Catch 22.

Church Blog

Editorial

 

Policies to provide fiscal incentives for vehicle manufacturing in the country since 2014 are about to be changed drastically. A bill to reduce duty on imported vehicles from 35 per cent to five per cent is in the works. And the government is already under criticism for the proposed law. For example, Chairman of Peugeot Automobile of Nigeria (PAN), Ahmed Wadada, has asked for reconsideration of duty reduction on imported automobiles: “The Federal Government should look at the policy and reverse it for the betterment of Nigerians. Such policy somersault is injurious to the survival and development of the automobile industry. Instead of creating employment opportunities, it would create employment problems due to lowering of activities by automobile plants.”

Admittedly, the policy is bound to affect job growth in the country. Imported used vehicles will reduce the demand for new home-made vehicles. But it is essential to look at the big and immediate picture. Nigeria is in its second quarter of economic downturn, largely because of COVID-19 pandemic and its many unanticipated expenditures. Like many other governments, the Federal Government has had to review its finances in the wake of sudden additional expenditures arising from the pandemic. So drastic has been the economic crunch that governments across the country were forced to review their budgets.

Yet, the country’s transportation needs are increasing by the day because of rising population. Further, the violence by hoodlums during the recent #EndSARS protest destroyed many mass transportation vehicles—used and new, with the consequence that millions of people now experience serious hardship to get to work. For example, citizens that cannot afford to acquire new home-made vehicles for commercial or personal use at an average of N5 million are forced to resort to used ones. The economic problems of the last one year have also affected the ability of citizens to pay 35 per cent duty on foreign used vehicles.

In effect, the proposed downward review of duty on imported used vehicles constitutes a dilemma. People already in employment cannot reach their offices on time and local vehicle manufacturers cannot produce at competitive prices to attract foreign investors to take advantage of economy of scale that can create additional jobs in the car manufacturing sector. Moreover, the local auto manufacturers cannot even meet the local demand for vehicles. Worse still, governments do not patronise home-made vehicles as they should, to stimulate the automobile sector. In addition, there is no affordable credit system to incentivise citizens to buy new made-in-Nigeria vehicles. Consequently, Nigeria which was in 2018 the third largest importer of used vehicles that also brought huge revenue from duty finds itself saddled in 2020 with ports empty of imported cars and diminished revenue collections on imports.

Reducing duty on direly needed used vehicles can save the country from double jeopardy: unaffordable prices of new home-made vehicles and diminished revenue from duty on used cars at the nation’s ports. At a time that the Federal Government is taking foreign loans to diversify its road-centric transport system into rail and water transportation, and to improve electricity supply that can bring additional value to local manufacturing of vehicles, it makes economic sense to reduce duty on used vehicles to increase automobiles needed to expand and sustain transportation for millions of the country’s rising population. Only a few days ago, Vice President Yemi Osinbajo lamented that farm produce could not be taken to consumers because there are no vehicles.

In the interim, governments – federal, state, and local – should assist manufacturers of local vehicles, by patronising the local assembly plants, instead of preferring to spend tax funds on exotic foreign cars. Whatever the policy may be from time to time, it is crucial for the government and its agencies to use the power of example to motivate citizens to patronize home-made cars. This is the culture in many self-reliant economies around the world.