October 4, 2023/CSL Research
A Business Day newspaper article citing a report by the International Trade Administration (ITA) states that vehicles exported from the United States of America, account for 60% of the used cars in Nigeria. The report also noted that, of the 28 assembly plants which began operations out of the 54 auto assembly licenses issued, only six remain operational and are producing at very low capacity due to forex challenges, infrastructure, and capacity gaps. These challenges have caused several automakers to move to other African countries to set up assembly plants.
The Nigerian automotive policy was introduced in November 2013 to resuscitate Nigeria’s moribund automobile industry. The policy allows local assembly plants to import completely knocked-down vehicles at 0% duty and semi-knocked-down vehicles at 5% duty, while importers pay a 70% duty on new and previously owned vehicles. About 54 licenses were granted. Also, an accommodating tariff of 35% was imposed on cars imported by companies who have expressed interest and met investment milestones for local assembly.
The economic recession in which the country slumped into shortly after the automotive policy was introduced did not bode well for the resuscitation of the industry. The weakened exchange rate sent the prices of new cars far above the reach of Nigeria’s shrunk middle class. Automobile dealers saw a significant fall in sales volumes and even locally assembled vehicles, for which the policy was enacted, experienced significant price increases and are also out of the reach of the average Nigerian.
The Nigerian Customs Service (NCS) placed a ban on the importation of vehicles through land borders effective January 1, 2017, following calls from stakeholders in the automotive industry for strict regulation of the importation of vehicles as the influx of vehicles, particularly used vehicles were affecting sales. This move was reportedly aimed at improving government revenues, discouraging vehicle imports while gradually phasing out used cars (popularly known as Tokunbo cars), and ultimately increasing patronage of locally assembled vehicles. However, there were plans in 2019 to relax the ban on importation of vehicles through the land border following a successful implementation of a new initiative by the Nigeria Customs Service and the Customs Service of the Republic of Benin to automate and network all electronic information about incoming cargoes through the border.
A major problem facing the industry in our view remains the inconsistent policies by the government with tariffs constantly changing. The continuous devaluation of the currency is also a major problem. Only recently, The Nigeria customs service’s official exchange rate on duties and levies on imported vehicles and other commodities was changed from N422.3/US$ to N589.45/US$ with the attendant impact on cost of manufacturing. The Nigerian consumer has been through another recession since the first recession in 2016 and has been stifled by high inflation and multiple devaluations, implying the inability of a majority to afford new cars. Unless there is a thriving middle class and some stability in exchange rate, it will be correct to say the automobile industry cannot be successful as many Nigerians will continue to settle for Tokunbo cars.
