A Plan Hatched
What makes the new national automotive policy unique?
The policy is comprehensive and was designed to complement the circumstances of various stakeholders. Currently, we are importing over 90% of the vehicles we drive. Automobiles and spare parts, including tires, are the second biggest consumer of foreign exchange. And as the economy improves and demand grows, it will soon occupy the number one user of foreign exchange. Part of the policy relates to looking at how to develop the internal market with affordable vehicles and a financing scheme. VON Nigeria Ltd will be assembling low-cost Hyundai vehicles that will compete with imported used vehicles. We will also be developing an affordable vehicle-financing scheme. Over 90% of automobiles are sold on a cash basis here, as vehicle financing through the banks is done at an interest rate of 22% per annum, which is not affordable for many purchasers. This is why we are working with some banks and other agencies to see if we can obtain affordable financing at the single-digit level, of perhaps 9%. That should make vehicles more affordable and boost the market. We estimate the demand for vehicles doubling to about 700,000 units annually with the introduction of an affordable vehicle scheme. You can see that the potential demand in the market is huge. Additionally, there is the issue of patronage. All government agencies and ministries are mandated to prioritize products from local assembly plants, except when the variety required is not produced locally. We are also planning to build automotive supply parks with all necessary facilities; a road network, power, water, and other infrastructure, so that companies can become established quickly. We are addressing standards by outlining automotive safety standards and are building an automotive test center to ensure the safety factor. Finally, we have programs for manpower development. These include creating a curriculum for training mechanics in modern automotive technology, and setting a syllabus for teaching automotive engineering at Nigerian universities. We will collaborate with the Industrial Training Fund as well to set up automotive production/training centers.
How is the National Automotive Council (NAC) helping to attract investment in the sector?
The policy is designed specifically to attract investment into the sector. Since the policy was announced, over 10 major OEMs from Europe and Asia have expressed interest in investing in Nigeria and have signed technical partnerships with Nigerian companies either to use the existing assembly plants or establish new ones. We are working with the Nigerian Investment Promotion Commission (NIPC) to attract component manufacturers that will supply the assembly plants. Vehicle assembly started in Nigeria in the 1960s with a number of companies using semi-knocked-down (SKD) kits. The government became involved when it established six assembly plants in the 1970s using completely-knocked-down (CKD) kits. These were producing over 100,000 vehicles annually by the 1980s, with local content programs vigorously pursued. However, our financial crises, which started from 1985, led to a drastic reduction in demand for new vehicles and the beginning of the shift of demand to the second-hand market. This, coupled with the lack of government patronage and the lowering of vehicle import tariffs in 2005, led to the collapse of the industry. While demand for new vehicles recovered from 2000 onwards, the local industry was not in a position to compete. This new policy took account of that failure to ensure it was not repeated.
Do you foresee a resurgence in tire manufacturing due to changes in the automotive policy?
We are a tropical country, and have had rubber plantations since colonial times. Michelin and Dunlop started producing tires in Nigeria in 1962 and 1963, respectively. They were meeting about 80% of our needs, of about 3 million tires annually by 2005, and even had plans to expand to meet market demand. In 2005, we lowered the tariffs from a 40% import duty to 10% for truck tires and 20% for car tires. This caused the factories to close down because they could not compete with Indian and Chinese tire manufacturers. They are now exporting the rubber from their plantations and importing finished tires. We are currently spending about $1 billion on importing about 5 million tires annually. The new policy has a special provision to encourage tire manufacturing in Nigeria.
How does the policy address the issue of dealerships?
We have two types of automotive dealers at the moment: dealers that trade with representatives of major OEMs and dealers that depend wholly on the sale of imported second-hand vehicles. The policy is geared toward producing affordable vehicles and, when coupled with an affordable vehicle-financing scheme, will reduce the demand for used vehicles. There are also tariff measures in the policy to reduce the demand for used vehicles. The dealers of second-hand vehicles would be assisted to become distributors for the assembly plants. The credit purchase scheme we are establishing would be through the dealers. There would still be a second-hand vehicle market, but it would be fed locally, and not with imports. This policy does raise the bar against imports, which tends to encourage smuggling. However, there is a provision in this policy to put in place a tight program to prevent smuggling that involves a new cross check mechanism and national database for vehicle identification numbers.