Nigeria’s automotive industry could account for 12 percent of GDP – Benjamin Alade

Luqman Mamudu 

Luqman Mamudu is the Chief Executive Officer, Transtech Industrial Consulting and former Director, Policy and Planning at the National Automotive Design and Development Council (NADDC).

In this interview with BENJAMIN ALADE, he spoke about the opportunities, prospects, and challenges of the Nigerian Automotive Sector and what the new administration should do to harness its many potentials.Nigeria’s automotive industry remains stagnant, due to non-passage of the NAIDP into law, nine years after it was drafted; would you say the industry is jinxed?Certainly not. The industry is not backward if you examine the status in 2012/13, on the eve of the National Automotive Industry Development Plan (NAIDP) launch. From a mere installed capacity of less than 80,000 vehicles per annum and one percent capacity utilisation, it rose to about 500,000 installed capacity and 10 percent capacity utilisation by 2017 although it dropped to six percent in 2022. 

Installed capacity remains high. Besides, nearly all the original equipment manufacturers (OEMs) including Nissan, Ford, Kia, Honda, Peugeot, Geely, TATA, Hyundai, GM, SINOTRUCK, YUTONG, JAC, MAN, FAW, among others, have established investment pipelines in Nigeria.

Indigenous Nigerian automotive companies like IVM, NORD, Proforce, JETVAN, Lafbert Innovations, IPI among others, have also invested massively in the industry. As at 2017/18 nearly 3,000 Nigerians were employed in the industry, which witnessed over $2 billion in investment from 2014 to 2017.

The NAIDP investment confidence bill was successfully passed through the lower and upper chambers of the legislative arm of government but failed to get presidential assent. 

This certainly slowed investment by OEMS because they fear policy change which can compromise their investments.

The capacity utilisation which was gradually increasing, started to decline. This non-presidential assent also indirectly led to serious challenges within the administrative space. Those in and outside the government who never liked the policy mobilised against it. So, I won’t call it a jinx.

To what extent would you say the Finance Act 2020 impeded the industry’s growth and what should be done for the policy to see the light of day?If the non-assent by the presidency knocked down the bill, the 2020 Finance Act finished it. It was ill-advised and as such, should be reversed. It had no input from the National Tariff Review Committee as required. The incentive to assemble commercial trucks and buses, which are easier to build locally and require minimal investment capital, was removed.

Unfortunately, Nigerian assemblers had achieved so much capacity in this category, especially in bodybuilding. Previously, the import tariff on fully built commercial vehicles was 35 percent, while assemblers had the incentive to import their broken-down kits (KD) at 10 percent; but the imported FBU was made 10 percent.

Curiously, agricultural tractors for which NAIDP provided zero per cent import duty to encourage agriculture, was increased to five per cent. No one knows the reason. As a result of the 2020 tariff structure, local assembly for commercial vehicles has practically disappeared but for a few firms like Dangote, Shacman, and FAW.

Everyone is now importing both new and used vehicles. These have now flooded the entire streets of Nigeria and we have become the biggest destination for used vehicles. The argument by those who engineered it was that the move would reduce prices of commercial vehicles to the masses.

Prices went up instead. The truth is that price upward push factors were mainly due to COVID-19 and the steady fall of the Naira. It was simply an excuse to slash the tariff on SUVs which was formerly 70 per cent but is now 25 per cent. Established local capacity to build SUVs has also sadly stalled.

Being a former director of NADDC, what do you think the council should have done better in the last five years?Undertake a mid-term policy review as provided for in the NAIDP and scheduled for 2018. This was to involve the engagement of all stakeholders. Also, policy implementation monitoring and evaluation exercises should have been sustained. 

Furthermore, the NAIDP programmes, which included an automotive supplier park, a safety standards laboratory, and an automotive credit purchase scheme to drive demand for made-in-Nigeria automobiles, should be revived.

Certain analysts believe that the industry’s stunted growth has worsened the economic problem we had since the introduction of NAIDP in 2014, what is your take on this?The automotive industry is recorded to contribute significantly to economic prosperity and certainly would have done the same for Nigeria. The automotive industry can account for as much as 12 percent of a country’s GDP. 

However, I have no statistics indicative of its responsibility for Nigeria’s slow growth or worsening economic problems.

What is your reaction to the recent approval of the so-called amended automotive policy by the outgone Federal Executive Council?I have gone through the summary only. I don’t have the full copy but I think they may have reintroduced a clause that caused the presidential rejection in the first place. The crafters didn’t consult widely. The tax holidays provided for in it are already well accounted for in the Nigerian investment pioneer act. Besides, its incentive provisions don’t seem deep enough to attract investors; local or foreign. As I said, I have not had the privilege of seeing the full copy yet.

To what extent did Buhari’s regime fulfill the promises it made to the industry’s stakeholders after assuming office in 2015?There was an executive order to patronise made-in-Nigeria vehicles. This underscores his interest in the industry. He also did not cancel the 2014 NAIDP as many traders wished him to. I am not too sure that most Ministries, Departments and Agencies (MDAs) respected the Executive order for patronage anyway; just look at their fleet.

Towards kick-starting the long-expected development of the nation’s automotive industry, in comprehensive terms, what agenda would you like to set for President Tinubu?It should pick up the 2014 NAIDP and have it reviewed by the stakeholders. The following programmes of 2014 NAIDP should be singled out for implementation. 

Automotive credit purchase scheme launch. The anticipated $800 billion for petroleum subsidy and other sources should be injected into the scheme, this will make it affordable. Bus operators and haulage companies should be the primary beneficiaries of this scheme as individuals may not be able to sustain repayment from meagre salaries.

Transportation costs will drop so let’s create a culture of bus riding. We do so gladly abroad. Only made-in-Nigeria vehicles should be sourced under the scheme, this will quickly revive the automotive industry, drive demand for their products and lead to massive employment along the value chain.

The lands already acquired by NADDC in Kaduna, Osogbo and Nnewi for automotive components and parts production should be realised. This will drive local content and massive employment. To be competitive in the AfCFTA, this project is a must-do.

It’s only high local content that will qualify you to sell automotive products across Africa, duty-free. If you don’t, other African countries will take advantage of our over one million vehicles per-annum market. The automotive safety laboratory for emissions in Lagos, the components and parts laboratory in Enugu, and the materials laboratory in Zaria should be completed and made functional.

This is critical for homologation in the industry. The fiscal incentive must be adjusted to take full advantage of limits allowed by member states for the industry they wish to protect. Also, for the components and parts industry to grow, we need to ring-fence the tariff code for automotive manufacturers.

Nigeria has over 12 million vehicles on the roads. We can locally make parts and components to maintain them as well as serve the emerging assembly industry, all these translate to jobs and this is what Nigeria needs now. Most importantly, this is not just for the automotive industry; but the industry faces challenges in sourcing foreign exchange (forex).

My recommendation is for the government to scrap the parallel market for forex. There should be only one exchange rate for Naira and domiciliary accounts should be scrapped. Those who require forex should state the purpose and apply based on funds in their accounts.

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