Rationale For The New National Automotive Policy Framework

By Luqman Mamudu

The new automotive policy is a deliberate government effort to rescue the strategic and critical automotive sector of the economy from the strangulating grip of DUMPING. This is to give Nigerians the opportunity for mass employment and innovation in automotive technology. If a country fails to produce the goods that rich countries produce, it may never be rich. Someone said it and evidence abounds in support. With no intention to change the meaning of dumping, dumped products in the context of this write-up, mean automotive vehicles and products import that have lost integrity and can no longer pass standard appraisal tests elsewhere (if you like, “Tokunbo” and new Fully Built Up vehicles (FBUs) aggressively subsidized by home governments to over-ride Nigeria’s efforts at tariff protection (averaging 15%). It means that deliberately or otherwise, Nigeria’s capacity and capability to meet a significant portion of its automotive needs has been undermined by massive whole sale, seemingly, juicy imports.

Facts about the operating capacity of Nigeria automotive sector in the past are well documented. The Assembly and Component manufacturing plants in the 1970s and 1980s peaked at a total of over 120,000 cars, commercial vehicles and tractors, per annum. Even today, an entirely green plant, Innoson Vehicle Motor Manufacturing (IVM) in Anambra State, is churning out Light Commercial vehicles, Buses and Sport Utility Vehicles (SUVs). In spite of the daunting investment environment, the membership of Nigerian Automotive Manufacturers Association (NAMA) has swelled recently with new bus and automotive body building companies. All the privatized assembly plants including Volkswagen of Nigeria, now VON Nigeria; NTM, Kano; Steyr Nigeria, Bauchi; Leyland, Ibadan (now Leyland Busan); Anammco, Enugu and Peugeot Automobile of Nigeria (now PAN Nigeria Ltd) are all operational but limping from overwhelming effect of more or less free imports. Their idle capacity and expansion potentials are clear opportunities to fast track production in partnership with global automotive firms if protected. For instance, NISSAN has already announced its partnership with VON Nigeria to assemble budget cars locally at the later’s plant in Badagry, Lagos. Even today, there is sufficient local capacity to meet Nigeria’s need for buses if confirmed orders can be placed with INNOSON, LEYLAND BUSAN, STEYR BAUCHI and ANAMMCO. Discussions are ongoing to seek such intervention under the Federal Government SURE-P Scheme.  Buses are a lot easier to build than cars so capacity can be quickly ramped up to flood Nigeria with buses of all sorts.

The Nigerian automotive policy was launched in 1993 and consequently, the National Automotive Council was established as institutional frame work to revitalize and develop the automotive industry. At the time, government observed that the absence of a policy framework and an implementing agency at the industry’s inception may have been partly responsible for its failure to survive the 1984 structural adjustment program (SAP). Over the years, however, the policy impact has been paltry because of the lack of political will to give it teeth to bite or strength to assert. Considering the enormous potential for the automotive industry in Nigeria including a population of over 150 million people, a middle class currently estimated at 38 million people and the growing annual automotive import bill of over $3 billion, Nigeria’s success as an automotive manufacturing nation is given. She does not even need an export market to succeed as South Africa did, although it can do with one. The ECOWAS region is there for the taking, more or less. The new 2013 policy therefore, essentially overhauls the existing one and gives it teeth by raising the bar against all those who will rather export to Nigeria as well as offer protection/incentives to potential and existing local investors. The importation of Used automobiles is discouraged, not banned. It will be treated as NEW in value for duty payable with provision for depreciation according to age. Irrespective of its age, however, it will not be depreciated below 30% of its value as a new vehicle. Overall, the new policy plan is designed to stimulate employment of Nigerians and domesticate the automotive technology by leveraging on funds that would otherwise create employment and support technological advancement abroad. Additional investment to ramp up local capacity and new investment by global motor companies would not even begin to happen if government did not take this new policy position. The attention of the global automotive investment community is now focused on Nigeria because of this bold stance. The minister in charge of Federal Ministry of Industry, Trade and Investment, Dr. Olusegun Aganga should be roundly applauded for this remarkable effort.

Assembling operations alone can constitute as much as 25% of automotive vehicle value. It should not therefore, be dismissed as most Nigeria’s are wont to do when they say, “Oh…, they are only assembling’. Component part manufacturers around the world tend to also locate near Assembly Plants. This drives local content programmes for the eventual emergence of truly indigenous automobiles. Peugeot Automobile of Nigeria had over 50 local Components and parts suppliers up till early 1990s when it achieved over 40% local content in the popular Peugeot 504. Most of the companies collapsed as Assembly Plants (APs) capacity utilization shrank in the late 1980s. Motor plants have preference for local suppliers once standards are adhered to. If for nothing else, the additional cost of transport and time is saved. The bottom line is profit especially for private firms. The argument that Nigeria hasn’t enough raw materials may be true but it shouldn’t be a hindrance. In any case, how so elusive are the basic raw materials. The Country’s robust petrochemical industry presents an opportunity to produce automotive plastics and composite materials which have increasingly gained application in motor manufacturing. Four cold roll flat steel sheet production plants with huge capacity have been established in Nigeria. This implies that the needed raw materials can be developed or imported for value addition if not available locally since in manufacturing, what you do to the material is equally if not more significant in value. For instance, cutting, trimming, pressing, welding, coating, folding, painting, etc. of a flat steel sheet costs more to perform than the sheet itself and this value will reflect proportionately in the final product.

In the design of this policy plan, there was concern that increased tariff might result in a shortfall in supply of automobiles to the economy as import dropped so provision was made to guarantee supply and keep prices steady. All members of Nigerian Automotive Manufacturers Association (NAMA) are allowed to import fully built vehicles (FBUs) of their models to augment capacity. Numbering about 12 today, the combined annual installed capacity of NAMA is 108,000 units in cars, trucks and buses. The policy grants them 0% duty on all Completely Knocked Down Vehicle (CKD kits) imports and the concession to import up to 200% of their CKD import as Fully Built Units (FBUs) for the first two years. This will serve to check price rises before they are able to ramp up production and before new entrants possibly, NISSAN, KIA and Toyota, commence production. It is expected that a larger majority of Nigerians will look towards this source to meet their vehicular needs as FBU traders cash-in on the tariff hike, to increase prices. Vehicles from NAMA members will be offered at today’s prices and even less as the CKD products are rolled out. Lessons from automotive manufacturing operations in the past suggest that the proliferation of brands did not allow for mass production of any particular brand to engender low cost from economies of scale. The strategy of model rationalization and parts standardization will therefore, be vigorously pursued under the new policy initiative. In the circumstance, $10,000 or less unit price for a modest Car is anticipated from this strategic positioning. The policy framework therefore, provides for the adoption of a LOW COST brand by all companies and a credit purchase scheme to enable Nigerians buy new cars and commercial vehicles including agricultural tractors. Most commercial banks already have various products offering in this regard although difficult to obtain because of high cost of new vehicles and cost of funds. NAC will work closely with the private sector including the Motor companies to launch a readily affordable scheme. Rickety vehicles may be traded in for new ones under the scheme. An urban mass transit framework is expected to be launched shortly by Government to reduce undue dependence on car travel. Nigeria remains one of the few countries where the only option of travel from an airport is by taxi. No bus, no rail.

The automobile is a safety product, so everyone is rightfully concerned about the quality of vehicles made anywhere, not least, Nigeria. It should be comforting to know and all must recall that Nigeria has, in the past, demonstrated its ability to produce world class cars. This was evident in the product of Peugeot Nigeria certified by it parent company in France, Volkwagen products by Volkwagen Nigeria certified by its Parent in Germany, etc. It should be reassuring also that all CKD kits imports have SONCAP quality certificates endorsed by internationally accredited standards agencies. In addition, NAC has commenced the establishment of standard Automotive Test laboratories at three locations in Nigeria. The feasibility study was undertaken by Automotive Association Research Institute of India (AARII) and civil work contracts have been awarded while tender for equipment will be opened in November 2013. The laboratories will be available to both quality assessment agencies like SON and as common facility to support quality control needs of automotive practitioners. NAC will work closely with local and international development partners to build sustainable capacity for quality assurance in the sector.

Nigeria has already mastered the technology or techniques for automobile assembly and even the production of significant items on the content list. Over 80% of the automotive component manufacturers that set up manufacturing facilities in the 70s and 80s still exist although most have retooled for the production of other items. For instance ISO Glass Limited, Ibadan produced all automotive Glass for PAN and others but now produces architecture glass, NOCACO in Kaduna made the complete wire harness for Peugeot Vehicles. They are waiting for increased assembly plants capacity to clean up their production lines and retool. The Ministry of Science and Technology through its agencies including NASENI has recorded extensive successes in automotive component and parts manufacturing. Nigeria has several Schools of technology and Engineering institutes active in automotive related work and NAC has intervened in some universities to encourage pursuit of automotive engineering study. The Industrial Training Fund (ITF) capacity has been reinforced by the recent amendment of its act. It is expected that it can now step up support for extensive skills acquisition in the sector through training centres it plans to establish under the plan framework. NAC commissioned and has received an Outline Business Case (OBC) study report by a Netherlands Consulting firm, Rebel Group, for the development of Modern Mechanic Villages in 14 states in Nigeria. All the State Governments have provided proper titles for the project sites. The Council has extended over N1 billion soft loan to Osun State Government to equip its School of Technology with modern automotive training equipment sourced from Germany. It is expected that the Villages and school will be part of the overall planned breeding ground for automotive technology and technicians. The plan also provides for the establishment of automotive supplier parks around existing cluster identified in the Nnewi Axis (Anambra, Enugu), the Lagos Axis (Lagos, Ogun, Oyo) and Kano /Kaduna Axis. This is a clear demonstration that Nigeria is properly positioned to take advantage of the demand for components and parts by motor plants. NAC has received and continue to receive inquiries from a long list of global parts suppliers.

The policy plan frame work anticipates legislation on its main thrusts and a clear monitoring agenda by stakeholders. Legislation is important because, as had been said severally by commentators on the new policy, it might be suddenly changed due to initial skin deep pains, pressure from the very powerful lobby of FBU importer group or the slightest miss step. To curtail the possible threat of smuggling, a national automotive Database that links vehicle imports with registered vehicles will be deployed to detect and make smuggling unattractive. NAC will continuously monitor and assess policy impact and inform decision as appropriate.

A commentator wrote recently that there has been attempt to dress the plan in a patriotic garb but if the truth must be told, this plan can only work with a dose of patriotism. If Nigerians commit themselves to circumventing the guidelines or pursue its reversal, there is every likely hood that they will succeed but let all remember that with used vehicles (two third of automotive imports in 2012), more accidents are likely, increased maintenance costs will put holes in pockets, environment will experience increased pollution,  burden of recycling End of Life Vehicles for others (very expensive) and a devastating drain on foreign exchange reserve. Automobile is the second largest Forex consumer today and in not too many years to come its Forex demand will become unmanageable.

The Federal Executive Council has endorsed the National Automotive  policy but the details are being prepared. These will shortly be released as circulars. The process of legislation on the main policy thrust will commence thereafter.

•Mamudu, Director Policy and Planning, National Automotive Council, wrote from Abuja