Review import duty on vehicles now, LCCI tells FG

The Lagos Chamber of Commerce and Industry has called for an
immediate review of the nation’s automotive policy, urging the
Federal Government to slash the import duty of 70 per cent on new
vehicles to 35 per cent in order to make the vehicles
affordable.

The Director-General, LCCI, Mr. Muda Yusuf, also said in a
statement that the import duty on commercial vehicles and used cars
should be reviewed downwards to 20 per cent while importation of
complete knocked-down and semi knocked-down (auto) components
should attract zero duty.

The Federal Government had raised the import duty on cars from
22 per cent to 70 per cent and crashed that of the SKD/CKD
components in 2013 as part of a new auto policy meant to support
local production of new vehicles and discourage importation of
fully built automobiles.

But this along with economic recession has led to high cost of
imported vehicles and a drastic drop in automobile sales in the
country in the last three years.

Yusuf said the auto policy was passed unto the present
administration by the Jonathan administration, adding that it had
put the cost of vehicles beyond the reach of most citizens and even
corporate bodies, with economy-wide negative impact.

“There is a need to act quickly to reverse the unsavoury
situation. The automobile sector was hit by the double shock of
over 100 per cent currency depreciation and a hike in tariff from
22 per cent to 70 per cent [in the case of new cars]. Whereas there
is very little that can be done about the currency depreciation, a
great deal can be done about the auto policy, which is a creation
of the government,” he said.

He noted that the policy was an import substitution strategy to
reduce importation of vehicles and boost the capacity of domestic
vehicle assembly plants.

The LCCI DG said, “But the vehicle assemblers were as dependent
on imports as the importers of vehicles. This is not in consonance
with the objective of import substitution strategy, which thrives
better in the context of high domestic value addition. It is in
this setting that the economy could benefit from the inherent
values of import substitution, which includes backward integration,
multiplier effects, conservation of foreign exchange, job creation
and reduction of import bills.

“But three years into the implementation of the auto policy, not
much progress has been made. The affordable vehicles promised at
the inception of the policy are yet to be seen. If anything, the
economy had suffered incalculable consequences and shocks as the
cost of vehicles has reached levels that were unprecedented in the
history of the country.”

According to him, virtually all aspects of the economic and
social lives have been adversely impacted by the situation, as 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.

Yusuf described the unintended consequences and collateral
effects on the economy and welfare of citizens as immeasurable.

He said, “We have witnessed an increase in the price of vehicles
by between 100 to 400 per cent. A new car of 1.8 litre engine
capacity now costs as high as N18m; a new car of two litre engine
capacity now costs as high as N20m; a three-litre new Japanese car
costs as high as N30m; a 30-seater bus costs about N45m; and an
18-seater bus costs N29m.

“Not many investors and the citizens have the capacity to absorb
these outrageous prices. Even high-end corporate organisations are
now buying used vehicles for their organisations. The implication
of the scenario for operational costs of organisations is
worrisome. This scenario is most inappropriate for an economy that
is heavily dependent on road transportation.”

Yusuf described the policy as detrimental to most investors in
the automobile sector in Nigeria as the high cost of vehicles had
created low sales and massive erosion of profit margins.

The LCCI DG said if the recommendations made were adopted, “more
jobs will be restored in the automobile industry; maritime sector
activities will be boosted; car assembly plant will be better off
with a zero per cent duty on the SKD; the welfare effect on
citizens will be positive; the political capital of government will
be positively impacted; the middle class will have better access to
vehicle ownership; the transportation sector will benefit
tremendously; smuggling of vehicles will reduce drastically; and
customs revenue from vehicle imports will improve
considerably.”

The Lagos Chamber of Commerce and Industry has called for an
immediate review of the nation’s automotive policy, urging the
Federal Government to slash the import duty of 70 per cent on new
vehicles to 35 per cent in order to make the vehicles
affordable.

The Director-General, LCCI, Mr. Muda Yusuf, also said in a
statement that the import duty on commercial vehicles and used cars
should be reviewed downwards to 20 per cent while importation of
complete knocked-down and semi knocked-down (auto) components
should attract zero duty.

The Federal Government had raised the import duty on cars from
22 per cent to 70 per cent and crashed that of the SKD/CKD
components in 2013 as part of a new auto policy meant to support
local production of new vehicles and discourage importation of
fully built automobiles.

But this along with economic recession has led to high cost of
imported vehicles and a drastic drop in automobile sales in the
country in the last three years.

Yusuf said the auto policy was passed unto the present
administration by the Jonathan administration, adding that it had
put the cost of vehicles beyond the reach of most citizens and even
corporate bodies, with economy-wide negative impact.

“There is a need to act quickly to reverse the unsavoury
situation. The automobile sector was hit by the double shock of
over 100 per cent currency depreciation and a hike in tariff from
22 per cent to 70 per cent [in the case of new cars]. Whereas there
is very little that can be done about the currency depreciation, a
great deal can be done about the auto policy, which is a creation
of the government,” he said.

He noted that the policy was an import substitution strategy to
reduce importation of vehicles and boost the capacity of domestic
vehicle assembly plants.

The LCCI DG said, “But the vehicle assemblers were as dependent
on imports as the importers of vehicles. This is not in consonance
with the objective of import substitution strategy, which thrives
better in the context of high domestic value addition. It is in
this setting that the economy could benefit from the inherent
values of import substitution, which includes backward integration,
multiplier effects, conservation of foreign exchange, job creation
and reduction of import bills.

“But three years into the implementation of the auto policy, not
much progress has been made. The affordable vehicles promised at
the inception of the policy are yet to be seen. If anything, the
economy had suffered incalculable consequences and shocks as the
cost of vehicles has reached levels that were unprecedented in the
history of the country.”

According to him, virtually all aspects of the economic and
social lives have been adversely impacted by the situation, as 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.

Yusuf described the unintended consequences and collateral
effects on the economy and welfare of citizens as immeasurable.

He said, “We have witnessed an increase in the price of vehicles
by between 100 to 400 per cent. A new car of 1.8 litre engine
capacity now costs as high as N18m; a new car of two litre engine
capacity now costs as high as N20m; a three-litre new Japanese car
costs as high as N30m; a 30-seater bus costs about N45m; and an
18-seater bus costs N29m.

“Not many investors and the citizens have the capacity to absorb
these outrageous prices. Even high-end corporate organisations are
now buying used vehicles for their organisations. The implication
of the scenario for operational costs of organisations is
worrisome. This scenario is most inappropriate for an economy that
is heavily dependent on road transportation.”

Yusuf described the policy as detrimental to most investors in
the automobile sector in Nigeria as the high cost of vehicles had
created low sales and massive erosion of profit margins.

The LCCI DG said if the recommendations made were adopted, “more
jobs will be restored in the automobile industry; maritime sector
activities will be boosted; car assembly plant will be better off
with a zero per cent duty on the SKD; the welfare effect on
citizens will be positive; the political capital of government will
be positively impacted; the middle class will have better access to
vehicle ownership; the transportation sector will benefit
tremendously; smuggling of vehicles will reduce drastically; and
customs revenue from vehicle imports will improve
considerably.”