The new tariff on imported cars

In November 2013, the government raised duty and levy payable on imported new and used cars from 20 to 70 per cent, and zero per cent on the completely knocked down (CKD) units that local assembly plants require. The first of two phases of the policy, involving 35 per cent duty increase, is already in […]

In November 2013, the government raised duty and levy payable on imported new and used cars from 20 to 70 per cent, and zero per cent on the completely knocked down (CKD) units that local assembly plants require.
The first of two phases of the policy, involving 35 per cent duty increase, is already in effect. The second phase of the 35 per cent increase in levy, originally scheduled to commence at the beginning of this month, has now been deferred to the end of the year.  
Much of the complaint regarding the government’s policy centres on the absence of local manufacturing capacity to meet demand and the high cost of new imports. The Abuja Car Dealers Association for instance raised a valid point when it noted back in May that implementing the policy would lead to shortage of affordable cars for low income earners and loss of many jobs. Government, it said, should first put the required infrastructure in place for local manufacturers to produce enough cars to meet demand before discouraging importation.
Any policy that would lead to the establishment, growth and sustenance of the automobile industry in Nigeria would be a welcome development, given its vital role in the economy. Besides being a driver of economic growth, it is one of the biggest employers.  The government’s initiative is therefore an economically sound one, because it would mean the resuscitation of the long-dormant Nigerian automobile industry, and forms a key component of the Nigeria Automotive Industry Development Plan.
However, the government has put the cart before the horse. The nation’s vehicle assembly plants are still comatose; reviving all of them, and bringing in more manufacturers into the sector should have been accomplished first, and the mass rollouts of the products undertaken before implementing the policy.
Peugeot Automobile Nigeria (PAN), Kaduna; the Anambra Motor Manufacturing Company (ANAMMCO); National Truck Manufacturers (NTM) in Kano; and STEYR in Bauchi, Volkswagen of Nigeria (VON), Lagos, and Leyland Nigeria, in Ibadan, most of them out of production for years now, have not met the objectives of setting up their assembly plants in the country when they were invite to  so in the 1970s and 1980s, one of which was the production of cars and light truck/commercial vehicles by using CKDs and gradually developing local content until Nigeria would be in a position within a certain timeframe to build wholly made-in-Nigeria vehicles.
In response to the growing expressions of concern, the government said that 12 manufacturers, including Japan’s Nissan and Toyota, and South Korea’s Hyundai, have been Okayed to begin production of certain categories of vehicles in Nigeria.
In addition, the Minister of Trade and Investment, Dr Olusegun Aganga, disclosed last week that the expected pains of the policy would be soothed through some palliatives that the government had put together, including a vehicle purchase finance scheme. How this would work is unclear, but Aganga said it would be formally launched in four months’ time.
Apart from the lack of capacity, another consequence of the tariff increase is the upsurge in the already alarming rate of smuggling activity involving fairly used vehicles across Nigeria’s long and porous borders. Importers of cars are equally likely to divert their goods to sea ports in neighbouring countries such as Cotonou in Benin Republic, where the value of the customs duty and levy are relatively lower.
As a country with an expanding population coping with challenges of urbanization, the government should consider developing a transport policy that would make its use more attractive than owning and or driving a personal car at all times. Germany is the world’s fourth largest auto-producing country, after Japan, China and the United States. Yet, more than three-fourths of the passenger cars produced in Germany today is exported. An efficient mass transit system that incorporates a reliable rail network would therefore address most of the challenges that Nigeria faces in the transport sector today.