The Sun News

Ban on tokunbo vehicles’ll boost local production –Jalal

By Moses Akaigwe

aminu Jalal is a mechanical engineer from Kaduna State with over 35 years’ experience in engineering, teaching, consultancy and management. He obtained a degree in Mechanical Engineering from ABU in 1978, and holds a Post Grad Diploma in Metallurgy from the University of Lagos  (1980). He was in 2007 appointed the Director-General of the National Automotive Design and Development Council {NADDC} after previously serving as its Director between 1994 and 2007.

It was during his second term at the council in 2013 that the Nigerian Automotive Industry Development Plan (Automotive Policy) was formulated.  Jalal’s tenure ends on May 12, 2017, but his successor, Jelani  Aliyu, a car designer with General Motors of the US, was named well ahead along with 22 other heads of Federal Government agencies, on April 13, by President Muhammadu Buhari.

In this interview with the Daily Sun, which turned out to be his last as the NADDC D-G, Jalal speaks on, among other issues, the auto policy, imported used vehicles, NAC Fund, and auto finance scheme (planned to be introduced in partnership with a South African firm).

Excerpt:

On assumption of office

The automotive Industry was in a state of collapse, with output of about 2,000 units per annum, mostly commercial vehicles. Majority of the over 70 local content manufacturers have either shut down, or are producing only for the after-sales market. Our goal has always been to bring back automotive assembly operations and develop local content, thereby making Nigeria a vehicle manufacturing nation.

Automotive policy

The reason government introduced the policy was to bring back automotive assembly and develop local content to make Nigeria a vehicle manufacturing nation. Some companies were making a lot of money importing and selling cars and providing after-sales service without investing in manufacturing. Naturally, they opposed the idea initially. Such importers felt that the auto policy would force them to go into manufacturing, which they did not want. However, in the face of government resolve, they have now embraced the policy and have established assembly plants.

Second-hand car dealers also felt threatened by the policy. We assured them that we would assist some of them to transition to dealers of the assembly plants and that we want the second-hand car market to grow, but sourcing the cars locally, not through importation. Every major economy has a big second hand car market. In America, almost twice as many second-hand cars as new ones, are sold annually.

The licensed customs agents also felt that the policy would reduce the number of cars imported, thereby reducing their income. We tried to convince them that the imported inputs for vehicle assembly would also be cleared by them.

Policy implementation

We have achieved the first objective, which is bringing back vehicle assembly. We are now focusing on local content development. For example, we are convening a conference on automotive local content development in Lagos on June 13 to 14,  2017. International local content manufacturers have been invited so that we can showcase the opportunities offered by the Nigerian automotive industry so that they can establish locally or partner with local entrepreneurs.

Vehicles are a major cost item and all over the world vehicle sales decline with the economy (recall the problems the sector had worldwide in 2008-9). When the economy improves, vehicle sales would recover. It will also grow with the launch of our vehicle financing scheme soon.

Auto Finance Scheme

WesBank, the South African firm that will partner with us on the vehicle financing scheme, made the final submission of their application for an operation licence to the Central Bank of Nigeria a few weeks ago. We expect the licence soon, after which the programme would be launched. The Council will provide N15 billion initially and WesBank will provide a similar amount, totalling N30 billion. We are in touch with other financial institutions to contribute to the fund.  Prospective beneficiaries will obtain the loan through the vehicle dealers. All the preliminary work has been concluded and we are awaiting the CBN licence.

SKD/CKD assembly

Completely Knocked Down (CKD) operations are not viable with low volumes. That is why we allow SKD {semi knocked down} operations initially, but the assembly plants would be required to move to CKD operations as their sales volume increases.

Ban on vehicle import by road

No, the NDDC did not make any input. It was an initiative of the Nigerian Customs Service, but we supported it. Many of the vehicles that come through the land borders do not pay Customs duty, thereby presenting an unfair competition to the local auto industry.

Imported used vehicles

Yes. Uncontrolled importation of used vehicles {tokunbo} is harmful to the domestic auto industry. The automotive industry is capital intensive with very low return on investment {ROI}. Its ROI used to be about 3-5 percent, though recently it has moved to 7-10 percent as people buy more SUVs and higher end vehicles. However, countries attract them to set up because of its high socio-economic returns. The industry needs certain minimum volume to break even and encourage investment in local content. One of the ways to develop volumes for the industry is to ban the importation of second-hand vehicles (like South Africa, Brazil, Malaysia, China, and other countries have done) or impose high tariffs on their import (for example India that charges 160 percent duty on such imported  vehicles).

In Nigeria, due to affordability issues, the Automotive Council will recommend restrictions on used vehicle import when its vehicle financing scheme is in place and the current effort by the NCS to combat vehicle smuggling through our land borders is bearing fruit.

30 million from UNIDO

The grant from the United Nations Industrial Development Organization {UNIDO} and Japan was in kind, and not to NADDC, but to Nigeria. The money was utilised by the Japanese government for the following: A feasibility study for the establishment of an end-of-life vehicle recycling in Nigeria, and a study tour of end-of-life vehicle recycling operations in Japan for officials of NADDC, NESREA, Abuja Environmental Protection Board, Lagos Ministry of Environment and some Nigerian mechanics. The grant was also for a study of the prospects for vehicle manufacturing in Nigeria.

NAC fund

The money that accrued from the two percent levy on automotive imports was used for our capital projects, including the automotive test centers. About N12.0 billion was given as soft loan to 36 companies through the Bank of Industry. Products financed included the manufacturing of batteries, tyres, brake pads, filters, plastic parts, etc. Vehicle and motorcycle assembly operations were also financed.

Government “loaned” out N3.25 billion to the former NAPCON, but it was never repaid. The sum of N3.83 billion was also used by government to finance the vehicle purchase scheme for the military and para-military officers almost a decade ago. We are yet to get the money back.

Scarcity of forex

The sector could not produce as much as it could due lack of forex in 2016, even though it was in the CBN forex window for manufacturers. However, this affected all the sectors and things are getting better this year.

Role of Nnewi in Auto policy

We have been working with the Nnewi cluster since 1994, shortly after the Automotive Council was established. Our interventions with them are as follows:

Provided soft loans to many companies to re-equip their production facilities through the Bank of Industry; assisted in organising the first Nnewi Auto Fair in 1999, and attended subsequent fairs. The NADDC organised a seminar in Nnewi on modern production techniques in 2012, and sited an auto supplier park in Nnewi south local government area. The council plans to conduct “benchmarking studies” to upgrade the production methods, quality control, etc. of companies in the area, in order to meet international standards.

Your score-card at NADDC

I will leave the assessment to people like you and those in the automotive sector. I want Nigeria to become a vehicle manufacturing nation and a vehicle manufacturing hub for west and central Africa.

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