicles, especially for budget or popular vehicles expected to compete effectively with used vehicles. This had reached advanced stage but not ready for launch.
What happens if the low volume is low to feed the market after extension?
Evidence on ground suggests that stock of new vehicles is appreciating reasonably. For example, the entire new vehicle stock in 2013 was 50,000 units, but between January to May 2014, over 37,000 stock of new vehicles has already been recorded under NAIDP. Apart from existing assembly plants, 15 new automotive assembly plants have all signed technical agreements to commence operations before year end.
Some of them actually have significant volume of knocked down (KD) kits on the high seas bound for Nigeria. Given the estimate of their projected output, 150,000 units of new vehicles and more may be delivered by year end under NAIDP.
The National Vehicle Purchase Scheme (NVPS) should be ready to provide low co st automotive finance scheme to individuals and cooperate entities before year end as well. Given the foregoing, it is unlikely that another extension will happen although the minister of industry, trade and Investment has the prerogative to extend by another six month if it becomes absolutely necessary.
Even then, there might be a moderation of the age of vehicles to be imported. At the moment, cars of below 10years and commercial vehicles below 15 years are allowed but this will definitely have to be scaled down. Don’t forget that apart from being a disincentive to new vehicle assemblers, used vehicles are environmentally undesirable. Age of vehicles is closely correlated to death rates on our roads and a resource drain on foreign exchange which denies Nigerians Jobs.
Level of cooperation with automakers
Most Global OEMs overwhelmingly honoured the invitation to the just concluded Nigeria Automotive Summit. This underscored the confidence in NAIDP and Nigeria as a desirable investment destination. Many automobile dealers in Nigeria at the moment are at various level of engagement with local partners to commence assembling operations before year end.
They will only invest in Nigeria directly, only when they are sure of the sustenance of the policy and the minister of industry, trade and investment is working assiduously to create this confidence. A bill on the policy has passed first reading at both chambers of the National Assembly.
Automotive test laboratories are being built by NAC at Enugu, Lagos and Zaria to support assembling and component parts industries. Various training programmes are ongoing and NAC has perfected plans to partner with BOSCH worldwide to trains Nigerians on appropriate automotive skills and the company will establish a corporate office in Nigeria by early September to support the the new automotive policy.
How did existing assemblers react to it?
The assemblers are definitely opposed to extension of effective date for the importation of used vehicles without levy. It is difficult for new vehicles to compete with used vehicles but the facts on ground suggest that they must up their game by the production of budget cars, and limiting models so that they can do 150,000 units of new vehicles and more may be delivered by year end under NAIDP.
Once low cost and affordable (further supported by cheap vehicle finance scheme) vehicles are available, used vehicles will gradually lose market share. The public can easily mobilise against the policy if used vehicles are restrained without ready alternative. In spite of the merit of localising automobile manufacturing to the economy, especially job creation, patriotism alone cannot be relied on in Nigeria to sustain policy.
What are the implications
The implications of the extension are already inherent in the answers given but the window to extend will be carefully managed so as not to send wrong signals to the investment community. It has the potential to undermine the NAIDP but as said earlier, NAC is committed to ensure that there may be no need for further extension.