7 November 2013

Nigeria: New Automotive Policy Will Revolutionise Nigeria - Jalal


Engr Aminu Jalal is the Director-General, National Automative Council (NAC). In this interview with KINGSLEY ALU, CHIBUNMA UKWU and KEHINDE AJOBIEWE, he clarifies the issues surrounding the new national automative policy of the federal government. He also talks about the automative test laboratories project of the council, among others.

Nigeria made a failed attempt at vehicle manufacturing in the past; what do you think has changed now?

In the past when government entered into agreement with the assembling plants, it was a partnership agreement. The first one started in 1972 and was about establishing Peugeot and Volkswagen plants in the country.

In 1975, government signed another agreement to set up the commercial vehicles assembling plants. So it was just an agreement. If those obligations were implemented, we would have had a vibrant automobile industry. But both the government and the partners did not implement the agreement - there was no concerted effort. Unfortunately, this led to the collapse of the industry in the 80s when we had economic problems.

Before 1985 when there were no 'tokunbo' cars, Nigerians were buying new cars. After the economic problem we had in the 1980s, most Nigerians, except government, could not afford new vehicles. That was why the government introduced a new automotive policy in 1993 and set up the National Automotive Council (NAC) to implement it, but the policy was never backed by any circular. So a lot of the provisions of the policy were not implemented. Now we are in a position where we can support the market. With the economy growing, the demand for vehicles is going to increase. In the 1990s when the policy came out, Nigeria did not have enough market to support the industry, but now the country has the demand to support the automobile industry. In the last 15 years, the market has been growing. If you go to any town in Nigeria, you will see that the streets are choked with vehicles, whereas 15 years ago the roads were free.

What are we expecting under the new automotive policy?

The new automotive policy is different from the old policy in that it has all the elements to develop the market - skills, and infrastructure, and to check smuggling as well as to develop local contents. We have specific provisions for all these. It is a deliberate government effort to release a strategic and critical economic sector from the strangulating grip of dumping, and to allow it grow and flourish with all the attendant benefits including massive employment.

Facts about the operation capacity of Nigeria's automotive sector in the past are well documented. The assembly and component manufacturing plants in the 1970s and 1980s peaked at over 120,000 cars, including commercial vehicles and tractors, per annum.

Even today, an entirely green plant, Innoson Motor Manufacturing in Anambra State, is churning out buses and Sport Utility Vehicles (SUVs). In spite of the daunting investment environment, the membership of Nigerian Automotive Manufacturers Association (NAMA) has swelled recently with new bus and automotive body building companies.

All the privatised assembly plants including Volkswagen of Nigeria (now VON Nigeria), NTM, Steyr Nigeria, Leyland, Ibadan (now Leyland Busan) and PAN Nigeria Ltd., are all operational but limping from the effect of the grip.

Their unutilised capacity and expansion spaces present an opportunity to fast-track production in partnership with global automative firms. Nissan has already announced its partnership with VON to assemble vehicles.

The Nigerian automotive policy was launched in 1993 and the National Automotive Council (NAC) established as the institutional frame work to revitalise and develop the automotive industry. At the time, government thought that the absence of a policy framework and an implementing agency at the industry's inception may have been partly responsible for its failure to survive the 1984 structural adjustment programme (SAP).

Over the years, however, the policy impact has been paltry because of lack of political will. Considering the enormous potential for the automotive industry in Nigeria, including a population of over 160 million people, a middle class currently estimated at over 38 million people and growing, and an annual automotive import bill of over $3billion, Nigeria's success as an automotive manufacturing nation is a given.The nation does not even need an export market to succeed as South Africa did although it can do with one. The ECOWAS region is there for the taking, more or less. The new 2013 policy, therefore, essentially overhauls the existing one and gives it teeth by raising the bar against all those who will rather export to Nigeria and offer protection/incentives to potential and existing local investors.

It is designed to employ Nigerians and domesticate the automotive technology with some of the money that would otherwise create employment and support technological advancement abroad.

Additional investment to ramp up local capacity and new investment by global motor companies cannot even begin to be considered if government did not take a policy position as it did. On the whole, the attention of the global automotive investment community is currently focused on Nigeria because of this bold positioning. The Minister of Industry, Trade and Investment, Dr. Olusegun Aganga, should be roundly applauded for this remarkable achievement.

Assembling operations alone can constitute as much as 25 per cent of the automotive vehicle value. Components parts manufacturers around the world tend to also locate near assembly plants. This drives local content programmes and eventually truly indigenous automobiles. PAN had over 50 local components and parts suppliers up till early 1990s when it achieved over 40 per cent local content in the popular Peugeot 504. Most of the companies collapsed as assembly plants' capacity utilisation shrank in the late 1980s.Motor plants have preference for local suppliers once standards are adhered to. If for nothing else, the additional cost of transport and time is saved. The bottom line is profit especially for private firms.

In the design of this policy plan, however, the potential impact on vehicle access by Nigerians during the transition period of implementation was of major concern. Provision was therefore made for all members of NAMA, numbering about 12 today with a combined annual installed capacity of 108,000 in cars and trucks and buses, to import all their Completely Knocked Downs (CKDs) at zero per cent duty and Fully Built Units (FBUs) at concessionary import duty in numbers up to 200 per cent of their CKD import for the first two years to alleviate price rises and ramp up production to meet demand. CKDs are fully disassembled items that are required to be assembled by the end user or the reseller. Goods are shipped in CKD form to reduce freight charged on the basis of the space occupied by the volume of the item.

During this period, other manufacturers (like Nissan) are expected to set up operations. It is expected that a larger majority of Nigerians will look towards this source to meet their vehicular needs as FBU traders cash in on the tariff hike to increase prices.Vehicles from NAMA members will be offered at today's prices and even less as the CKDs products are rolled out.

I am happy that the federal government has directed all ministries, departments, agencies (MDAs), its local and multinational contractors in all sectors of the economy, including banks with which it has relationship to source their automotive needs from local assembly plants. Developing economies with thriving automotive industry like Brazil, China, India, Malaysia, Thailand and South Africa took similar steps.

Lessons from automotive manufacturing operations in the past suggest that the proliferation of brands did not allow for mass production of any particular brand to engender low cost?

That is correct, but under this new policy, the strategy of model rationalisation and parts standardisation will be vigorously pursued. $10,000 or less unit price for a modest sedan is anticipated from this strategic positioning. The policy framework therefore provide for the adoption of a low -cost brand by all companies.

The plan also provides for a credit purchase scheme to enable Nigerians buy new cars and commercial vehicles including agricultural tractors. Most commercial banks already have various products offering in this regard.NAC will work closely with the private sector including the auto companies. Rickety vehicles may be traded in for new ones under the scheme.

Do you we really have the raw materials to prosecute the made-in-Nigeria vehicle project being vigorously pursued under the new policy? The argument that Nigeria does not have enough raw materials may be true but it shouldn't be a hindrance. Its robust petrochemical industry represents an opportunity to make automotive plastics and composite materials which has increasingly gained application in motor manufacturing. Japan is one of the largest in terms of vehicle manufacturing, but it has no single raw material. They import everything they use in manufacturing their cars down to the wood. They have forests, but they don't like cutting their trees, they don't even have a drop of oil. It is good to have the raw materials, but they may not matter if you have the policy, good manpower and others.

In our own case as a nation, we are blessed: we have the raw materials; we have plastics; we have the crude oil; there is aluminum. We also have iron ore, though it is not developed but maybe if there is a big demand, it will encourage the private sector to come in and invest because the automotive industry is a big user of iron and steel. At the moment, four cold roll flat steel sheet production plants with huge capacity have been established in the country, so the industry is set in terms of raw materials. In any case, the needed raw materials can be developed or imported if not available locally.

Factoring in the current volume of vehicle importation into the country which at the moment is over N500 billion annually, are you telling us that Nigeria can still work with its projected target of 2017 for producing her first automobile as earlier announced by the federal government?

No, that is not what I am saying. My argument is that no country can tell you that they have all the raw materials needed to produce a vehicle. That is why I cited Japan as a good example. German and American automobile manufacturers all import their raw materials - you can never have it 100 per cent; you just import the ones that are not available to you locally. So you see a lot of factors go into the mix.

Again, I want to say that the proposed launching of Made-in-Nigeria vehicles in 2017 is not realistic. That is about less than four years from now. Don't forget that until now, the nation's current policy structure encourages importation and discourages production and NAC is trying to reverse this to what is obtainable in India and other places where it is easier to set up manufacturing plant than importing vehicles. Nigerians spend an average of N550 billion on importing passenger cars and by the time you add trucks and other vehicles, the amount Nigerians spend on imported vehicles will be running to N600 billion annually. The market is there.

Countries all over the world always give their companies a lot of protection. Nigeria's import duty is 10 per cent for commercial vehicles and 20 per cent for cars. Right now, Complete Knock Downs (CKDs) are being imported at five per cent. When the duty was introduced in 2005, many companies closed down. Until we change this tariff structure, forget about any made-in-Nigeria vehicle because nobody will invest in the sector. But with this new policy, we are on a positive trajectory. For the first time, we are witnessing a revolution in the automotive sector as never before. We are on the right path and we will get there, it may not be 2017, but made-in-Nigeria car is a project that will be accomplished soon.

Nigeria has already mastered the technology or techniques for automobile assembly and even the production of significant items on the content list. Over 80 per cent of the automotive component manufacturers that set up manufacturing facilities in the 70s and 80s still exist although most have retooled for the production of other items. For instance, ISO Glass Limited, Ibadan produced all automotive Glass for PAN and others but now produces architecture glass, NOCACO in Kaduna made the complete wire harness for Peugeot vehicles. They are waiting for increased assembly plants capacity to clean up their production lines and retool.

The Ministry of Science and Technology through its agencies, including NASENI, has recorded extensive successes in automotive component and parts manufacturing. Nigeria has several schools of technology and engineering institutes active in automotive-related work and NAC has intervened in some universities to encourage pursuit of automotive engineering study. The Industrial Training Fund (ITF) capacity has been reinforced by the recent amendment of its act. It is expected that it can now step up support for extensive skills acquisition in the sector through training centres it plans to establish under the planned framework.

Your proposed mechanic villages across the country would enhance artisanship, capacity building and sustainable development. What is status of the project at the moment?

Yes, I quite agree with you that the project will make Nigeria a choice destination for investors. NAC has commissioned and received an Outline Business Case (OBC) study report by a Netherlands Consulting firm, Rebel Group, for the development of Modern Mechanic Villages in 14 states in Nigeria. All the state governments have provided proper titles for the project sites. That is not all; the Council has extended over N1 billion soft loans to Osun State Government to equip its School of Technology with modern automotive training equipment sourced from Germany.

It is expected that the villages and school will be part of the overall planned breeding ground for automotive technology and technicians. The plan also provides for the establishment of automotive supplier parks around existing clusters identified in the Nnewi axis (Anambra, Enugu), the Lagos axis (Lagos, Ogun, Oyo) and Kano /Kaduna axis. This is a clear demonstration that Nigeria is properly positioned to take advantage of the demand for components and parts by motor plants. NAC has received and continue to receive inquiries from a long list of global parts suppliers.

Don't you think the country needs automotive test laboratories to ensure that all imported vehicles are tested wholly and certified for Nigerian roads. Is NAC thinking along this direction? Of course, it is all in the plan by the Council. At the moment we have received approval from the federal government to establish test centres.The aim is to develop local automotive content in the country. The centres will not only ensure good operation and maintenance of Nigerian vehicles, but will also help to obtain capacity to conduct homologation or approval tests in vehicles.

The laboratories that will be established in the six geo-political zones of the country include component testing laboratory, automotive material laboratory, emission testing laboratory, vehicles evaluation laboratory. Others are fatigue/structural evaluation laboratory, automotive electronics laboratory and noise/vibration laboratory.

The emission testing laboratory will be located in Lagos, Component Testing Laboratory is sited in Enugu, and Vehicle Evaluation and Materials Laboratory is at IDC Gbamaru, in Zaria.

The feasibility and consultancy aspects of the project had been concluded and will be done in two phases. We have equally obtained appropriate approval from government agencies for the takeoff.

The construction work for the first phase of the project started in January this year. Let me also inform you that the procurement process for the equipment for the laboratories will soon start.

To man these centres, NAC has trained some highly skilled mechanics on mechatronics programmes. Mechatronics is a combined training in mechanics, hydraulics, electrics/electronics, and computer applications in modern vehicles' operations. The ever-increasing requirements with respect to fuel consumption, emissions, as well as safety had given rise to the ever-increasing functionalities of these modern vehicles.

Since you set up the Automotive Development Fund, how many companies have accessed it?

We have given loans to about 31 companies worth N10billion. Those who applied are over 60. We are still processing about 10 right now. Perhaps I should also let you know that some companies did not meet our criteria because for that kind of loan, you must have adequate collateral to cover it. There are also some companies who applied but lost interest along the way. We do not give money directly; the money goes to your supplier who will send the equipment to you. So when some people realise that is what we are doing, they withdrew.

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