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There is little investment in Nigeria’s automotive industry due to policy somersault -Managing partner, Transtech

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IN 2013, Nigeria unveiled the National Automotive Policy with a view to boosting local vehicle assembly and making the industry competitive. Eight years down the line, the policy has been a mixed bag of successes and failures.  LUQMAN Mamudu is one of the experts who managed the policy at its inchoate stage. He is a former director of policy and planning at the National Automotive Design and Development Council (NADDC). He is the current managing partner at Transtech Industrial Consulting, with vast experience in policy formulation in the automotive sector.  In this Interview with HARRISON EDEH, he explains that Nigeria can ride on policy consistency to become an automotive hub, explaining that many car makers are waiting to invest in the country but the business environment is still unfavourable.  Excerpt:

You are a member of the committee set up by the National Council on Privatization (NCP) to review the automotive policy. As a key member of the committee, could you speak to issues and concerns on the review of the automotive policy?

The mandate of the committee was to examine the circumstances constraining the prospects of the struggling six automotive assembly plants long privatised by the government. These are Styre, Bauchi; VWON, Lagos; Leyland, Ibadan; Mercedes Truck (ANAMMCO), Enugu; National Truck Manufacturing company (FIAT), Kano; and PAN Nigeria, Kaduna.

The committee has since completed its assignment these past few months and submitted a far-reaching report for consideration by the NCP chaired by the vice president. I am not a member of the industry-wide committee for the National Automotive Industry Development Plan (NAIDP), if indeed such a committee exists. I know that the review of NAIDP is still pending with the Minister of Industry Trade and Investment. I did have the opportunity to share my views with the office of the minister more than four months ago. It was expected that the so-called draft NAIDP review report be shared with all stakeholders, including the Nigeria Automotive Manufacturers Association (NAMA)  and the National Tariff Review Board for a balanced input before submission to National Assembly for legislation. It is dragging on for too long, so there is a lot of confusion in the industry. Action is urgent.

Apart from the current review, Nigeria’s automotive policy of 2013 has thrown up the peculiar challenge of policy inconsistency. How, in your assessment, does this speak to investor confidence in the sector?

I consult in the industry and I can tell you that there is very little new investment and a worrying level of ongoing divestment in the industry. For instance, most who had plans to rapidly move up to completely knocked down (CKD) operations in commercial vehicle assembly have either closed their assembly operations and returned to importation or simply remained at semi-knocked down (SKD), starting block level of operations. You see, the Finance Act of 2020 reduced tariff on imported fully-built unit (FBU) commercial vehicles to 10 per cent. Same as imported SKD.

So there is no longer incentive, except for those that already achieved CKD level of operations with a marginal tariff differential of only 10 per cent. This is meaningless because some countries exporting FBUs into Nigeria have export subsidies in excess of 17 per cent. Yes, this is a clear case of policy summersault which weakens investor confidence. The Honorable Minister of Industry should expedite necessary action on the new NAIDP to prevent the industry from total collapse.

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What is your overall assessment of the potential of Nigeria’s automotive sector? 

Nigeria has considerable potential to become, first of all, an automotive-producing nation and secondly a major hub in Africa. It has all the credentials at the moment. Nigeria has a domestic market that is growing and that can comfortably sustain the industry, unlike South Africa that relies mostly on export.

Nigeria already has a long culture and history of automotive assembly. At the moment, Nigeria has installed capacity to assemble ‪500,000 automobiles per annum and even potential for components manufacture. Never mind that the assembly capacity is mostly at the SKD level. Nigeria has an existing huge replacement market as an additional incentive to manufacture replacement and service parts. At the moment, we simply import everything.  Major automotive original equipment manufacturing (OEMs) companies have opened investment channels in Nigeria through technical collaboration with local entrepreneurs. These include Nissan, Ford, Peugeot, KIA, Geely, Hyundai, MAN Trucks, Leyland, TATA, Sinotruck, FAW, XCMG, and Shackman. More are waiting to come once the investment environment is right. Indigenous brands, led by Innoson Motor Manufacturing, Jet Motors by GIG, Proforce and bodybuilding companies like IPI, are numerous. Nigeria has a trained and trainable crop of human capital resources to feed the industry.

What we are not doing is to simply implement the NAIDP or its variant. The problem with us most times is that we condemn policy plans that we fail to implement. Any semblance of monitoring and evaluation (M&E) of the NAIDP has been seized since 2017. Yet this is critical to any implementation process. especially in a delicate and economically-sensitive industry like automotive sector.  This is why the powerful lobby against it seems to have the upper hand.  For instance, The NAIDP committees for industry and committee for relevant government agencies have not met since 2017 for consideration of monitoring and evaluation reports. Yet these are the two most critical implementation committees. These committees should be resuscitated and called to action. Hope is not lost.

There were concerns about the president withdrawing his assent to the automotive bill earlier. Are those concerns really being addressed in the current review?

I think the president is passionate about growing the real sector, including automotive. The problem is that those who simply want to import vehicles, especially expensive SUVs and second-hand vehicles, are powerfully lobbying. This is why whatever new plan is put forward for his consideration must engage and be seen to engage all stakeholders and the public. If this is done, I am sure he will sign. Nigeria needs activities that add value to what we consume. There will be fewer pressures on our foreign exchange if that is done.

With the African Continental Free Trade Area Agreement (AfCFTA), do you see the Nigerian becoming a continental vehicle hub?

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Absolutely. The NAIDP is designed to gradually grow Nigeria’s automotive assembly from simple SKD operations to the CKD and eventually increase local content and manufacturing. It is because of the need to rapidly build up a volume that the NAIDP made allowance for investors to start at SKD level and even contract assembly. The strategy was to rapidly build assembly capacity enough to encourage components manufacturers from whom Nigeria sourced its input to locate their plants near home. This is why it also had provision for three major automotive supplier parks for which over N600m has been expended.

Unfortunately, most of those who lobbied against the policy, including some existing large assembly plants, cited the SKD as a basis to condemn the entire plan. They bluntly refused to acknowledge that SKD was not supposed to be in perpetuity nor the tariff timelines. It is pure impatience and mischief by those bent on wholescale importation of built-up vehicles. The SKD assembly is extremely difficult and with very little profit margins, which is why there was an incentive mechanism for concessionary import by those who invest locally even if it is SKD.  However, this could have been properly managed by the institutions responsible for implementation. Once Nigeria can meaningfully pursue increased local content in the automotive industry, AfCFTA presents a huge opportunity.

What should Nigeria do differently to make the country an automotive hub given its size of the market?

Provide the enabling environment and legislate the policy plan to avoid future somersault. The policy and all the component programmes should be implemented fully. Fortunately, NAIDP has an inbuilt provision for resources to develop the programmes. These include levies on imported fully-built automobiles which have practically been removed vide Finance Act 2020, Section 38. This should be reinstated and properly managed with whatever has been accumulated over the years. Let these resources not be frittered away for meaningless purposes aimed to give the impression that the industry’s concern is being addressed. For now, the industry is in a state of suspended animation.

 

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