On Wednesday 2^nd of October 2013, the Federal Executive Council (FEC) in Abuja approved the Automotive Industry Development Plan for the development of the nation’s automotive industry. The Plan is intended to facilitate the emergence of a transformed automotive industry with enough capacity to attract investment, become a major driver of economic growth and diversification, create job, engender local value addition and promote technology acquisition. This news was delivered by the Information Minister, Mr. Labaran Maku. On this day too, the Federal Government made public the new automotive policy and set October 3, 2013 as the deadline for the establishment of ‘Form M’ to import under the current tariff regime until February 28, 2014.

By Thursday, October 3^rd, 2013, the Minister of Trade and Industry, Mr. Olusegun Aganga held another chat with journalist and expounded more on the policy initiative by declaring that a new tariff on the importation of cars would be announced soon. The move, he stated will make imported cars more expensive thus, promoting the purchase of locally manufactured vehicles. Aganga said the old tariff had been reviewed upwards, adding that the new tariff had already been approved by the Federal Government as part of measures to develop the Nigerian automotive industry. In his words, he stated that:

The importation of Tokunbo vehicles will not be a major threat to the automotive development plan. The tariff for the importation of cars has been reviewed upward and will be announced soon.

Fast forward to the 14^th of November, 2014, the message conveyed in a two-page document reverberated throughout the automotive industry. The memo with reference No. BD/FP/DO/09/189 originated from office of the Finance/Coordinating Minister for the Economy. One was sent to the Comptroller-General, Nigeria Customs Service (NCS) directing that imported fully built unit (FBU) of cars shall now attract 35% duty and 35% levy, totaling 70% (Up from 20% Duty and 2% Levy). Duties on buses also went up from 10% to 35% without levy. The other memo went to the Federal Inland Revenue Service (FIRS), destination inspection service providers comprising Cotecna Destination Inspection Limited, Global Scan Systems and SGS Nigeria Limited reaffirming that the new fiscal regime has the concurrence of the President of the Federal Republic of Nigeria. Other detail contained in the memo includes:

• Completely-Knocked Down vehicles (CKD) for Local assembly plants – 0.00% Duty
• Semi-Knocked Down vehicles (SKD) – 5% duty.
• Local Assembly Import of FBU Cars(in number equal to twice their CKD/SKD kits) – 35% Duty, 0.00% Levy
• Local Assembly Import of FBU Commercial Vehicles (in number equal to twice their CKD/SKD kits) – 20% Duty, 0.00% Levy
• Imported Tyres (cars, buses and lorries) – 20% Duty, 5% VAT
• Local Tyre Manufacturing Plants Import of Tyres (in numbers equal to twice their production for 2years from commencement of production) – 5% Duty.
• For Used Vehicles, Nigeria Customs Service “shall use the value of a new vehicle depreciated by 10 per cent per annum, implying 10 years period of cars and by seven per cent per annum implying 15 year period for commercial vehicles. In either case, depreciation should never be below 30 per cent of the value of the new vehicle equivalent.”

 

REACTIONS

The first wave of reactions came from the expected quarters (legatees of the old order) although with a novel twist to it. The group under the auspices of Auto Manufacturers’ Representatives Group in Nigeria in a petition dated November 6, 2013 alleged among other things:

–       That Stallion Group, which imports Honda, Nissan, Hyundai, Volkswagen and Audi brands of vehicles into the country, had a pre-knowledge of the details of the automotive policy and used it to its advantage by opening letters of credit to the tune of $382 million to cover three years of imports for 20,000 cars on the last date for the administration of the old tariff regime (October 2, 2013). The petition was signed by Chairman, Elizade Motors, Chief Michael Ade Ojo; Managing Director, Toyota Nigeria Limited, Mr. Chandrasheker Krishnadas Thampy; Chairman/Chief Executive Officer, Globe Motors, Chief William Anumudu; Chairman, Coscharis Nigeria Limited, Mr. Cosmas Maduka; and Chairman, CFAO Motors, Chief Molade Okoya-Thomas.

–       That there was no representation from the global manufacturers’ representatives in the committee that drafted the automotive policy and therefore called for the constitution of a body comprising representatives of the federal government and stakeholders to review the policy and report back within six months.

–       That a two-year deferment of the implementation of the automotive policy be allowed to enable some serious investors complete their ongoing feasibility studies and plans to establish motor assembly plants in the country.

 

Another reaction came also from an expected quarter; the Lagos Chamber of Commerce and Industry (LCCI). The Chamber argued that it is inappropriate for government to begin the pursuit for a self-reliant automobile sector with the imposition of high import tariff on vehicles “when there are fundamental supply side issues to resolve as well as low local value addition and capacity for backward integration in the sector”. In its press release, it stated that:

the LCCI notes with concern the recent sharp increases in the import tariff and levies on motor vehicles. The policy has potentially harmful effects on the economy and the welfare of citizens. As a major stakeholder in the economy, the Chamber welcomes a policy thrust that seeks to promote self-reliance in the Nigerian economy because there is great value in domesticating spending. However, in pursuit of this laudable aspiration, proper policy sequencing is imperative. Import dependency is only a manifestation of deeper issues of low productivity, weak competitiveness and flawed foreign exchange policy in the domestic economy.

In a survey conducted by a Maritime journal, Ships & Ports Daily, majority of the sampled respondents kicked against the tariff increase describing it as insensitive and arguing that it will have adverse effect on low income earning Nigerians. The respondents maintained that the increase in duty is an indirect way of placing a ban on used cars which are the ones average Nigerian can afford to buy.  One of the respondents, a former Chairman of the Association of Nigeria Licensed Customs Agents (ANLCA) Tin Can Chapter Kayode Farinto, stated that “the policy formulators have gotten it wrong again and this is the second time they are getting it wrong. The first time was when government proposed to place ban on the importation of rice knowing fully well that the local supply cannot meet the local demand. So whoever must have
formulated this policy of local assemblers producing vehicles for Nigerians is just not getting it right.”

The Nigeria Labour Congress (NLC) on its part while not outrightly against the policy took a swipe at the abrupt implementation of the tariff increase on imported vehicles without a viable alternative. The NLC President, Comrade Abdulwahed Omar further stated that

NLC is not opposed to the new policy. But coming up with a new tariff barely few weeks to its implementation without viable alternative is not proper. In the least, it would just leave Nigerians in the grips of some unscrupulous car dealers who would lash on the new tariff to create artificial scarcity and raise prices.

Many would most likely label the above expressed reservations as the frustration-induced ranting of a few who incidentally find themselves on the receiving end of the policy. But we will deviate a little to consider the theoretical foundation of Import Tariff and how it has over time become a policy instrument of choice for a number of import-dependent nations. This we believe will help us in understanding better what the government is trying to achieve with the policy and thereafter we will consider its pros and cons vis-à-vis the peculiarity of Nigeria’s economy.

 

………………………………………………Continued in Part Two.

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