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FDC: Eliminating Grey Markets Will Boost FG’s New Automotive Policy

The Financial Derivatives Company (FDC) has revealed that for the new automotive policy announced by the Minister of Trade and Investments, Dr. Olusegun Aganga, to take off smoothly, it is expedient to attack the grey markets, which operate mainly on its ability to evade the appropriate tax levy on different categories of cars, especially brand new cars.
 
According to FDC, there’s an estimated loss of about N90 billion to tax evasion in the last four years, which could easily fund the construction of a 1000MW power station to bridge the power supply gap, stating that grey market activities also negatively impact the operations of the incumbent authorised automobile dealers who are in the best position to partner foreign firms to kick-start the reforms aimed at domestic production of automobiles.
 
The organisation added that the lack of an efficient structure to checkmate the grey market may serve as a discouraging factor and eliminating loopholes that facilitate grey market activities would serve as an appealing incentive package for potential investors.
Furthermore, the FDC said despite the fact that the new automotive policy is short on details, most analysts and the public believe the overall aim of the new policy is a welcome development in the ongoing diversification of the Nigerian economy.
 
It harped on the need to build a suitable framework to support the tenets of the policy so that it does not die down like the previous automotive policy, the National Automotive Council, which was approved by the Ernest Shonekan-led transitional council in 1993.
FDC also highlighted the domestic automotive production, which began in the late 1970’s through partnerships between the Nigerian government and foreign companies with six assembly plants (two for cars and four for trucks) established between 1970 and 1980.
 
The Peugeot Automobile Nigeria Limited (PAN) in Kaduna, Volkswagen of Nigeria Limited (VWON) in Lagos, Anambra Motor Manufacturing Limited (ANAMMCO) in Emene-Enugu,  Steyr Nigeria Limited (Bauchi), National Truck Manufacturers (NTM) in Kano for Fiat, and Leyland Nigeria Limited in Ibadan, adding that the sector was a vital component of the national economy, contributing to overall economic development through capacity building made possible by transfer of technology, job creation with a total production capacity of 108,000 cars, 56,000 commercial vehicles and 10,000 tractors annually.
 
It however stated that the promising economic indicators such as a huge population and relatively high GDP growth, the Nigerian automotive industry appears to be a viable opportunity for auto companies looking to penetrate emerging markets, adding that the growing middle class, due to consequent rising income levels indicates that Nigeria is an attractive investment destination with a 5-year annual GDP growth rate of about 7 per cent, and an income per capita of $1,616, according to the E IU.
 
FDC thereby proposed an incentive package similar to that of the Thai government with an emphasis on firm long-term agreements and incentives that will shorten the decision timeline for companies to invest.
 
Also, it laid emphasis on developing dynamic and innovative assembly plants as the best way to ensure the industry will be sustainable and it ensures that Nigerians can purchase modern cars, which will equally eliminate the desire for foreign cars since approximately 55 per cent of the purchase price for tokunbo vehicles are related to shipping and customs duties related costs. It added that a sound local content plan is also a critical tool needed to revive the automobile industry in Nigeria.
 
FDC however recommended that there should be an implementation of a staggered and sequential import tariff regime an increase in import duties should not be immediate but rather gradual over time, enforcement of customs’ rules and regulations to discourage and eliminate grey market activities, establishment of realistic timelines for accomplishing the new automotive policy.
 

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