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Auto industry lacks direction 10 years after launch of plan

More than a decade after the implementation of the National Automotive Industry Development Plan (NAIDP) commenced with over $1billion investments from auto makers, there is…

More than a decade after the implementation of the National Automotive Industry Development Plan (NAIDP) commenced with over $1billion investments from auto makers, there is a raging concern over the fate of these investments due to lack of policy direction.

Operators in the industry are worried over policy summersault, inadequate infrastructure, the absence of a legal framework to give the NAIDP its effect, among others.

The above, coupled with other inflationary challenges being faced by the operators, have made local vehicle manufacturing unattractive while vehicle assembly plants are operating below the required capacity.

For many, the absence of the auto policy bill, which has lingered over the years, has created an atmosphere of uncertainty for investors into the automotive industry.

In November 2017, the director-general of the National Automotive Design and Development Council (NADDC), Mr Jelani Aliyu, was in Lagos to inaugurate the CFAO/FUSO Truck Assembly Plant in Lagos. 

Speaking with journalists after the inauguration, the elated director-general gleefully announced that the Senate, has just passed the NAIDP bill, which he said would provide incentives for original equipment manufacturers (OEMs) to come into the country.

He said the OEMs like BMW, Ford, Toyota, among others, have indicated interest in setting up plants in Nigeria and said the passage of the auto policy bill would fast-track their coming into the country. 

He said, “I am also glad to say that today, the national auto policy has been passed into law. This would put us in the perfect position to protect local investment and local companies such as FUSO, in terms of tax haven, incentives that would support their production, which would also protect them against unfair importation of competitive vehicles.

“Not too long ago, we were in South Africa, and we met with a number of companies – BMW, Ford that are already here, Toyota, Volkswagen, all these companies expressed huge interest in coming into Nigeria. And one of the things needed to be done was to make this policy into law.

“Now we have that. That’s a great incentive to them and other companies that want to come into Nigeria. Most importantly, with respect to what we do, we are now in a position to give the right incentives and support for companies to come into the country and we would also do all that we can to support the youth of Nigeria to be part of this new Nigeria in terms of empowering them with the necessary skills to be part of this global movement of technology that would make life easier.”

But five years later, the auto policy is yet to see the light of the day. In 2020, President Muhammadu Buhari declined assent to the bill, citing conflict with some existing laws especially in terms of the incentives to the auto manufacturers/assemblers. 

Since then, the bill is said to be undergoing review for resubmission to the National Assembly, but as at the time of filing this report, there is air of uncertainty over the fate of the bill. The last time it was checked, the NADDC said it was undergoing stakeholders’ input.

Amidst the uncertainty over the non-passage of the bill, the federal government passed the 2020 Finance Act, which had a significant effect on the auto industry.  

Daily Trust on Sunday reports that the finance bill altered the existing duty on importation of vehicles by reducing tariff on importation of Fully Built Vehicles (FBU) from 35 per cent to five per cent while import duty for Semi Knocked Down (SKD) remains at 10 per cent. 

The auto manufacturers said the 30 per cent reduction put investment in vehicle assembling at jeopardy. 

They said the decision made imports cheaper and more profitable, while at the same time disincentivising those who invested in assembly plants. 

According to reports, out of 58 auto assemblers that were approved by the federal government, only six are functional. 

Commenting on this dearth of policy direction in the industry, the deputy managing director of CFAO Motors, Mr Kunle Jaiyesinmi, said most auto assemblers had converted their staff to handle after sales, adding that assembling of vehicles was no longer sustainable. 

He said auto giants preferred Ghana to Nigeria because of the business-friendly climate made possible by the passage of their auto policy. 

An industry player who spoke with our correspondent in confidence said, “Ghana took virtually the same content of our auto policy bill and implemented it in less than one year. In fact, I was part of the team of experts contacted by the Ghanaian government. We used the same auto policy in Nigeria with very slight modifications. This was passed in less than a year and it is now in place.

“This is why you are seeing auto giants relocating and setting up assembling plants in Ghana. Toyota is in Ghana. Michelin, the world’s renowned tyre manufacturer, left Nigeria for Ghana, and so on. The truth is that without this auto policy, our industry will remain at a standstill.”

Also speaking, a former NADDC acting director-general, Mr Mamudu Luqman, said the implementation of the auto policy had been practically abandoned. 

He also said administrative bottlenecks had hampered the auto assemblers. 

Luqman said, “The National Automotive Industry Development Plan (NAIDP) is Nigeria’s 10-year automotive programme launched in October 2013 but came into full effect in 2014. Its implementation has been practically abandoned.  

“In the last four years, all I have heard from the statutory institutions for implementation is planned review.  I think it is dragging on for too long. I don’t even know of any meaningful industry survey that must precede review action.  As a result, industry players are unable to plan nor make any meaningful investment. It creates an air of uncertainty. 

“Certainly, the administrative process for those few assemblers that chose to stay in operation has become punishing.  For instance, it takes an average of four months to renew a licence, which is valid for only one year. These artificial obstructions should be removed immediately and the validity period of licence extended for three years. The assembly plants are already sufficiently challenged as it were.”

He noted that section 38 of the 2020 Finance Act “eroded the tariff differential advantage that local assemblers had.

“My suggestion is that it should be revisited. The standing technical tariff review committee should be properly reconstituted under the chairmanship of the Federal Ministry of Industry Trade and Investment, not Federal Ministry of Finance.  This committee made no input to the amendment in the 2020 Finance Act as standard procedure for tariff review. The presidency approves review on the advice of this committee.

“The result is that most assemblers have simply resorted to importation of second-hand vehicles and laying off all their workers. The industry had recorded about 5,000 employees from less than 800 in 2014.

“The NAIDP made provision to channel all levies collected for policy administration, including provision for low-cost automotive asset acquisition scheme.  The scheme was completed with a go-to-market strategy five years ago. It should be revisited for full implementation because the funds should be piling up,” Luqman added.

But despite the delay in sending a new draft bill to the National Assembly, the NADDC director-general, Jelani Aliyu, said the auto policy was working. He said the policy had attracted over $1billion investment, adding that Nigeria is officially a vehicle producing country.

Aliyu said the manufacturers could be encouraged when ministries, departments and agencies patronised made-in-Nigeria vehicles.

He said, “When we talk about automotive policy, it has yielded results. That is why we have over $1b invested in Nigeria by many companies in Lagos, Akwa Ibom, Anambra, Kano and many other places.

“These companies are actively producing quite a number of vehicles. We have a whole lot more than six companies that are actively operating in Nigeria. These companies have a combined capacity of over 400,000 vehicles per annum.

“So, both the government and the investors have delivered, the challenge being faced is the market. It takes certain measures for the market to really grow. We need vehicle financing; we need the economy itself to grow; and it has continued to grow because you are talking about the purchasing power of the average Nigerian that needs to grow,”  Aliyu, whose agency drives the automotive development process in Nigeria said.