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Auto policy, going round in circle and moving nowhere

by Business News Report

 GEJNigeria, unfortunately, is a country that runs on vicious circles. What beats human imagination is the rate at which the nation’s leaders repeat the same mistakes of the past. It was amazing when the Minister of Trade, Investment and Industry, Dr. Olusegun Aganga, announced to the nation a new automobile policy. It sounded as if the country has never had such policy in the past.

Nigeria has scattered across the country, various research institutes that were built to assist in the promotion of industrialisation. But these institutions are either moribund or totally dead. Federal Institute of Industrial Research, Oshodi (FIIRO), was set up to conduct research into products that can be manufactured locally. Where is it today? PRODA had the same mission; it is no longer heard of and its products have never been taken seriously. What about the Raw Materials Research and Development Council? Where is the NASENI? By its mandate and scope of operation, it is the only Nigerian purpose-built agency designed to conduct developmental work in the areas of manufacturing, but where are its end products?


This government must learn to be serious. The bid by the previous governments for Nigeria to take off industrially led to the setting up of the various steel rolling mills across the country. Where are the rolling mills? What has become of the famous Ajeokuta Steel plant? Where in Nigeria is flat steel being produced for the nation to tap into to produce cars? If this government should go into its own archive; it will find that facts about the operating capacity of Nigeria’s automotive sector in the past are well documented. The Federal Government in a bid to produce a Nigerian car encouraged the setting up of assembly plants in various parts of the country.


The Assembly and Component manufacturing plants in the 1970s and 1980s peaked at a total of over 120,000 cars, commercial vehicles and tractors, per annum. Even today, an entirely green plant, Innoson Vehicle Motor Manufacturing (IVM) in Anambra State, is churning out Light Commercial vehicles, Buses and Sport Utility Vehicles (SUVs).


The question is, who is to blame for the free for all import of vehicles into the country? Various governments in the country do not patronise locally made products. They prefer bullet-proof Mercedes Benz, BMW, alloyed wheeled Prado etc. At a point, the military took Peugeot as the official car for the military government, but as soon as the men in flowing gown came in, it was jettisoned.


The Nigerian automotive industry’s domestic production began in the late 1970s through partnerships between the Nigerian government and foreign companies. Six assembly plants (two for cars and four for trucks) were established between 1970 and 1980. These were: Peugeot Automobile Nigeria Limited (PAN) in Kaduna; Volkswagen of Nigeria Limited (VWON) in Lagos; Anambra Motor Manufacturing Limited (ANAMMCO) in Emene, Enugu; Steyr Nigeria Limited (Bauchi); National Truck Manufacturers (NTM) in Kano for Fiat; and Leyland Nigeria Limited in Ibadan.
How many of these companies are producing at 10 percent installed capacity and why, is the question we must ask. The reasons are not far- fetched.


Apart from the fact that the basic infrastructure are lacking, over time,  modern cars produced internationally became more popular with Nigerians than the ‘post-war’ cars produced nationally at that time. Also, the industry’s problems were exacerbated by lack of economies of scale, disappearance of the middle-class, as well as weak import policies and enforcement. The subsequent devaluation of the naira and increasing inflation resulted in high production costs at Nigeria’s inefficient plants.
The result is the import-dependent automotive industry we know today, an industry with an annual installed capacity of about 100,000 cars that is five percent utilised. To meet the demand gap, the average Nigerian is forced to be import-dependent with 80 percent of the automotive imports being used cars.
Have we solved the problems bedeviling the auto industry in Nigeria to the point that Nigeria can afford high duty on imported second-hand cars? The concern in the recently announced auto policy of the Federal Government is that it has a potential harmful effect on the economy and the welfare of Nigerians because Nigeria’s import-dependency is just a manifestation of deeper issues of low productivity, weak competitiveness and flawed foreign exchange policy in the domestic economy.

 Did this government do a cost benefit analysis of the implication of the sharp increases in the import tariff and levies on motor vehicles on the welfare of the people they were elected to serve? To any economist, it is inappropriate 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. Without a good foundation, the superstructure cannot stand in any economy.

 As with the case of rice policy, the recent tariff review would lead to the escalation of smuggling of motor vehicles, shortages with corresponding loss of revenue to government and the attendant higher transportation costs. This will have an inflationary impact on the economy. This would happen because over 85 percent of the freight in the economy is moved by road; so also is the movement of the citizens. Vehicle ownership will go beyond the reach of the Nigerian middle class, especially in the face of poor credit access and high lending rates in the economy.


To any right thinking government, the creation of a sustainable automobile industry should be predicated on high local value addition and capacity for backward integration, strong engineering infrastructure, especially the iron and steel industry including the production of flat sheets, foundries and fabrication of vehicle components; strong petrochemical industry to supply the plastic components in vehicle production, and the development of ancillary industries for the production of batteries, glass, radiators, tyres etc. Can Nigeria in all honesty say these facilities are available now? Perhaps this government may want to tell Nigerians what it knows about the Oshogbo machine tools and what it was set up to do and what has become of it?

Mr. President and his minister must come to terms with reality and stop populist ideas that lead the country nowhere. Let us achieve at least 18 hours of regular power supply before dreaming of the impossible.



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