Wednesday, December 4, 2013

How new automotive policy would increase smuggling, drop revenue – Importers

The Federal Government's introduction of a new national automotive policy, aimed at encouraging local production of new vehicles prompted Ayodele Samuel to ponder, in this report, on the ability of existing local auto makers to meet demand at a reasonably affordable cost and the expected implications for the nation's economy.
With the Federal Executive Council's approval in October of the new national automotive policy meant to discourage importation of mainly cars and buses, the Federal Government raised tariffs on the importation of both new and used cars and buses by 50 percent.
With the policy becoming effective in January next year, prices of imported cars and buses are expected to rise astronomically as a result of the increased import duty.
Specifically, the new policy is expected to boost activities and production of local auto manufacturers, such as Innoson Vehicle Manufacturing Ltd, Nnewi; VON Automobile (formerly Volkswagen), Ojo, Lagos; National Trucks Manufacturers, Kano; PAN Nigeria, Kaduna and Stallion Motors. It is also expected that the policy will encourage existing automobile dealers, whose businesses are now facing a new challenge, to switch to assembling locally, instead of importing the fully built units.
"The above measures are to create an environment to support existing assembly plants and attract other Original Equipment Manufacturers (OEMs) who have expressed interest in Nigeria," the minister noted. The federal government aims at cutting down importation of automobiles in a backward integration policy that seeks to encourage production of cars and buses in the country.
However, the new policy is not going down well with operators in that sectors, they have many fears to worry about its implications on their businesses and the nation's economy,as they say the policy will invariably lead to loss of revenue, unprecedented increase in smuggling and massive loss of jobs in the ports with vehicle importers arguing that the cost of transportation will equally increase.
The importers, who already are soaked with fear over what next year will have in stock for them, said they were considering quitting the business to seek for other means of livelihood, while others said the business will now be conducted from the bush."We cannot pay the new duty and levy. Even if we do, who'll buy the car? Doing the business from Cotonou is now the only way," they said.
They maintain that illegal routes through which imported vehicles pass from neighbouring ports to Nigeria will resurface and that the Nigerian Customs Service must be ready to put their lives on the line in order to address the increased level of smuggling that will come with the implementation of the policy.
Most of the importers said that the move by the government will certainly lead to massive loss of jobs by operators in that sub-sector of the automobile industry, while others said that the business would no longer be of benefit to them, due to the expected low patronage.
Some, however, there is need for government to put in place facilities to enable the policy to be effective because the country lacks infrastructure that could make the new auto policy to work.
Chief Nnamdi Onwuamaegbu, who specializes in sells of second-hand cars, urged the government to reconsider the move, saying that it will have adverse effect on the economy.
He said the hike will make other neighboring ports more user-friendly and also increase the rate of smuggling of vehicles into the country.
"The various illegal bush paths that vehicles ply from Cotonou to Nigeria will resume again, "there are some riverine communities within that axis in Cotonou and Badagry and the smugglers will build more barges to convey smuggled vehicles from Cotonou and it will be another task for the Nigeria Customs to curb smuggling of vehicles," he told a journalist in Lagos.
He said the discouragement of imported used vehicles into the country will only affect the poor as the affluent Nigerians are the ones that will benefit from the new policy on vehicle.
"Importation and the sales of used vehicles in Nigeria have sustained so many people and I wonder why the government has chosen to punish the masses. I would have advised the government to allow the competition to continue because people love new cars, but they can't afford it, that is why they go for Tokunbo," he said.
The importer added that the policy is unfair as the few importers that will remain in the business will have to struggle to compete with foreign investors in the automobile sector.
"Most customers find it difficult to buy even the Tokunbo cars we sell in Lagos talk less of the new cars the government is willing to encourage."
Collaborating his stand, David Agunna frowned on the new tariff policy insisting that, "It is a way of reviving smuggling of vehicles in the country."
"Many of the informal operators will resort to smuggling so as to evade payment of duty. I know it will affect the economy because many people will have to look for another business to do, "he predicted.
The National President of the National Association of Government Approved Freight Forwarders, (NAGAFF), Chief Eugene Nweke, said that the increase will only enhance the fortune of neighboring
Cotonou Port.
He said with 35 per cent duty increase and 35 per cent levy, only few cars will enter the country through Nigerian ports. "Almost all imported cars meant for Nigeria will come through Cotonou and will be smuggled into Nigeria," he said.
Nweke said the federal government should have rehabilitated the motor vehicle assembling plants in the country before coming up with the policy.
"What is the state of Volkswagen of Nigeria in Lagos, the Anambra Motor Manufacturing Company (ANAMMCO), Steyr Nigeria in Bauchi, Leyland Nigeria in Ibadan and the National Truck Manufacturers in Kano. The policy will make the desired impact in creating jobs and attracting billions of naira in revenue
if these assembling plants are working effectively,'' he said.
He accused government officials for killing the local auto industry by their preference of imported cars.
He said the tariff hike will lead to astronomical increase in the cost of vehicles in the country, with the middle class not being able to afford even a 'Tokunbo' car. "The price of imported cars, currently being sold between N1.4 million and N3 million, would go up to about N5 million.
"Also the price of fairly used vehicles popularly called 'Tokunbo' being sold for N800, 000, will rise to N1.3 million or more," he regretted.
The NAGAFF President said that in deciding on the new tariff on cars, government failed to put into consideration the state of its borders. "We have 37 approved borders guarded by security officials, but we have about 200 unapproved routes where smugglers can use to bring in cars.
"I am afraid that the country will lose revenue through this policy and insecurity problem will also rise. Many people will be out of job as a result of the new policy,'' Nweke said.
A Nigerian Customs sourcewho spoke to Peoples Daily, but preferred anonymity,said that the government action will drastically affect customs revenue. He said the policy coming with the tariff hike on rice will lead to a sharp drop in customs revenue while Benin Republic will reap all the benefits.
"They did not consult Customs for their input," he said, "and that is very unfortunate."
A frontline customs clearing agent and former National President of the Association of Nigerian Licensed Customs Agents (ANLCA), Lanre Sanni Shittu, however opined that government is encouraging manufacturers of new vehicles in Nigeria and that does not stop the importation of Tokunbo vehicles.
"But the question is: how many Nigerians can afford new cars?" he queried."The policy should run in phases that is if government is serious about making sure that Nigerians use good cars; the manufacturing companies should be empowered by way of assuring them of infrastructures like regular power and to ensure that our iron and steel industries are working, other petrochemical companies must also be working in order to assist these companies", he advised, stressing that unless these things are in place, the policy cannot work.
Interestingly, Nigeria's neighbour, Benin Republic has taken position to feed fat from the new policy on automobile importation. The country, which enjoys the biggest trade volume with Nigeria through the land borders, has since taken advantage of the policy as a leeway to further deepen her breakthrough into Nigeria's automobile importation market.
The French-speaking country has announced an average of 35 per cent reduction of tariffs on vehicles imported into her country. The trade decision was a strategic move to make Nigerians resort to port of Cotonou to do more automobile importation business.
Expectedly, a policy such as this will herald uncertainties. Experts said the success of the policy would depend largely on government's sincerity and not towing the path of previous governments with similar initiative that only eventually benefited a few and created a monopoly.
According to a major Toyota dealer, who did not want his name in print, the new policy is the way to go if the government "provides a level playing ground and avoid eliminating certain players in order to help others."

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