Somersaulting Into Irrelevance
Money Palaver
By George Eze Emeghara
One of the big news stories of the past week was that Toyota Motor Company had opened an assembly plant in Ghana to assemble vehicles for the West Africa area which has Nigeria as its largest market.
By this development, Toyota joins Volkswagen, Nissan, Sinotruck and Katanka which are already assembling vehicles in Ghana.
We were also told that another company, Kia Hyundai, the South Korean manufacturer of the increasingly popular Kia and Hyundai vehicles has declared its intention to set up an assembly plant in Ghana in 2022. Obviously Ghana’s Automotive industry is growing in leaps and bounds, a development which will definitely reflect positively on its economy.
The Automotive industry everywhere it exists is important.
It makes enormous contributions to the economies of countries in many ways.
It creates employment. It helps in the development of other local industries
It helps to develop skills and advance a country technologically. It also earns the much needed foreign exchange and helps conserve the hard currency which would have been spent on vehicle imports.
These were some of the factors which made Nigeria embrace vehicle assembly between forty and fifty years ago. At that time the Automotive industry in Nigeria was active.
There were several assembly plants in the country. The Volkswagen plant in Lagos, Peugeot in Kaduna assembling cars mini buses and pick up trucks. There was the Anammco plant is Enugu assembling Mercedes Benz trucks and Buses, British Leyland in Ibadan assembling Leyland trucks and buses, Nigerian Truck
Manufacturers in Kano assembling Fiat Trucks and the Steyr plant in Bauchi assembling Steyr trucks and tractors.
These assembly plants were serviced by the tyre making companies, Dunlop and Michelin from their plants in Lagos and Port Harcourt. There were many other companies or industries manufacturing the batteries windscreens and car paints used in the assembled vehicles. There also many small businesses supplying various components and services to these companies.
Unfortunately, due to somersaults in government policy which killed the import substitution initiative of earlier administrations, these vehicle assembly plants, along with most of their suppliers, went into decline and eventually collapsed.
The cost of the collapse of these plants and factories to the Nigerian economy cannot be quantified.
No doubt, if they had been functioning as planned over the past four decades, Nigeria’s story would have been very different.
The realisation of how vital an Automative industry is to economic growth prompted the last administration to come up with an Automotive Council Development Plan. in 2013.
The plan contained policy measures aimed at revitalising the automotive industry to enable it fulfill its potential to the economy in terms of creating employment, developing local content and facilitating technology transfer to foster greater industrialization. The plan contained some incentives which sought to create an environment which would attract new investors to the sector and also enable existing assembly plants to grow.
The plan included among other things a new tariff tariff structure for vehicle imports.
Under the plan, Completely Knocked Down(CKD) parts would not attract any duty. While Semi Knocked Down ( SKD) parts, would attract five and ten percent duty depending on the degree to which they were knocked down.
A 35 percent duty would be placed on fully built up trucks in addition to a 35percent levy bringing total payable on imported trucks to 70 percent.
Small vehicles would attract duty of 35 percent.
The plan was indeed a bold effort to revive local vehicle assembly industry. However, the previous government did not sign the Bill into law and the present one said that it was reviewing aspects of the plan which way why it had not been signed.
The dilly dallying by government did not stop investors from setting up assembly plants. Many people went into the business, assembling mainly Chinese vehicle brands, with many more investors were planning to come aboard. Including Toyota and Kia Hyundai. The enthusiasm was expected. After all, Nigeria is said to be the fifth largest car market in Africa after South Africa, Algeria, Egypt and Morrocco.
Given her population, with a functional auto finance scheme which was also part of the plan in place, she could easily become the largest market in Africa. Then, suddenly, without consulting stake holders in the industry, the government slashed the duty payable on fully built up vehicles to the five and ten percent enjoyed by assembly plants.
The excuse the government gave was that it wanted to reduce the burden the high cost of transportation brought on by the increase in fuel price would place on Nigerians. As expected, there were protests from those who had invested in vehicle assembly plants.
The investors argued that it was the day to day costs of operating a vehicle that affected the fares operators charged their passengers and not the purchase price of the vehicles.
They had a point. Even if you give commercial vehicle operators vehicles for free, they would still have charge enough fares to cover the cost of fueling and maintaining the vehicles as well as their living expenses.
If the cost of achieving these is high, they would automatically translate to high fares.
The assemblers also wondered why they should go through the trouble of setting up assembly plants, taking loans from banks, employing labour and other inputs to assemble the vehicles , only to be undersold by people who brought in a fully built up vehicles. As is usually the case when it has decided on a line of action, the government failed to listen to them.
Since it was cheaper to import fully built up vehicles, the assemblers closed their plants.
Consequently, all those who were employed by the plants lost their jobs, just as the economy lost what ever advantages a local automotive industry would have conferred on it.
Those investors who planned to come in put their plans on hold, or cancelled them altogether.
Some like Toyota and Kia Hyundai went else where to Ghana which had a more stable environment and was close enough to exploit the large Nigerian market.
Now, the Nigerian government, ostensibly jolted by the news from Ghana, is in the process of revisiting the plan and reinstating the tariff regime it proposed.
One wonders whether it is not too late. How many investors will want to do business in a country where policies can change overnight, sometimes for very flimsy and ill thought out reasons?
So, while the Nigerian government continues to drag its feet and somersault over the implementation of the automotive plan and other important issues, smaller, poorer countries whose governments are a lot more proactive and forward looking are reaping benefits. At the expense of Nigerians!
George Eze Emeghara is a Nigerian journalist, writer and public affairs commentator based in the southeastern city of Owerri. Money Palaver is his column for Nairaweb.ng