Coordinating Minister of the Economy and Finance MInister, Dr. Ngozi Okonjo-Iweala
- Leads to rising prices of vehicles
The current auto policy which aims to promote manufacturing of vehicles in Nigeria has taken a toll on the auto market with a fall in importation and customs revenue, writes Francis Ugwoke
As the federal government appears to be celebrating the nation’s auto policy introduced recently, the market environment has in turn become very harsh to Nigerians wishing to own a car for the first time or trying to replace an old one.
The prices of all vehicles are currently heading to the roof top. The worst hit are newer models. The situation is worsened by the Christmas or end of year season, when many would want to buy a car, mainly fairly used or Tokunbo cars . The prices of fairly used cars in recent time, since July this year, have continued to go up. Importation has equally reduced and so the revenue raised from the trade has also gone down. But worse still is that apart from the 35 percent duty rate imposed on imported cars few months ago, government, it was gathered, is planning to raise the tariff to 70 percent. This could be the second phase of the intended support from the government to local companies that are manufacturing new cars. What is surprising is government’s lack of concern on the number of the vehicles or cars being produced each year in the country and whether the new companies have the capacity to produce affordable cars for the average income earner in the country.
During the week, the Minister of Trade and Industry, Dr. Olusegun Aganga, said that the federal government had recorded tremendous achievement in the auto policy which took effect few months ago.
Aganga disclosed that the policy had reduced importation of vehicles by 20 percent. Like many may know, the reduction, he said, was as a result of the auto policy which is targeted at checking Nigeria’s dependence on imported vehicles. He was quoted saying, “ we spend about $6billion annually importing cars. However, since the introduction of this policy, we have experienced a 20 percent drop in imported cars and have exceeded expectations in a very short period”. While Aganga may be right in saying that the policy is achieving result, the issue at stake is the negative side of the policy on the national economy. Yes, no sane person would encourage his/her country to remain import dependent since it does not portray growth or development. Yet, stifling importation of goods which Nigeria does not have the capacity to produce or keep pace with demand could lead to a rise in their prices. And this is exactly what is happening now. Worse still, in January the government would introduce a 70 percent tariff on imported vehicles.
The question is whether the auto firms would by January be in a position to produce affordable cars that will justify the auto policy on importation. Like in the case of rice, to many, 70 percent duty on imported cars would be too high and would make it difficult for many to own cars, particularly the low income earners. It would even encourage smuggling of the cars into Nigeria by desperate Nigerian importers. It would be recalled that during his government, former President Olusegun Obasanjo had rejected a similar auto policy as was recently introduced, insisting that the auto firms would first have to come to Nigeria, manufacture cars that will be affordable by low income group for some time before high tariff on imported cars would be introduced. As the President of Association of Nigerian Licensed Customs Agents (ANLCA), Prince Olayiwola Shittu, recalled, Obasanjo had called a stakeholders’ meeting to discuss the issue during which it was clear to him that high tariff on vehicle importation cannot be feasible until the local firms proved that they can meet the demands of Nigerians.
Fraud in the system
The current scenario in the ports is that some of the companies which enjoy the policy of concession on Complete Knocked Down (CKD) parts have been abusing this. The Nigeria Customs Service (NCS) recently during goods examination discovered that one of the auto manufacturing companies was cheating the government through false declaration of some finished products as CKD parts. The company was discovered to have evaded huge duty payments as a result. Although, the company was given a Debit Note by the Customs, it appeared during the week that the N2billion penalty has been withdrawn after the company petitioned some highly placed government functionaries.
Customs revenue falls
The effect of the auto policy is that the Customs has continued to lose revenue on daily basis. A ready example is the Tin Can Island port which revenue has since gone down since the auto policy became effective with the 35 percent duty rate. The Tin Can Island Customs Command had recorded N26bn respectively for the months of April, May and June, but suffered revenue fall in the months of July, August, September and November. The revenue was N23.4bn for July, N21bn for August and N24bn for September and October which was N27bn, apparently because of the Christmas season. But the figure was affected dramatically in November when the figure fell to N22.3bn. This could be the same scenario in some of the ports. The overall revenue target for the Customs this year is N1.2trillion. It has so far generated about N951billion, an indication that the target would have been surpassed comfortably if not for the auto policy and rising fraud by importers who want to benefit from concessions through fraudulent means.
Effect of the policy on businesses, jobs
There are so many Nigerian importers that are involved in importation of vehicles. What this means is that many of them by the auto policy will also suffer business losses with the high tariff that will reduce their level of doing business. Many of them have expressed concern about the high tariff which has made the cost of importation very high and therefore the cost for the vehicles in the market. For instance, a Toyota Matrix car which was sold some months ago at about N1.1million now sells at N1.5.million . This has in turn made the business dull. This writer who was at the Berger auto market in Lagos discovered that old model Toyota Camry of 2004 which before was about N850,000 now sells for N1.5million, depending on the neatness of the car. Other vehicles have also gone up in their prices, particularly those that came through the seaports. Incidentally, it is difficult to know which one came through the seaport or smuggled since many of the importers are involved in document falsification that the buyer may not know. What could equally be of concern for many is the current exchange rate following the devaluation of naira. Customs now uses N165 per dollar in duty calculation as against N155 per dollar before. This implies that the importer will have to pay more on duties. And as he does this, the final consumer of any good, not just finished products, will have to pay more. Customs source said that the idea is to ensure that the devaluation of the naira would not affect revenue target so much.
Views from stakeholders
Industry stakeholders who spoke to this writer were of the view that the federal government should not implement the planned 70 percent hike in tariff for imported vehicles come 2015. One of the stakeholders and Managing Director of Stallion Stevedores Limited, Alhaji Auwulu Ilu, said that the situation would become worse when the planned 70 percent duty rate takes off. “Government should consider the effect of such policy on the importers and then the final consumers, particularly those low income group. Above all, government should not be carried away by promises alone made by the auto makers but wait for good result of delivery on those promises before any further increase on tariff. Besides, he said that high tariff would force many importers to look for ways of smuggling some of the vehicles into the country as was the case when government introduced the age limit on importation of vehicles. “As government insists on protecting the few manufacturing companies, government needs also to assess their capacity to meet target and whether many Nigerian income groups can afford those cars. Every policy decision should be well weighed to achieve a balance”, Ilu said