A retrogressive auto policy

by | October 19, 2017 12:50 am



From independence in 1960 to the early 1980s Nigeria grew a solid and robust middle class of professionals – Doctors, teachers, professors, Engineers etc – who were financially secure, lived in GRAs around the country, could afford to educate their children up to university levels (then our universities were still centres of excellence), visited cinemas and prestigious restaurants and social clubs often, shopped in exclusive shopping malls and could buy new cars easily.

Then came the structural adjustment programme (SAP) and the devaluation of the naira. The unintended consequence was the decimation of the salaries of the middle class. Imported goods became expensive and out of the reach to all but the elite. New cars automatically went out of the rich of the middle class and they had to resort to buying used vehicles popularly known as Tokumbo in Nigeria.

Gradually, those professionals (majority of them) who had the opportunity to relocate abroad left and those who couldn’t leave or didn’t want to leave were demoralised. Also, the desired locations of the middle class became run down and shabby. By the time Nigeria returned to democracy in 1999, the middle class had all but vanished.

However, by the turn of the 21st century, a noticeable change occurred. Through the great work done by the democratic regime of President Olusegun Obasanjo, the middle class was gradually restored and began to grow in leaps and bounds to such an extent that Nigeria became an attractive investment destination to many auto firms (to set up assembly plants) and large chain super-market stores.

However, the progress has now firmly been cut short. Due to the deliberate policy choices and inactions of the government, of course, sparked by low oil prices and scarcity of foreign exchange, the naira has taken such a severe hit that the country was thrown into recession.

Expectedly, the economic recession with its attendant suffering is not affecting the poor alone. True, prices of consumer goods and services consumed mostly by the poor have tripled. But the steep decline in the value of the naira has also affected the prices of luxury and aspirational goods and services demanded by the middle class also.

Just like it happened in the late 1980s and 90s, Nigeria’s robust but fragile middle class that expanded greatly from 2002 due to deliberate government policy is now shrinking and at the risk of disappearing entirely. Their fat salaries have been eroded by the steep decline in the value of the naira and they can hardly afford to shop in foreign boutiques and stores in Victoria Island and Ikoyi again. Even the fanciful cars they had always bought is now largely above their reach and they had to make do with imported used (Tokunbo) cars.

To drive the nail into the coffin of the middle class, a deliberate government policy has now priced Tokumbo cars out of the reach of the middle class. The justification was the implementation of the National Automotive Industry Development Plan (NAIDP) of 2013 meant to grow the volume of locally assembled vehicles by raising tariffs on imported cars.

However, the devaluation of the naira has made rubbish of that policy. But how does the government care? It has gone ahead with the implementation of the policy charging 35 percent import duty and another 35 percent surcharge, making it a total of 70 percent of the market price of the vehicle. The new charge, which applies to a unit of any imported vehicle, irrespective of the model or brand, makes importation through the land borders (smuggling) far cheaper than through Nigerian seaports.

But it is not only the people that are suffering. By implementing such punitive tariff regime on imported vehicles, the government has ceded most of the revenues it should be making to Benin Republic, which has taken advantage of the Nigerian government’s irrational policy action to lower its duty on imported vehicles. What is more, the current structure now provides a rich avenue of corruption to customs’ officials who give genuine customs’ documents to these smuggled vehicles for a fee while turning Nigeria into a dumping ground for accidented vehicles – the major types of vehicles being imported into the country via the seaports

We are baffled that the government can be so retrogressive and almost irrational in policy decisions. The lack of effective demand for new cars has stymied any plans to establish vehicle assembly plants in Nigeria. The plan is now helping to price out used cars from the reach of Nigerians. That is most retrogressive and should be stopped.