..Shrinking Gov’t Revenue, Causing Job Loss
The Lagos Chamber of Commerce and Industry, LCCI, has identified the need to urgently review the country’s Automotive Policy which was decreed by the Jonathan Administration in 2013.
The Chamber sees the Six year old policy as colossal failure and unable to achieve the desired outcomes.
Muda Yusuf the director general general, DG of the LCCI presented a position paper which represents the Chambers opinion on the policy, which was made available to Oriental News Nigeria.
According to the Chamber, the policy has not only adversely impacted the cost of doing business, welfare of the people, government revenue and the capacity of the economy to create jobs, but has caused massive trade diversion to neighboring countries.
Yusuf noted in the paper that high compliance cost has put enormous pressure on firms moving them into uncompetitive positions in the face of weak institutional capacity to enforce the extant tariff regime.
The cost of vehicles had risen beyond the reach of most citizens and corporate bodies. “The impact has been negative with far reaching consequences. The automobile sector was hit by the double shock of currency depreciation of over 80 per cent over the last six years and an import duty hike to 70 per cent on new cars and 35 per cent on used vehicles and commercial vehicles.
The auto policy was an import substitution industrialization strategy to reduce importation of vehicles and incentivize domestic vehicle assembly.
However, import substitution strategy would only thrive in the context of high domestic value addition,” Yusuf said.
He explained that it is within such a framework that the economy could benefit from the inherent values of import substitution which includes backward integration, economic inclusion, multiplier effects, conservation of foreign exchange, job creation and reduction of import bills.
The automotive policy, in its current form is not in consonance with the Nigeria Industrial Revolution Plan [NIRP] which is the main industrial policy document of the current administration, he pointed out.
The DG further explained that the NIRP espouses the strategy of resource-based industrialization, adding, “Six years into the implementation of the auto policy, not much progress has been made, even though over 50 Vehicle Assembly plants licenses have been issued. Total annual assembly of new cars in 2017 and 2018 were estimated at less than 10,000 units.
“The truth is that, the high cost of vehicles has taken a severe toll on the economy, from a logistics cost and welfare point of view. Practically all aspects of our economic and social lives had been negatively impacted by the situation. This is because over 90 per cent of the country’s freight and human movements are done by road, which implies heavy dependence on cars, commercial buses and trucks.
Manufacturers and other real sector investors suffer from high cost of delivery vehicles, sharp increases in haulage cost because of the high cost of trucks; school buses have become unaffordable by many institutions; many hospitals cannot afford ambulances; many corporate organizations have drastically cut down on their fleet etc. Vehicle ownership is now completely beyond most of the middle class. These unintended consequences and collateral harmful effects on the economy and welfare of citizens are incalculable. This underscores the strategic importance of road transportation to domestic economic integration and connectivity.”, he lamented.
So unfortunate, he said the economy has witnessed an increase in the price of vehicles by between 200 to 400 per cent over the last five years Not many investors and the citizens have the capacity to pay these outrageous prices. Even prosperous corporate organizations are now buying used vehicles for official use. The implication of the scenario for operational costs of organizations is worrisome. The auto policy in its present form is most inappropriate for an economy that is heavily dependent on road transportation. Other implications of the Auto Policy for the economy include the following:
High transportation cost resulting from the prohibitive cost of vehicles largely because of the high import tariff and sharp currency depreciation”, he further noted.
Yusuf observed an increase in smuggling resulting from the high import duty and levy as well as the huge duty differential with our neighboring countries.
All of these he said has caused huge loss of customs revenue as vehicle imports from official channels drop and smuggling increases, as well as huge loss of revenue by the Nigeria Ports Authority.
Yusuf also said the policy has caused considerable loss of maritime sector business to neighboring countries as more vehicle imports are diverted to neighboring countries.
He listed other negative impact of the policy to include, severe adverse effect on automobile dealers in Nigeria as high cost of vehicles creates affordability problems, low sales and massive erosion of profit margins, loss of jobs in the nations maritime and allied sector following the sharp drop in vehicle imports, creation of opportunities for corruption and extortion by agencies of government because of compliance issues and the massive incentives for smuggling and high cost of transportation resulting from high cost of passenger cars and buses.
Others include, high road safety risk because of the high vehicle replacement cost and affordability issues as well as too many rickety vehicles on the roads because of the prohibitive replacement cost.
Going forward, the Chamber recommended immediate review of the policy in the light of its copious shortcomings.
It also suggested that import tax duty and levy of 70 per cent on new vehicles should be reduced to 35 per cent, and that import tax duty and levy of 35 per cent on commercial vehicles should be reviewed downwards to 25 per cent.
Also included in the recommendations is reduction on import tax duty and levy on used cars from current 35 per cent to 25 per cent.
The Chamber also urged government to give further tax concessions to the assembly plants, and that Semi Knock Down, SKD should all attract 5 per cent duty while Complete Knock Down, CKD should attract zero import duty to incentivize domestic vehicle assembly.
“Other incentives for assembly plants and tyre industries for acquisition of machineries and equipment should be retained as contained in the Automotive policy.
Similar incentives should be extended to the local production of vehicle spare parts.
Patronage of locally assembled vehicles by the government and its agencies should be more rigorously encouraged and enforced in line with the Presidential Executive Order on patronage of made in Nigeria products.
Vehicle purchase finance facility at single digit should be put in place to boost demand for automobiles. The automotive fund should be used to support this initiative.
Age limit of used vehicles should be reduced gradually over time to lessen road safety risks” the Chamber recommended.
Yusuf expressed the hope that if these recommendations are adopted, there would be a great relief to the private sector from the logistics perspective; more jobs will be restored in the automobile business sector; maritime sector activities will be boosted; car assembly plant will be better off with a five percent duty on SKD and zero percent duty on CKD; the welfare effect on citizens will be positive; vehicle affordability by the middle class will improve; the transportation sector will benefit tremendously; smuggling of vehicles will reduce drastically; NPA and ports terminals facilities will be more optimally utilized for better revenue performance; and customs revenue from vehicle imports will improve considerably.
It argued that the proposition of a review of the automotive policy fits very well into the Ease of Doing Business Policy of government.