Policy Review: Import Duty on Autos, Auto-assembly industry rebirth.
By Olugbenga Ajiboye
Policy Review: Auto Assembly in Nigeria.
Is that a bird? Is that a plane? No its a Car. A made-in-nigeria Car, or to be politically correct an assembled-in-nigeria Car. Yes, before now the last time you may have heard of a car being assembled in Nigeria was the mid '80s and it usually was a Peugeot. But things have changed now, ever since the implementation of the 2014 Federal budget and its rules on automobile importation. To state it plainly, the Nigerian government has decided to put a 70% (35% duty and 35%levy) fee on the prices of imported vehicles. So, any vehicle not produced in Nigeria will cost almost twice as much.
This move is in tandem with a more recent move by the Ministry of Trade and Investment, which has planned for the rebirth of a new industry in the country, the Auto-assembly Industry.
The decision to increase the prices of imported cars and develop a new auto-assembly industry are two sides of the same coin. It was driven by jarring statistics revealing that the nation had spent N670bn on auto importation in 2010 as well as as N550bn in 2012.
So in a view to reduce trade deficits, and in the same vein improve our Balance of Payments (economic jargon, definition at the end of article). Nigeria has commenced its plan to be the 1st Auto-assembly plant in West Africa. The nation also aims to export these autos to neighbouring ECOWAS states.
The response to the policy on auto imports have been mostly good, with several companies indicating interests in setting up auto-assembly plants in the country. To note a few names of the interesed parties are NISSAN autos, TOYOTA, KIA, RENAULT and other less common Asian brands like FOTON, HIGER AND JOYLONG.
Among these companies, Nissan has proceeded to setup its plant and has assembled its first line of Nissan Patrol SUVs, in the month of May. This may be indicative of the fact that word about the import duty had been out in closed circles for a long while. Nissan hopes to produce 45,000units of its autos each year.
Kia also stated officially that their Rio, Cerato and Optima brands would be assembled locally, so one can expect the prices of these cars to soon plunge, to its current average high of about N3mn to N1.5mn or even as low as N1mn.
Toyota, in a move to sustain its number one position as the Nigerian auto of choice has also indicated through sources that it would be setting up its plant latest by July 2015.
So what do these moves mean for our economy?
First off, the new industry would employ close to 70,000 of the current unemployed labor force. This in turn, puts more money in the hands of individuals, driving consumption and increasing tax revenues. This is good news to sellers of household items like soap etc.
The presence of cheaper automobiles, would also provide credit acquisition schemes for Nigerian citizens, which is good news for the banks. Also, good news for the Citizens as they are now left with more disposable income for other things, as cars are now wayyyy cheaper than previously.
One can also expect this industrialization to be the start of Nigeria's industrial potential and would serve as a means to improve the skillfullness of our current labor force, providing other opportunities in dependent industries such as manufacturing of car parts which is usually undertaken by small to medium scale businesses. So, this does contribute to a growing manufacturing sector as well as skillfullness in labor.
The science and technology benefits which will naturally accrue is also expected to spur growth in other technological based industries which may transform Nigeria from a developing, low-skill economy to a highly developed and highly skilled economy.
Finally, the advantages of diminishing imports and subsequent increase in exports would put upward pressure on the Naira, and would also see our Balance of payments decline. Although the appreciation of the naira might spur imports in other sectors, but it better to be hopeful that the government in charge at that time would tackle such issues.
So, is the levy on importation of autos and the assembly of autos in Nigeria a favourable decision? I'll let you be the judge of that. Afterall, you too are savvy.
A simple definition of Balance of Payments: A statement that summarizes an economy’s transactions with the rest of the world for a specified time period.
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