Auto policy fails 6 years after- Says Lagos Chamber of Commerce
.Calls for urgent review of the policy
.Says Customs is losing revenue through auto policy
By Udeme Clement
The Director General, Lagos Chamber of Commerce and Industry, LCCI, Mr. Muda Yusuf, is calling for a review of the Auto Policy decreed by the Federal Government, during the administration of former President Goodluck Jonathan , in 2013.
According to him, the policy introduced six years ago, banning vehicles importation through land borders in the country has negative economic implications, as Nigeria Customs Service, NCS, is losing revenue as a result of this policy.
He said, “The economic implications include increase in smuggling resulting from high import duty and levy, as well as huge duty differential with our neighboring countries. Huge loss of Customs revenue, as vehicle imports from official channels drop and smuggling increases. Creating opportunities for corruption and extortion by agencies of government because of compliance issues and massive incentives for smuggling”.
He Added, “Others include high transportation cost resulting from prohibitive cost of vehicles largely due to high import tariff and sharp currency depreciation.
Huge loss of revenue by Nigerian Ports Authority, NPA. Considerable loss of maritime sector business to neighbouring countries, as more vehicle imports are diverted to neighbouring countries. Severe adverse effect on automobile dealers in Nigeria, as high cost of vehicles creates affordability problems, low sales and massive erosion of profit margins. Loss of jobs in the nation’s maritime and allied sector following the sharp drop in vehicle imports. High cost of transportation resulting from high cost of passenger cars and buses.
High road safety risk because of high vehicle replacement cost and affordability issues. For example, there are too many rickety vehicles on the roads because of the prohibitive replacement cost”.
He pointed out, “The policy has not only failed to achieve the desired outcomes, it has adversely impacted the cost of doing business, welfare of the people, government revenue and the capacity of the economy to create jobs.
“It has caused massive trade diversion to neighboring countries. High compliance cost has put enormous pressure on firms moving them into uncompetitive positions in the face of weak institutional capacity to enforce the extant tariff regime.
The cost of vehicles had risen beyond the reach of most citizens and corporate bodies. The impact has been negative with far reaching consequences. The automobile sector was hit by the double shock of currency depreciation [of over 80%] over the last six years and an import duty hike to 70% on new cars and 35% on used vehicles and commercial vehicles.
“The auto policy was an import substitution industrialisation strategy to reduce importation of vehicles and incentivise domestic vehicle assembly. However, import substitution strategy would only thrive in the context of high domestic value addition. It is within such a framework that the economy could benefit from the inherent values of import substitution, which includes backward integration, economic inclusion, multiplier effects, conservation of foreign exchange, job creation and reduction of import bills”. He explained, “The automotive policy in its current form is not in consonance with the Nigeria Industrial Revolution Plan, NIRP, which is the main industrial policy document of the current administration. The NIRP espouses the strategy of resource-based industrialisation.
“Six years into the implementation of the auto policy, not much progress has been made, though over 50 Vehicle Assembly plants licenses have been issued. Total annual assembly of new cars in 2017 and 2018 were estimated at less than 10,000 units.
“The truth is, the high cost of vehicles has taken a severe toll on the economy, from logistics cost and welfare point of view. Practically all aspects of our economic and social lives had been negatively impacted by the situation. This is because over 90% of the country’s freight and human movements are done by road, which implies heavy dependence on cars, commercial buses and trucks”.
He stressed, “Manufacturers and other real sector investors suffer from high cost of delivery vehicles, sharp increases in haulage cost because of the high cost of trucks; school buses have become unaffordable by many institutions; many hospitals cannot afford ambulances; many corporate organisations have drastically cut down on their fleet”. The LCCI DG informed, “Vehicle ownership is now completely beyond most of the middle class. These unintended consequences and collateral harmful effects on the economy and welfare of citizens are incalculable. This underscores the strategic importance of road transportation to domestic economic integration and connectivity.
“The economy has witnessed increase in the price of vehicles between 200 to 400% over the last five years. Not many investors and the citizens have the capacity to pay these outrageous prices. Even prosperous corporate organisations are now buying secondhand vehicles for official use.
“The implication of the scenario for operational costs of organisations is worrisome. The auto policy in its present form is most inappropriate for an economy that is heavily dependent on road transportation”. The automotive policy should be immediately reviewed in the light of its copious shortcomings”.
He recommended, “Import tax [duty and levy] of 70% on new vehicles should be reduced to 35%. Import tax [duty and levy] of 35% on commercial vehicles should be reviewed downwards to 25%. Import tax [duty and levy] on used cars should be reviewed from current 35% to 25%. Government should give further tax concessions to the assembly plants. Other incentives for assembly plants and tyre industries for acquisition of machineries and equipment should be retained as contained in the Automotive policy.
“Similar incentives should be extended to local production of vehicle spare parts. Patronage of locally assembled vehicles by the government and its agencies should be more rigorously encouraged and enforced in line with the Presidential Executive Order on patronage of made-in-Nigeria products.
“Vehicle purchase finance facility at single digit should be put in place to boost demand for automobiles. The automotive fund should be used to support this initiative. Age limit of used vehicles should be reduced gradually over time to lessen road safety risks”.
He advised, “If these recommendations are adopted, there would be great relief to the private sector from logistics perspective; more jobs will be restored in the automobile business sector; maritime sector activities will be boosted; car assembly plant will be better off with a five percent duty on SKD and zero percent duty on CKD; the welfare effect on citizens will be positive; vehicle affordability by the middle-class will improve; the transportation sector will benefit tremendously; smuggling of vehicles will reduce drastically; NPA and ports terminals facilities will be more optimally utilised for better revenue performance and Customs revenue from vehicle imports will improve considerably. The proposition of a review of the automotive policy fits very well into the Ease of Doing Business Policy of the government”.