Auto Dealers Battle Forex Challenge, Duty Reduction Worries Manufacturers

Nigerian auto dealers have expressed worry that difficulty in obtaining forex may impede the gains of the implementation of the reduced import levy on vehicles by the Nigeria Customs Service.

The 2020 Finance Bill signed into law by the President Muhammadu Buhari provides for a downward review of excise duty on tractors and motor vehicles for transportation, as well as the levy to be paid on imported cars.

Car import levy has been slashed from 35 per cent to five per cent; import duty on tractors was reduced from 35 per cent to five per cent; mass transit vehicles and vehicles for goods transportation, from 35 per cent to 10 per cent.

Data from the National Bureau of Statistics showed that used vehicles worth N134.8bn were imported from the United States into Nigeria in the third quarter of 2020.

The NBS Foreign Trade Statistics for Q3 2020 also showed that imported motorcycles from India valued at N50.7bn and China (N22.4bn) were part of the manufactured imports for the period.

Other countries from which Nigeria imported used vehicles with diesel or semi-diesel engine capacity included Italy, Belgium, Canada and Germany.

The Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, said on Friday that the drop in crude oil earnings and the associated reduction in foreign portfolio inflows significantly affected the supply of forex into the country.

“In order to adjust for the decrease in the supply of foreign exchange, the naira depreciated at the official window from 305/$ to 360/$ and now hovers around 410/$,” he said.

The Chief Executive Officer, Autochek, Mr Etop Ikpe, said since the country had continued to depend on imports, forex would have a big impact on importation.

He said, “Anything that relies on forex for importation is impacted by the depreciation of the naira. Used imported cars fall into this category. And we list cars that belong to car dealers who import these cars.

“So, naira depreciation will affect the price of cars; that is why auto loans are very important.”

He said the auto industry must look beyond importation in order to create more value.

Ikpe said, “There is a lot of pressure on our foreign reserves; that is the reason the government has been focused on various incentives towards import substitution.

“As a country, we have to realise that we cannot really remain an import-dependent country. Of course, forex is going to have a big impact on importation.

“When the auto policy was introduced, the dollar was probably trading at N180 and now we are looking upwards of N400; availability is still restricted. That means that fundamentally, for things to be affordable at the end of the day, it has to be something that significantly reduces our dependency on foreign exchange.”

According to the NBS, N779.36bn was spent on passenger car importation in Q3 2020, down from N961.98bn in the same period of 2019.

The Nigerian Ports Authority said on its website that 1,000 units of used vehicles were expected to have arrived in the country the previous week.

Statistics from  the NPA showed that Ports & Terminal Multiservices Ltd was expecting a shipment of 1,000 units of used vehicles at the Tin-can Island Port from February 24 to 27.

The International Trade Administration, an agency in the United States Department of Commerce, put Nigeria’s current vehicle size at an estimated 11.7 million.

According to the ITA, with insufficient domestic vehicle production, Nigeria is highly dependent on imports to meet local demand. For example, in 2018, passenger vehicles constituted the largest export item from the US to Nigeria, according to the US Census Bureau.

The Executive Director, Nigeria Automobile Manufacturers Association, Mr Remi Olaofe, said since the government reduced the import levy on cars, there was no need to get raw materials for auto assembling.

He expressed worry that plants would shut down if the industry was not protected.

He said, “Naturally, these plants will shut down and focus on importation, which is not good for Nigeria. It is a big market and we should protect it.

“A lot of investment has gone into this market which is over $1bn. At the minimum, there are 6,000 to 10,000 jobs on the line. If they (plants) shut down, these people will have to go. These are people trained and sent abroad to understand how things are done. Today you may be thinking it is just the auto policy but the global market thinks we are unserious. This is not good for everybody.”

Similarly, Head, Institutional & Corporate Sales, Cars45, Felicia Afiemo, hoped that the new policy would redirect the industry on the path of manufacturing and pave the way for the emergence of truly made-in-Nigeria vehicles.

She said, “From here on, we should interrogate our industrialisation strategy, bring all stakeholders to the table and forge out a path to deepening value creation and extraction in the auto industry.”

The Chairman, Peugeot Automobile Nigeria Limited, Mr Ahmed Aliyu, in a recent interview described the tariff reduction as policy somersault.

He also said many assembly plant operators were jittery as a result of the policy because they owed over N100bn to local banks.

West Africa Tax Leader at PricewaterhouseCoopers, Mr Taiwo Oyedele, at a recent webinar said the total tariff of 40 per cent to be paid on imported cars was still enough to encourage patronage of locally-made cars.

He said, “This is really important to clarify. For new cars, it is only the levy that has been reduced from 35 to five per cent.

“The import duty of 35 per cent is still available on new and used cars, which means for a new car, the total tariff you pay on import is 40 per cent. This is because there is a lot of reactions to whether this goes against the government auto policy.”

According to Oyedele, 40 per cent is still high enough to encourage people to buy locally.

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, recently allayed the fears of operators in the nation’s automotive industry about the 2020 Finance Act.

She said in a recent interview that the Federal Government had committed to patronising vehicles in local assembly plants in Nigeria and would engage the state and local governments to do the same.

This, according to her, will address the needs in the country which is about 750,000 vehicles.