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Analysts: Why Investors Won’t Take New Auto Policy Seriously

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At last, Nigeria gets new auto policy

Last week, the Nigerian Government said it had adopted a new National Automotive Industry Development Plan (NADIP), also called Auto Policy from 2023 to 2033. This was announced by the Minister of Industry, Trade and Investment, Otunba Adeniyi Adebayo, after a Federal Executive Council (FEC) meeting on May 10, 2023. The new policy, like the one before it, adopted on October 4, 2013 by the former President Goodluck Jonathan’s administration is aimed at encouraging local manufacturing of vehicles. Also, like the one of 2013, it came without the passing of the NADIP Bill by the National Assembly. The NAIDP represents the Federal Government’s boldest step at reviving local car assembly in over three decades.

The policy, which was first introduced in 2014, seeks to encourage local manufacturing of vehicles while phasing out the importation of used vehicles. Sunday Telegraph however, reports that the NAIDP Bill is central to the development of the automotive industry, which is said to be currently underperforming. According to Adebayo, the policy is aimed at enabling the exponential increase in the local production numbers of vehicles, reaching 40 per cent local content, and attaining 30 per cent locally produced electric vehicles, generating one million jobs, and enforcing patronage of locally produced vehicles by government and companies working on government contracts as well as boosting research and development and technology transfer. Other motives of the policy, according to the minister, include job creation, stimulation of the value chain, diversification of the economy, provision of affordable vehicles for the average Nigerian, as well as boosting foreign direct investment into the country.

Stakeholders not excited

Many stakeholders, who reacted to the announcement at the weekend, expressed some reservations, given that several promises, right from 2021, when a new bill was reportedly sent to the National Assembly, have not been fulfilled. The bill seeks to provide, among others, a legal framework to guide investment in the automotive sector and provide incentives for investors, especially the Original Equipment Manufacturers (OEMs) willing to set up plants in Nigeria.

In 2013, when the auto policy bill was first drafted, it sought to among other things, enable local assembly plants to import completely knocked-down (CKD) vehicles at zero percent duty and semi-knocked- down vehicles at five per cent duty, while importers pay a 70 per cent duty on new and previously owned vehicles. The plan, which was to run from 2014 to 2024, was passed by the National Assembly around 2019 but President Buhari declined assent, citing conflicts with existing bills.

In 2021, the Minister said the bill was ready to be sent to the National Assembly, and just a few weeks to the end of Buhari’s tenure, there is no such bill before the lawmakers amid the mounting challenges in the automotive sector, which have stalled transition of local auto assemblers from SKD production to CKD or fully built. Stakeholders worry that the lack of an extant law has made foreign investors shy away from the country. The Federal Government, however, promised to send a fresh bill to the lawmakers to address the concerns.

Findings revealed that out of 56 indigenous assemblers licensed by the Federal Government under the 10-year NAIDP with an installed capacity of over 500,000 units of vehicles per annum, only six are still active and at extremely low capacity. Many of the technicians employed have been either converted to after-sales personnel or are out of jobs. According to the Deputy Managing Director of CFAO Motors, Kunle Jaiyesimi, the unfortunate development in the automotive sector is attributable to policy inconsistency on the part of the government.

He said his company, CFAO, is not isolated from the catalogue of woes that the local au- tomotive industry is passing through, despite all the efforts made to build the sector to an enviable position. To keep the employees, he disclosed that CFAO had since converted their workers in assembly plants to after-sales staff.

Importation of automobiles depleting foreign reserves

Data obtained from the National Bureau of Statistics (NBS) showed that Nigeria spent a whooping sum of N1.08 trillion to import used cars (popularly called Tokunbo) and motorcycles (Okada) in one year (October 2018 – September 2019). According to the various NBS reports gathered, used cars and motorcycle importation into Nigeria rose from N252.3 billion in the fourth quarter (Q4) 2018 to N301.8 billion in Q3 2019. In the light of these objectives, the introduction of the NAIDP would inevitably appear to be a step in the right direction for Nigeria’s automotive industry.

Auto policy must passed into law

Deputy Managing Director of CFAO Motors, Kunle Jaiyesimi, said if there is sincerity of purpose, definitely, things would work in Nigeria, noting that the way the policy was previously fashioned; it continued to fail because industry players were not involved. Chief Executive Officer, African Association of Automotive Manufacturers (AAAM), Dave Coffey, said it is important that NAIDP was included in the law to restore investors’ confidence. Coffey said AAAM had gone through the bill; and supports that a high volume production of automotive components be made locally.

When asked if there has been any development in the sector since the Association’s last visit to Nigeria in 2017, he said there has not been any development yet, adding that one of the challenges is that the NAIDP has not been legislated into a law. According to him, it is very important that the bill was passed into law, because it is stalling progress. No global Original Equipment Manufacturers (OEM) has come into Nigeria yet to invest but they are very interested.

Chief Operating Officer, Automedics Limited, Gbola Oba, urged the government to ensure the policy review is intensified to allow human capital development, skilled employment for the new industry that will reward workers better, and also find a way of using the policy to interface with the necessary skills upgrade for the roadside mechanics. Oba said the roadside mechanics are largely still functioning in a manner that is contrary to international best practices in the automotive industry, because modern vehicles are computers on wheels, as most of these technicians are still used to their old ways.

No hope for legislation

With the few cars produced in the country out of the reach of ordinary Nigerians, the importation of used cars became the alternative. Former Dean, School of Transport and Logistics, Lagos State University (LASU), Prof Samuel Odewumi, said the policy is a barber’s chair syndrome, ‘motions without movement’. “Note that policy somersaults and half-hearted implementation is the hallmark of the automotive policy. “The fact eludes us that we need long term strategic vision and consistency to reap the dividend of our policy choice,” he said.

An automotive communication consultant, and university lecturer, Dr. Oscar Odiboh, said the pandemic is a delaying factor likewise the government’s poor state of revenue, which means that funds are not available; whatever is available is being rationed. An industry that requires heavy injection of funds remains at the backburner, which is the problem of inflation. The automotive consultant, who is also a lecturer at the Covenant University, Ota in Ogun State, said: “We need the government, both the legislature and the executive to agree on the needs of the industry.

I am not saying they are disagreeing but they are not looking the way they are expected to look at. There is no gainsaying the fact that the industry is an industry that can raise the bar of our industrial development but the government is not looking at that. “We have seen over the years that this hasn’t been done. We expect the government to create an enabling environment for the automotive industry to thrive, thereby leading to technological advancement, leading to smoother and friendlier transportation systems, leading to the genuine establishment of auto assemblers, leading to the creation of employment opportunities.

“We have asked for special waivers for importers of materials, for semi-knocked-down parts to put together and also the completed knocked-down part. We need some import rebates for the prices of the products of the cars to come down because if the cost of importation is high, the cost of production would increase, likewise the cost of cars. In this case, people would still go back to the fairly used cars we are putting on our roads. “Probably, if the industry gets the kind of attention the 2023 elections got, maybe our industry would be better for it. But unfortunately, our problems are not the problems of politicians today,” he said. An official of Stallion Motors, who spoke on the condition of anonymity, complained about sales.

“The policy is redundant because the government had not put in place the necessary infrastructure for the policy to prosper.” He said the country was not yet ripe for the policy, as “there is no electricity to power the assembling plants, no local content; we just bring in knock-down parts and assemble them here. Government is not even consistent in policy initiation; this is also creating problems for the industry. “If government can provide an environment where Nigerians can afford new cars at an affordable rate, more people will buy new cars and as a result, smuggling will reduce due to the reduction in demand for used vehicles,” he stated.

The Executive Secretary of the Nigeria Automotive Manufacturers’ Association (NAMA), Remi Olaofe, described as “painful” the delay in the passage of the auto policy bill. He said the delay in the last eight years has cost the nation quantifiable losses. He said it would be in the overall interest of the country if the government was able to achieve auto policy before the administration winds down. Olaofe said: “We can’t put a figure to the delay in having this auto policy. Even from the social side, the number of people that have been thrown out of jobs, people that were gainfully employed, trained, money spent to train them; where are those people?

“At the macro level, the government is supposed to be deriving a lot of benefits in the area of trade and we should be moving towards a CKD arrangement but we are going back to where we started; many factories have shut down. Everybody has gone back to import.” He noted that “Ghana has become a hub in the West African automotive market by implementing the auto policy.”

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