Car prices to fall 20% as FG considers tariff review

Nigeria

… govt revenue to increase from reduced smuggling

 

Nigeria recorded only 11,000 new car sales in 2017 because a bruising 70 percent tariff imposed by former President Goodluck Jonathan and continued by the present administration of Muhammadu Buhari turned cars into luxury items. There are indications that President Buhari will review this policy in 2019 and analysts say this could lead to a 20 percent drop in car prices.

Bismarck Rewane, CEO of Financial Derivatives, a Lagos-based consultancy, forecasts a 20 percent drop in car prices if the vehicle tariff is reviewed. The Ministry of Trade and Investment is currently reviewing the policy.

Hadiza Usman, managing director of the Nigerian Ports Authority (NPA), said this week there are discussions with the Federal Ministry of Trade and Investment regarding the operation of the automotive policy and the need for a review to raise government revenue.

Many Nigerians have called for a review of the National Automotive Industry Development Plan (NAIDP) on which the 2013 tariff hike was based, which was ostensibly created to encourage local manufacturing of vehicles.

Lucky Amiwero, president, National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), said the policy, in its current state, will never bring about changes in the automotive industry in Nigeria.

“The policy was faulty in the beginning, because it was driven to protect a few interests. It was designed just to make some few people rich,” said Amiwero.

Amiwero said the objective of the policy is not to assemble cars, adding, “If you cannot move from assembling to manufacturing, you are still transferring jobs to foreign countries.”
Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, in a recent release said the automotive policy, in its current form, is not sustainable.

Five years after the policy came into effect, only a handful of the 30 licensed plants are in operation.

“Although the levy was introduced in a bid to ensure development in the Nigerian automobile industry, not much has been achieved in terms of car manufacturing except for Innoson Vehicle Manufacturing, which has not really caught the eyes of Nigerians,” said analysts at Investment One research.

Investment One research analysts said the reduction in the additional levy to 10 percent will bear benefits for the Nigeria Customs Services in terms of revenue generation, as it will effectively reduce the incidence of vehicle smuggling.

Since the policy was enacted, car prices have jumped over 100 percent and cleansed middle-income Nigerians of all indignities associated with buying used vehicles. New cars that cost N4 million in 2012 now cost over N20 million.

The policy also offers a 30 percent rebate on ‘accidented vehicles’, hence over 70 percent of vehicles now imported into Nigeria look like they were taken from a scrap-yard.
To worsen the situation, even the government does not have enough faith in its own policies to buy locally-assembled vehicles.

In addition to NAIDP, the Federal Government also approved that all machinery and equipment for tyre production and vehicle assembly are now duty-free. It also granted pioneer status to tyre plants.

These fiscal incentives have not spurred local manufacturing in a country where 40 percent of manufacturing cost goes to paying for power. The policy, along with Buhari’s directive closing land borders to car imports, ended up achieving unintended results – fuelling car smuggling across Nigeria’s porous borders and pushing importers to neighbouring countries.

“Based on statistics, we discovered that this duty has now driven most of our importers to our neighbouring ports and also it has increased the rate of smuggling into this country of new vehicles,” Hameed Ali, Comptroller-General of Customs, said Monday in Abuja.

Car importers have condemned the tariff several times, saying it set in a lull in their business. Nigeria’s automotive policy differs from that of its neighbours in that while theirs are aimed at curbing imports of used vehicles by offering cheap tariff of 5 percent for new cars, Nigeria seeks to shut out all imported vehicles to encourage local manufacture even though it lacks the ability to manufacture all the cars.

The automotive policy can make sense for Nigeria in the 21st century if it is complemented by appropriately targeted initiatives to expand available transportation options in intrastate and interstate rail and waterways as well as stimulate revival of associated industries, like petrochemical and steel industries, as critical imperatives, analysts at Deloitte said in their review.

 

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