The recent sharp increases in the import tariff and levies on motor vehicles are potentially harmful to the economy and the welfare of citizens, the President, Lagos Chamber of Commerce and Industry, LCCI, Goodie Ibru, has said.
Mr. Ibru said though as a major stakeholder in the economy, the Chamber welcomed the policy seeking to promote self-reliance in the Nigerian economy, there was great value in domesticating spending through proper policy sequencing.
Import dependency, he said, was only a manifestation of deeper issues of low productivity, weak competitiveness and flawed foreign exchange policy in the domestic economy.
He criticised the recently introduced automobile policy in the country, pointing out that it was inappropriate to begin the pursuit for a self-reliant automobile sector with the imposition of high import tariff on vehicles when there were fundamental supply side issues to resolve.
Without a good foundation, he said, the superstructure cannot stand in any economy, adding that the recent tariff review would only bring negative outcomes on the economy, particularly the escalation of smuggling of motor vehicles with corresponding loss of revenue to government and higher transportation costs with corresponding impact on inflationary conditions in the economy.
”Ethical players in the sector will be crowded out of business, because of the weak institutional capacity to ensure compliance with the new tariff as well as the porosity of the borders,” he said.
He said with the new policy, over 85 per cent of the freight in the economy and the movement of citizens would be moved by road; pointing out that vehicle ownership would also be put further beyond the reach of the Nigerian middle class, especially in the face of poor credit access and high lending rates in the economy.
Again, he said the policy would lead to the loss of maritime sector jobs to neighbouring countries, pointing out that the creation of a sustainable automobile industry should be predicated on certain conditions, including high local value addition and capacity for backward integration.
Other conditions include strong engineering infrastructure, especially the iron and steel industry, including the production of flat sheets, foundries and fabrication of vehicle components.
He also said that there should be a strong petrochemical industry to supply the plastic components in the vehicle production and development of ancillary industries for the production of batteries, glass, radiators, tyres, etc., apart from the existence of affordable finance options for the investors.
Mr. Ibru expressed fears that the development of the sector would not thrive in an environment where the cost of fund was as high as between 25 and 35 per cent per annum, pointing out that long term affordable finance was an absolute necessity for the automobile industry manufacturers if they must realise their potentials.
He also stressed the importance of sound infrastructure, especially power supply and transportation, saying “there can be no enduring industrialisation without a strong power sector.
”Infrastructure is critical to the development of any sector. Therefore, government should scale up investment in infrastructure to enhance productivity and competitiveness in the domestic economy. A situation where less than 30 per cent of annual budget is committed to capital projects can only retard the development of infrastructure,” he added.
He pushed for effective public policy to promote patronage of locally produced vehicles, especially by government institutions and the reviewing of appropriate lessons from the collapse of assembly plants in the recent past as well as ensuring general investors’ confidence.
For the current automotive policy to endure, he said, government must substantially meet certain conditions. He said imposition of high tariff in the face of weak supply side response would only worsen the welfare condition of citizens and escalate operating costs in the economy.
He called for robust consultation with stakeholders in the entire value chain of the automobile sector to develop a sustainable road map for the development of the sector which shall also take account of appropriateness of timing and sequencing of policies
The framework for the utilisation of the automotive development fund, he noted, should be reviewed to ensure proper targeting for the development of domestic capacity for the automobile sector.
The focus of policy at this time should be on the development of a strong supply side capability, especially in the iron and steel industry, the petrochemical industries, glass industries and other ancillary industries” he said.
The Minister of Trade and Investment, Olusegun Aganga, said car importation accounts for the biggest share of the country’s foreign reserves, with about N550 billion (about $3.4billion) spent in 2012 on importation of cars, against N660 billion (about $4.2 billion) in 2010 .
In October, the Executive Council of the Federation, FEC, approved a new Automotive Industrial Policy Development Plan for the development of the Nigerian automotive industry.
Mr. Aganga said the policy was drawn over a period of nine months with the input of the National Automotive Council, NAC, adding that foreign car manufacturing giants, like Toyota and Nissan, were expected to start announcing their specific investments in Nigeria.
He noted that the success of the policy would also mean the gradual phasing out of fairly used (tokunbo) cars imported into the country and create a minimum of 700,000 jobs for Nigerians.
According to the minister, the pitfalls of similar policies in the past, like the non-implementation of policies, lack of infrastructure, and inappropriate tariff regime; were considered and adequately addressed in the new policy, with even the Federal Road Safety Corps and local vehicle assembly plants/manufacturers involved.
The minister outlined the points of the new policy to include the establishment of three automotive clusters in Lagos/Ogun; Kaduna/Kano; and Anambra/Enugu states to share resources and reduce cost of investments, the development and revival of the petrochemical and metal/steel sectors and the tyre manufacturing industry to support the automotive sector.
He believed that new tariff regimes would be adequately set to discourage the importation of cars and encourage local manufacture, while government continues taking the lead in patronage of locally made vehicles, adding that banks would be encouraged to operate vehicle purchase schemes to enable Nigerians easily purchase cars.
The council also called on government to direct that all vehicles purchased by government ministries, departments and agencies must be from the local assembly plants, unless it was of specialised nature, while NAC would certify that it was not produced in Nigeria.
Importers are expected to pay 25 per cent more on duties from March 2014. Shipping costs and duties are said to account for 55 per cent of cost of Tokunbo cars.
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