An Open Letter to the President
Re: Proposed increase in tariff of Imported Vehicles; and Plan to manufacture locally:

Good evening Sir. It is not my intent to contribute to the barrage of 'Open Letters' but a desire to share my candid views about the aforementioned topic. I hope you find an apposite time amidst your busy schedule to read my letter and consider the content herein.

I read with mixed feelings the notion to increase tariff of imported vehicles from January 2014 from 20% to 70%. In my opinion, in the short run, this will primarily result in scarcity, higher demand and increase in the cost of pre-used cars which dominates the vehicle import market.

Obviously, local manufacturing will greatly impact the Nigerian Economy in no little measure and may spur an industrial revolution. However few variables need to be considered. I shall hereby concisely address some of these variables for your attention.

1. Electricity - The reforms in the Energy/Power sector on Electricity has just begun. The road map and plan to attain sustainable Electricity threshold is yet unclear. Generation is still swirling under 3000 megawatts. How will these companies being wooed power their production plants? When do we expect to hit the 10,000 mega wattage? What infrastructure are the newly formulated Distribution Companies (DISCOs) proposing to put in place to suitably distribute the electricity when peak Generation is achieved? Electricity is critical to the operations of any manufacturing entity. Independent generation of Power by these companies will adversely affect price and the resultant effect will be borne by the masses which inadvertently will erode part of the gains of setting up these noble facilities. Expedited action on electricity will woo many investors in this sector to Nigeria because many companies operate policies on Sustainable Energy and reduction in Green House Gas emissions. Independent generation will definitely not be eco-friendly and may mar interests of sincere investors.

2. Nearness to raw materials and resources - In economics, this is a salient factor in locating a business. It will be extremely imperative and apt to fully revive the Ajaokuta steel factory and other related raw material processing facilities. It will be counterproductive if the steel used by these companies are imported solely from their parent companies. Massive training of our human resource in auto design and instrumentation will also reduce dependence on expats and will greatly reduce unemployment; the time for the training and development is now. Other components/raw materials that are used in the manufacture of vehicles should be identified and broken down to ascertain opportunities for local sourcing/production. A classic example is the Guinness brand. The parent company in Dublin uses Barley for the manufacture of stout. But in an ingenious move, Guinness Nigeria Plc chose Sorghum which adapts to our local climate and locally available for the brewing of our award winning widely consumed stout. This is the way to go if we are to think Sustainability and Environmentally friendly solutions. If this can be achieved, Nigeria will be a haven of revolution in Car manufacture and not necessarily assembly in Africa. The telecommunications agencies can attest to the plethora of opportunities inherent in Nigeria.

3. Price - Presently, the cost of new vehicles in Nigeria is astronomically over and above the sale in the countries of origin. KIA and Hyundai are key examples. Their brand of vehicles though suitable for Nigerian Roads are overpriced, despite the fact that they are promoted and sold in most centres by the parent companies. A major reason for the difference in price aside exchange rate lies in the uncertainty, factor of erratic occurrences and risks built into the price. It will be sad if the new companies who shall be given Government incentives to manufacture these cars eventually sell them at the present market rate of imported new cars primarily on the premise of demand and supply caused by the scarcity driven by the loss of buying power for pre-used cars caused by the increased tariff. It may be apt for the Government to get involved in the process of setting prices. A suitable approach may be to set a benchmark limit of no more than 25% of the cost of similar vehicle at the country of origin. An example is a Toyota Camry sold at 21,000 dollars in USA but sold in Nigeria by retailers at between N6m and N8m. Yes, they have considered cost of freighting, administrative charges and profit; but the margin still remains very high. It is therefore expected that new manufacturers domiciled in Nigeria should sell at a cheaper rate within a measurable range as the manufacturer of the same brand in USA if materials are locally sourced as much as possible. This will have an amazing effect and may further result in economic gains through exports to other neighbouring countries due to price competitiveness which will strengthen the Naira. It has been stated that on implementation of this Policy, brand new vehicles will sell between N1,200,000.00 and N1,500,000.00. Beyond this citation, it is important to back it up with qualitative values. What nature of vehicles are expected to be sold at this price? What will be the product life cycle, aesthetical appeal and how durable will these vehicles be? Will safety be compromised in similar vein as present in some supposed new vehicles flooded into the country where standard requirements like airbags are eliminated in key locations to reduce cost? We need to be sure Nigerians and all stakeholders will be comfortable with the nature and technical specifications/characteristics of the proposed type of vehicles planned to be manufactured (I hope not assembled) in Nigeria.

4. Demand - It is pertinent to liaise with all stakeholders and carryout suitable research on the quantity of vehicles imported into the country yearly to ascertain the total demand. Do the present investors have the capacity to immediately meet these demands from the moment of increased tariff on imported vehicles? If no, then there will be a whirlpool effect which shall result in sharp practices by the masses to procure the vehicles of their choice. Nigerians are resilient in nature. Our ostentatious culture will drive the desire and no stone will be left unturned.

5. Infrastructure - The present state and quality of our roads is presently extremely below any acceptable standards. To aggregate the gains of this laudable plan to manufacture vehicles, a state of emergency needs to be declared on all Nigerian Roads, Federal, State and Local Government controlled. Google maps have made required efforts minimal. It will be amazing if the respective Federal Ministries and Agencies partner with their State and Local Government counterparts to identify the status of each mapped road, collate the defective or deplorable ones, group them according to their characteristics, standardize design according to each type, agree on rates per km for each type or other suitable indices, prequalify reputable and competent contractors (especially indigenous) and concurrently commence a resuscitation exercise for all these roads. It may be cost intensive but I believe it is achievable considering our revenue as a nation. What is required is collaboration amongst the three tiers of Government and efforts to plug wasteful loopholes mainly caused by contract inflation and award of contracts to scrupulous companies who have no capability, skillset and technical knowhow to execute the works which thereby results in increased maintenance cost or reconstruction by another new Government.

To this end, I strongly recommend the proposed increase in tariff on imported vehicles should be suspended until all the aforementioned variables have been duly reviewed and targets achieved. Otherwise the consequence shall be as follows:

1. Increase in smuggling and casualty figures at borders - both smugglers and security agencies may end up in duels on a daily basis. The effect will be very catastrophic.

2. Continuation of importation and resultant effect on price - due to unavailability of alternatives or affordable new vehicles of similar grade, a tokunbo Toyota Camry 2007 which presently sells for N2.5m may now sell for N3.5m due to the increase in tariff. Nigerians will be forced to bear the brunt as most middle income earners will choose the Camry over a Kia Rio or Hyundai Accent sold at the same price of N3.5m. It is still about the ostentatious culture and trend. This can only be combatted if the proposed locally manufactured vehicles meet the desired quality of consumers.

3. Increase in Corruption - Nigerians will strive to increase their earnings and incomes which has been the reason for monumental corruption at every facet of the nation. The reason an average Nigerian is corrupt is to be able to afford the basic amenities for shelter, belonging, power etc. This drive will be renewed because Nigerians will always strive to by cars. Sadly and shamefully, it is the symbol of achievement for an average low and middle income earner in Nigeria. Unless there is a remedial culture change and suitable development in the right direction, the roads will cease to accommodate the geometric increase in the purchase of vehicles especially at urban centres and city centres. The change can come forth when the Government participate in providing standard affordable and fit transportation system, encourage companies to adopt the car pooling system (environmentally friendly and green approach), provide affordable qualitative housing within reachable range from Urban Centres, develop connecting roads and infrastructure amongst others.

4. Disappointed Investors - due to the capital investments by the companies slated to commence local production, the inability to address the pre-mentioned variables and the adverse impact the consequence above will have on the economy may discourage further participation this revolution exercise.

Finally, I wish to applaud the intent and idea behind the revolution, but I implore a systematic approach should be adopted to achieve this strategic objective. The value chain must be made to deliver real and sustainable value to consumers and all stakeholders involved.

Concerned Nigerian!

chastenigeria@gmail.com

I hope the mods will encourage this topic!

I totally agree with you. If the government wants to promote patronage for home-made cars, then our leaders should do the needful; improved and constant supply of power.
Secondly, I don't see the need for increasing import tarrif. If locally made cars are worth the money Nigerians will still patronize it.

Patdedon: I totally agree with you. If the government wants to promote patronage for home-made cars, then our leaders should do the needful; improved and constant supply of power.
Secondly, I don't see the need for increasing import tarrif. If locally made cars are worth the money Nigerians will still patronize it.

Aptly stated!