Originally Published On Feb 12, 2014
Nigeria is a great country that has tried fantastic but unsuccessful policies over the last decades, and this sometimes causes a lot of confusion about what good policies can indeed work in Nigeria. NYSC, SAP, Zoning, Federal Character, Nationalization (like NNPC), etc are all policies or systems that had positive intentions but have gone awfully wrong over the years. Who would argue that an NNPC (working like Petrobras of Brazil or Saudi Aramco of Saudi Arabia) would not have been a great thing for Nigeria? Or would you say our fathers that thought about Federal Character and NYSC or the recent ones that thought about Presidential Zoning were stupid to think these would foster unity? Have these policies worked? Absolutely not! NNPC is a big economic disaster like we all know and Federal Character has been made to favour the influential. SAP and Zoning are more controversial because not every Nigerian agrees with it, but they certainly had their merits.
During Obasanjo’s civilian regime, the federal government banned the importation of Tokunbo vehicles that were over 10 years old to limit the amount of junks coming into Nigeria. He also banned importation of some other items, but I will limit my discussion to automobiles. Were these policies great? I think they were excellent! But were they uniquely suitable for Nigeria? I don’t think so. My opinion has always been that Nigeria must never copy good policies from abroad that we cannot appropriately modify to suit our unique challenges. The first fundamental issue that the Obasanjo government perhaps forgot was that many Nigerians could only afford the ‘older-than-10-years’ Tokunbo cars. So these people had only two options – forget about buying cars and stick to public transport, or find alternative (albeit illegal) ways of buying these vehicles. The former option was certainly not a suitable option for most people for obvious reasons.
If you had N200k or N300k then, you still wanted to buy a car to live a more comfortable life. Business men (car sellers) had to meet this demand by bringing Tokunbo cars into Nigeria through Cotonou, and people happily bought the cars. So the Cotonou port (by extension their federal government) was very happy about our policy as they made lots of money from import duties on cars originally meant for the Nigerian market. The Nigerian customs people also made good money (albeit illegal) by facilitating easy cross-border movement of cars. For those businessmen that didn’t want to pay customs, they chose a riskier option of smuggling the vehicles into Nigeria. Who was the biggest loser in all these? The federal government of Nigeria! Our government lost massive import duty income to Benin Republic and the policy ultimately failed. So it was no surprise that the Yar’adua/Jonathan government cancelled this policy within a short time after they took over government.
I wish to compare this to the issue of cocaine in the USA and Mexico. There is massive cocaine production in Mexico which is regularly ‘imported’ into America in exchange for money and/or guns. The market in America for cocaine is so huge that despite all the regulations, sophistication, and efforts, the drug still find its way into the country. The drug-lords in Mexico also need massive ammunition to maintain power and control, so they keep a very nice working relationship with their American counterparts. Do I think America can win this battle without tackling the root cause of high cocaine demand within their country? I don’t think so. As a matter of fact, Mexico in recent years has continually partly blamed Americans’ insatiable cocaine demand for the proliferation of guns in their country – as most of the privately-owned guns are traced to American owners.
Let’s get back to Nigeria. Our government has just started another very nice policy on automobiles that has failed to address some unique challenges in the country. Personally, I am very excited about the employment opportunities that automobile manufacturing will bring to Nigeria. Every close associate of mine knows that my greatest passion is how jobs can be created in Nigeria through government and private innovations. And most of my published articles are never complete without talking about employment. If you read several statements, articles, or documents attributed to federal government officials about this new policy, they usually said that the locally manufactured cars ‘will likely be slightly cheaper than the imported brand new ones’. They have also said that every company in the ‘program’ that assembles an X number of cars (semi knocked down cars) in Nigeria, will be able to import 2X (double the locally assembled units) number of cars (fully built cars) to the country without any raise in import duties. They have also said that import duties on ‘Tokunbo’ vehicles and ‘Super Luxurious’ vehicles will go up by over 100%. Government plans to encourage banks to give more car loans for brand-new cars, and they have reminded us that the locally manufactured cars will be exported to other West African countries. I have also read that government believes that the potential annual market in Nigeria and environs would ultimately be in millions.
Does the government think that the enormous percentage of Nigerians that could not afford ‘imported brand new’ cars before now would suddenly be able to afford ‘locally-manufactured brand new’ cars of about the same price as the ‘imported brand new cars’? Or do they think Nigerian banks will suddenly start giving out loans to people they never considered loan-worthy before the policy, just because the cars have now been manufactured in Nigeria? No way! Make no mistakes, Nigerian banks will never give loans to ‘ordinary people’ that don’t meet their usual expectations and buying-power for brand-new cars (whether imported or locally-manufactured) is still very limited in Nigeria. Does government think that the new import tariff on Tokunbo cars will actually make people choose/buy ‘the very expensive brand new’ cars over Tokunbo cars? In fact, I am aware that businessmen have started shipping cars to Cotonou again, and not Lagos. Cotonou port is currently smiling about our new auto policy. And does government actually think that these vehicles from Cotonou will not get into Lagos easily? If yes, they probably need to come to the US to find out how cocaine gets into America despite all their sophistication. As long as there is poverty and corruption in Nigeria, it is absolutely certain that Tokunbo cars will regularly enter Lagos from Cotonou. We all know that a government that has done very little about corruption cannot start with the customs or poor people that just desperately need a cheap car.
As per the ‘Super Luxurious’ vehicles, since only the super-rich can afford these, they will simply get exemptions (customs waivers) from the federal government to bring their vehicles into Lagos. The ones that don’t want exemptions will simply pay off the high tariff or ‘collaborate’ with customs to clear vehicles at old rates. So they don’t actually need to send their nice vehicles to Cotonou and the policy would not have stopped them from buying these vehicles. Let’s talk about exporting the ‘locally-manufactured’ new cars to other West African countries. If the usual annual demand for brand new cars in Nigeria (the biggest economy in the region by far) is less than 1 million, how many people in Togo, Benin Republic, Ghana, Ivory Coast, etc will be able to buy imported brand new cars from Nigeria? Very few!
I am sure our government knows this. I watched the Nissan Chairman (Carlos Ghosn) talk during the 2014 Davos Economic Summit that he is excited about coming to Nigeria to manufacture but he also clearly indicated that he is not expecting a big market. He actually said Nigeria is currently like Brazil 20 years ago. And he is very correct! But our government talks like we are near-Brazil. No, we are still very far from Brazil! Brazil has grown its middle-class tremendously within the last 20 years and they have maintained better unemployment rates than America in the last few years! So these people can afford to buy locally manufactured brand new cars!
Will manufacturing generate employment? Absolutely! I believe people will get jobs but how many jobs are we talking about? My guess is a few hundreds. What I suspect is that these manufacturers will focus on the simplest type of assembly plants with the greatest possible automation. Of course, they know about the challenges of infrastructure, low market demand for brand new cars, dearth of appropriate automobile expertise and high cost of production in Nigeria. So they will keep things as simple and automated as possible. This means they will hire only few workers. I don’t also believe that local production of cars will bring back tyre manufacturing into Nigeria except the root causes of their departure are addressed. As per job losses, some small Tokunbo sellers in Nigeria will certainly suffer and it will create some job losses. So, I think this policy will not result into net job growth and a new government will likely reverse it in future. No wonder the Japanese have asked Mr. Agangan to pursue proper legislation for this policy.
I believe the first and fundamental question government should have tried to answer is: Can we manufacture or assemble vehicles in Nigeria at prices close to Tokunbo vehicle prices? If the honest answer to that question is NO, then this policy will eventually fail. If the answer is YES WITH EXPLANATIONS OR PRE-CONDITIONS, then we should first focus on those EXPLANATIONS, before we embark on the policy. If the Americans ask similar question about laptops and smartphones such as this: Can we manufacture or assemble laptops or smartphones in America at prices close to imported brand new ones from China, the clear answer is NO. So they are not fooling themselves, their companies have even gone to China to manufacture these items and they are focusing on high-tech and research job parts of the business that can only best be done in America. As per Nigeria, my humble answer to that question is: EXTREMELY DIFFICULT, BUT YES WITH EXPLANATIONS OR PRE-CONDITIONS.
The three most pressing explanations that I consider most important are Infrastructure issues (resulting in high cost of production and supply chain), Volume (though many people in Nigeria can afford prices near the usual Tokunbo prices, the volume demand still has to rise beyond 500% and we can only achieve this if more people are gainfully employed), and Dearth in local expertise (until we have sufficient local expertise, manufacturers have to depend a lot on expatriates and this increases operating cost and vehicle price). I believe government should have achieved a lot on progress in ensuring that universities offer auto-mobile engineering courses and develop the curriculums in conjunction with manufacturers, significant improvement in power, security, and transport network from manufacturing plants to dealers, and greater commitment to anti-corruption and employment generation before implementing this policy.
More importantly however, we must start by encouraging manufacturing of smaller items, spare parts and components that make up cars and other systems. There is already huge market for motor spare parts in Nigeria because cars break down a lot and we always need to buy spare parts repeatedly. We can also export these spare parts to other West African countries. We can manufacture petrol and diesel generators in Nigeria – a huge market already exists for them. We can bring Nike, Tommy, TM Lewin, among others to come and produce their clothes in Nigeria because the market and buying capacity already exist for designer clothes in Nigeria. Most of the shirts we buy in the US are made in Vietnam, China, Indonesia, Thailand, etc. These shirts can also be manufactured in Nigeria, sold in Nigeria, and exported to other African countries. It’s interesting that we always like to pursue big things that are extremely difficult to achieve when there are simpler policies that can generate equivalent or greater number of jobs. China despite its enormous wealth and technology capacity does not manufacture commercial airplanes, and they continue to import American and European manufactured airplanes.
Finally, I reiterate that our government policies must always consider the uniqueness of our problems in Nigeria. Nigeria must indeed move up the value chain by encouraging all major importers of consumer products (not necessarily luxurious products like cars) to come and manufacture in Nigeria. There are so many small items that we should not be importing to Nigeria. Let us focus more on these, rather than adopting a South African auto policy that is only bound to increase income at Cotonou port.
Debo Onifade writes from Boston, USA