Fortunes lost to dormant automobile policy as vehicle smuggling thrives
The recent call for the downward review of tariff on all imported vehicles into the country by the Comptroller Genera, Nigeria Customs Service (NCS), Ahmeed Ali, has elicited divergent concerns from stakeholders. But they all point to the fact that Nigeria is losing fortunes to the imperfect system.
The Federal Government had increased the tariff on imported vehicles from 20 per cent to 70 per cent as part of the auto policy introduced in 2014 to encourage local manufacturing and assemblage of vehicles in-country. But, the story has been a case of “Penny wise, pound foolish” as the policy failed to increase the local capacity in auto manufacturing, with assembly plants dying and the surviving ones currently groaning in frustration.
However, the importation of vehicles through the land borders has been banned, while the seaports are not handling much-imported vehicles. In fact, the import figures are so low and far against expectations.Investigations revealed that the importers have shunned Nigerian ports and have now targeted neighbouring ports of Cotonou, Lome and Abidjan where the tariff is just about 10 per cent.
The Guardian learnt that a large number of the importers later smuggle the vehicles into Nigeria through the porous borders. Having paid the duty to the neighbouring countries, the importers only paid the miscreants otherwise known as smugglers between N100,000 and N200,000 (depending on the vehicle model and the bargaining power) to take the vehicle into Nigeria.By so doing, Nigeria is losing billions of naira on yearly basis to the ineffective policy. It is losing capacity, losing operatives of the customs to attacks on duty, and losing employment opportunities that would have been created by the vehicle manufacturing plants.
The National Automotive Industry Development Plan (NAIDP), otherwise known as auto policy was launched in 2013, under the Goodluck Jonathan-led administration. Its major thrust is to encourage local manufacturing of automobiles by offering protection/incentives to potential and existing local investors while at the same time discouraging importation by raising the bar against all those who will rather export to Nigeria.Few years after the introduction, the few vehicle-manufacturing plants have been able to survive the harsh operating environment while many others that do not have the wherewithal gradually went underground.
Auto dealers and operators of auto assembly plants have continued to bemoan the poor implementation of the policy and consistently called for its review.However, the endless delay of review of the policy is creating a challenging market scenario for industry operators who lamented that the situation is going from bad to worse.
Indeed, the billions of naira invested in setting up vehicle assembly plants are being threatened as players said government’s poorly planned automotive policy lacks proper implementation.
A recent National Bureau of Statistics (NBS) data revealed that vehicle importation has reduced drastically with only 1,216,131 vehicles (used and new ones) imported into the country from 2012 to 2017.According to the report, the vehicles came through Apapa, Tin Can, Onne, Calabar and Delta ports. It showed that 269,386 vehicles were imported in 2012, while 280,226 came into the country in 2013 and 247,932 in 2014. Also, in 2015, 131,994 vehicles were reportedly received at various terminals, 105,189 in 2016 and 181,404 in 2017.
The Comptroller-General of Customs, Hameed Ali, had last week called on the Federal Government to reduce the 35 per cent levy on imported vehicles so as to check the rising cases of smuggled vehicles into the country.Ali who spoke during the unveiling of a Strategic Revenue Growth Initiative which held at the Ministry of Finance stated that vehicles imported into the country attract an import duty of 35 per cent and an additional levy of 35 per cent, bringing the total duty payable to 70 per cent, which he said was too high and fuelling smuggling.
“The 35 per cent is a baseline which is the duty, but the 35 per cent levy is what we think should be tinkered with. We should be able to reduce that to a level that it would be affordable. 70 per cent is on the high side, there is no doubt about that for new vehicles but we cannot touch the baseline of the tax regime,” Ali had stated.
The Chairman, Seaport Terminal Association of Nigeria (STOAN) Vicky Haastrup, also appealed to the president to return the import duties on vehicles to 20 per cent from the prohibitive 70 per cent tariff imposed by the former administration.She said: “The reversal to the old tariff will serve as an incentive for Nigerians to import legitimately through the seaports and make appropriate payments to government. This will boost revenue collection by the Nigeria Customs Service. It will also lead to the return of lost jobs at the affected ports.
“We also appeal to customs officers at the border posts to support the Federal Government and the NCS leadership by ensuring that no smuggled vehicle finds its way into the country through the land borders from 1st January 2017 when the new policy is expected to come into effect.”Haastrup added that since 2014 when the 70 per cent hike in the tariff of imported vehicles came into effect, Nigeria had lost 80 per cent of its vehicle cargo traffic to the ports of neighbouring countries.
“Since the high tariff was introduced, importers have resorted to landing their vehicles at the ports of neighbouring countries and smuggling them into Nigeria without paying appropriate duties to government. This amounted to huge revenue loss to customs. The policy also led to the loss of more 5,000 direct and indirect jobs at the affected ports,” she said.President, National Association of Government Approved Freight Forwarders (NAGAFF), Increase Uche, said the need to reduce the tariff on vehicle import was long overdue.
Uche said the customs boss has taken a very important step by asking the government to review downward the tariff on vehicle imports, adding that if that is done, it would really assist shippers. “I could remember that the former Customs CG, Umaru Dikko also in 2014 said they were going to reduce the duty rate on vehicles, but unfortunately that does not come to fruition. I know something must have triggered the turnaround in policy.”He cautioned that the statement should not be political, but made a reality in order to boost the business and encourage shippers.
“It is a welcome development. If you look generally into the customs tariff and valuation, you will found that the duty paid on vehicles, even under general cargo is still over-valued. For a 2010 model vehicle, the legitimate way of calculating the duty is to look at the depreciation of the vehicle and reduce by 10 per cent per year. Then the factory price will no longer be calculated as the duty of that vehicle, but they are not doing that. It is the universal standard that has been neglected by the customs. So, if they decide to reduce the duty rate, it is a welcome development,”
On the auto policy, he said the policy was made by former President Goodluck Jonathan to attract Foreign Direct Investment and create jobs for Nigerians, but unfortunately, the Federal Government has failed in its implementation and therefore could not get the desired result.An industry expert, Bolaji Akinola, said: “The national automotive policy is good on paper, but very bad in practice, especially the area that jacked up duty on vehicles from 20 per cent to 70 per cent. What happened is that Nigerians want to circumvent that policy, so they take their vehicles to Cotonou or any other ports around where they pay 10 per cent and then smuggle them into Nigeria at night. So, we really have to modify that policy.”
“There are many other policies like that which send importers to neighbouring countries and inadvertently encourage smuggling. We want to see government reversing those policies. The advantages are numerous. It will reduce smuggling automatically, it will reduce pressure on the customs, and it will automatically boost government’s revenue because these cargoes will now legitimately come through our ports. They will pay government duty and other charges. It will also create work for our dockworkers rather than those of other countries. You can imagine the multiplier effect of that. The review of the auto policy alone will increase the importation of vehicles to Nigeria by almost 400,000 units, and you can imagine the multiplier effect of that on the economy,” he stated.
Meanwhile, some of the auto dealers in the country who own assembling plants have begun to express dissatisfaction over the call on reduction of tariff on imported vehicles. They claimed that the move would further threaten their investment as more vehicles would be imported into the country, thereby reducing the patronage of locally assembled vehicles.According to the Managing Director, Peugeot Association of Nigeria, PAN Nigeria, Ibrahim Boyi, the policy is robust, the only thing lacking is faithfulness and diligent implementation.
Boyi said one of the deficiencies of the policy was the number of people who are licensed, adding that “you cannot have 52 auto companies in Nigeria, it does not make sense because the market itself is not robust enough, you needed to have minimized the number of operators to ensure that there is sufficient scheme for each of them.”
He said under the licences issued, one would have thought the licenses would be issued to bona fide manufacturers who have been able to make the investment and have the infrastructure on the ground, but obviously that was not the way it was done.
“I believe a lot of licences were issued to companies that didn’t have any infrastructure on ground. There is disconnection in terms of implementation and the key philosophies on the objectives of the policy.”In terms of volume produced, he said the auto industry has suffered which is the consequence of economic performance; Nigeria went into recession and virtually all sectors of the economy took a hit, which didn’t spare the auto industry as well.
“Auto business is capital intensive, that negatively impacts the market, but otherwise at PAN we have been consistently increasing our production and our market share. While the market globally or nationally would have come down as an organisation, we have not suffered that depletion in market shares,” Boyi stated.
The Deputy Managing Director, Kewalram Chanrai Group, Victor Eburajolo, said one of the bottlenecks faced by assemblers is the processes involved in the revalidation of licence. According to him, the logistics involved are quite tedious considering the multiagency revalidation process. Instead of revalidating yearly, government should make it bi-yearly. Eburajolo noted that the majority of the auto assemblers are not utilising their potential to its optimal capacity, adding they assemble according to demand.
“Not too many people have money to buy vehicles. Assemblers depend on institutional buyers and governments for patronage. If government wants Nigerians to drive vehicles assembled in the country, government should work out some facilities with the banks where workers can get soft loans to buy vehicles and pay monthly.”
On the volume of assemblage, he said the facility is able to meet about 38 per cent based on demand. Most of the assemblers have huge capacities but can’t produce when nobody is buying.
The Marketing Manager, Kia Motors Nigeria, Olawale Jimoh, said it will be a disservice to the country if one ignores the sharp practices by some purported assemblers taking advantage of the incentives and exploiting the loopholes in the implementation of the policy. Jimoh said: “It behoves the law enforcement agencies and regulatory bodies to implement this policy and weed out serial abusers of the policy.
“We have got to make a choice; one with short-term gain by incentivising importers of FBUs at the expense of the local assemblers or a long-term gain that helps with the production of made-in-Nigeria vehicles by implementing the policy and further incentivising the local assemblers to help them improve the country’s backward integration of the economy”.He noted that the need for vehicle acquisition scheme could not be overemphasised, and that a provision of the scheme would widen cycle of vehicle ownership by making it more accessible and affordable. The auto industry as a consumer-facing business is as dependent on well-functioning and widely available financing as any other retail businesses across the globe.
“Car financing has over 85 per cent market share in car sales in the global market, non-availability of these schemes in Nigeria has continued to make the ownership of a new car a tall order rather than a go-to option for car owners. In the US, roughly $500 billion in new loans and leases are originated annually and 86 percent of new car purchases and 55 percent of used ones rely on borrowed money, with banks, captives, and fleet financiers all playing important roles.“Collectively, the US auto finance industry held roughly $1 trillion in outstanding loans and leases in 2015, translating to nearly $111 billion in revenue. Premised on this, the government needs to finalise the single digit vehicle acquisition scheme from financial partners to make the locally manufactured cars accessible to all in the market,” he added.
According to him, with the provision of the finance scheme, there will be significant growth in the market volume which will, in turn, serve as a motivation to bring in component manufactures. When the car components are manufactured locally, it will drastically reduce the cost of production thereby reducing the prices of the cars ultimately, a value chain that is sustainable.
Jimoh posited that it will be too devastating to take a cue from neighboring countries by encouraging importation by auto dealers through incentives on imported cars both new and old at the expense of local investors that have set-up multibillion naira plants in the country.On the contrary, he said rather than giving incentives to auto dealers for importing vehicles, a tariff cut should be extended exclusively to only local plants to make them competitive and provide affordable made-in-Nigeria cars. According to him, while they are not averse to the call for a review, the elements of the move must be directed towards industrializing the economy and keeping the local manufacturers competitive in the market.
Jimoh said imported used cars are not still checked that much. People still bring in cars through grey areas and this is also hampering the development of the policy. “Another area that is also one of our concerns about the policy is government as an entity itself especially with the way the Nigerian government is structured, government is one of the major drivers of the economy and one of the major customers of the automobiles. The industry is capital intensive and there is still some kind of poor patronage,” he said.
Vice President Yemi Osinbajo recently disclosed that Nigerians spend about $8 billion yearly to import vehicles into the country, promising that government would work with motor manufacturers and stakeholders to ensure used cars are phased out of the country. “The government is fully committed to industrialisation and developing the mining sector to enable it to create direct and indirect jobs for Nigerians. About $8 billion goes to overseas for the importation of vehicles while Nigerians are suffering. Also, most of the used vehicles imported are unsafe and not good for the citizens,’’ he said.
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