Nigeria’s Automotive Industry: Beyond Import Duties

The Federal Government introduced a clause in Nigeria’s Finance Bill for 2021 that cut down import duties on foreign vehicles from 35% to 5%. The 5% import policy met with strong concerns especially from investors and proponents of locally produced vehicles.

As Chidi Ajaere, CEO of GIG Group, parent of GIG Mobility and GIG Logistics noted recently in a media chat, the policy might affect investors like him who have put billions of naira into local production of vehicles. Other industry players noted that it could potentially limit the demand for locally produced vehicles.

The decision to slash the import duties on vehicles was however made to reduce the cost of vehicles and, by extension, cut down on the cost of transportation in Nigeria. It is noteworthy that the removal of fuel subsidies had increased the cost of transportation across the country, hence the reduction of import duties would cause deflation in prices.

Apart from this, Nigeria’s vehicle demands annually are 720,000. The local production currently stands at 14,000, and barely meets the need. As of 2018, the Nigerian Bureau of Statistics (NBS) recorded that there were over 11 million registered vehicles in Nigeria, with a then population of 198 million people putting the vehicle per population ratio at 0.06.

Of this number, 39% (4.6 million) were privately owned, 56% (6.7 million) were commercial vehicles, 1.1% (135,216) was registered as government-owned, while 0.4% (5,834) was registered for diplomats. With an adult population of over 99 million, this seems to present vehicle manufacturers with the opportunity to reach a vast market.

Nigeria however, has relied on imports to meet the massive annual demand for vehicles and cover the gaps left unfilled by its fledgling automobile industry. According to the NBS, Nigerians spent a whopping ₦1.08 trillion ($2.7 billion) to import used cars and motorcycles between October 2018 and September 2019.

Nigeria imported an estimated 1.3 million vehicles, 56% more than 734,000 in 2017. Because of the high rate of smuggling, it is difficult to get the exact figures for vehicle imports. It is reported that 90% of vehicles in Nigeria are smuggled.

The Federal Government made effort in trying to clamp down on this. It created a web portal to help tackle the surge in smuggling. It still remains unclear as to how the portal would help stop the rapidly expanding growth rate of smuggling. The portal is now almost inaccessible.

Nigeria’s National Automotive Design and Development Council (NADDC) last year January claimed that the country attracted $1 billion (₦381 billion) in 12 months. Operators in the automotive industry have nonetheless lamented the massive decline in their business. The Managing Director/Chief Executive Officer of City Cars Mall, Mr. Tayo Onilogbo, noted that the automotive industry had been embattled and there had been what he described as a slowing in the business which started last year before the pandemic:

“The business has really been slow because it is really hard to get forex to buy new cars. Before, it was easier for us to get cars into the country. Right now, we do it in tranches, not like we used to do before. Before you put money together and send them abroad to bring a car, it takes a while and it really makes the market slow for us.”

The impact of the dollar on the market is also debilitating which has upshot the prices of cars. According to him, “Prices are high and it is not our fault. There is the dollar rate plus shipping and clearing. Like I stated earlier, the dollar is about N470 today.

“Multiply that by $10,000, it is N4.7m. For you to be able to get a good car from America, you will part with between $20,000 and $22,000. That alone is about N10.2m and you still have to ship it and clear it. A $20,000 car in America is a regular 2017/ 2018 highlander that sells for N15, N16m here.

“By the time you buy it for $25,000 and you ship and clear it, you are already spending a lot of money. This is why some dealers will opt for cars that are a little bit dented.”

Meanwhile, the Federal Government announced plans to launch a Vehicle Finance Scheme which is in the works and would help Nigerians own new cars. This Vehicle Finance Scheme is a part of the 5-point comprehensive programme of the National Automotive Industry Development Plan (NAIDP) which is aimed at promoting local production of vehicles and their parts. Under the scheme, individuals with a sustainable source of income would be able to acquire their choice car by depositing just 10% of the total cost, and then the balance would be paid in monthly installments within a stipulated number of years.

Read Also: NIPCO: More Vehicles in Nigeria to Run on Gas

In the words of the Managing Director of City Cars Mall, he stated that “That will be the best thing that can happen to Nigeria. It is not easy making ends meet. It is only in Nigeria that if a vehicle is N20m, you have to bring out all the money to pay. Ideally, you drop a percentage and the remaining balance will come. It will be nice if it can be implemented.”

Transportation is the centre of commercial activities all over the world. It is on record that 80% of trips in Nigeria are made by road. Nigerians rely heavily on privately owned vehicles for their daily commute.

International brands like Nissan and Hyundai have set up mini assembly plants. Innoson Vehicle Manufacturing has been making remarkable strides in building confidence in locally made vehicles. A motor company, JET, raised $9 million in research capital to build electric vehicles in the face of growing globalisation in the automotive industry. But experts have maintained that Nigeria might not be ready for electric vehicles anytime soon.

Piercy Mabel

Categories: Economy, Features