Categories: Features

Trust fund: Three years after approval, FG fails to release N5bn for vehicle financing scheme

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3 years ago

THREE years after approving N5 billion for Vehicle Financing Trust Fund, the Federal Government has failed to release the fund, investigation has revealed.

The fund is critical to the takeoff of the vehicle financing scheme that should enable Nigerians purchase new vehicles with ease.

The scheme is part of the five-point comprehensive programme of the National Automotive Industry Development Plan (NAIDP) to promote local production of vehicles and their parts.

In 2019, the Director-General of the National Automotive Design and Development Council (NADDC), Jelani Aliyu, explained that the Federal Government approved the sum of N5 billion to be injected into the trust fund in a bid to provide money for soft loans at six to eight percent interest rate and a spread of many years payment plan for Nigerian citizens as means of building the country’s capacity to purchase new and made-in-Nigeria vehicles.

However, checks by the Nigerian Tribune revealed that years after the approval was given for the fund, the Federal Government is yet to authorise its release.

Jelani, who spoke at the Commerce and Industry Correspondents Association of Nigeria (CICAN) conference in Abuja, revealed that the N5 billion was approved for the takeoff of the financing scheme to boost local production of vehicles in the country.

He said the scheme was to commence service in early 2020 and “will be available only for made-in-Nigeria vehicles. We will also ensure that only those who have stable monthly income access the funds”.

Aliyu noted that giving access to vehicle financing was an important step torwards supporting the capacity of local manufacturers in the country.

With many policies left unimplemented and promises left unfulfilled, Nigerian government continues to lose more than $8 billion per annum to importation of vehicles.

Eight years ago, the Federal Government initiated the Nigerian Automotive Industrial Development Plan (NAIDP) which was applauded in many quarters to be the solution to the dormant automobile sector with huge potential to contribute significantly to the GDP of the country and also provide many direct and indirect jobs.

Though the policy has not yielded the desired results as the automotive production capacity is yet to scale up and close the gap of importation, the NADDC has many times reaffirmed the council‘s commitment to creating programmes that will foster the implementation of the policy.

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Years ago, the director-general of NADDC, Jeleni Aliyu, met with the governor of Katsina State, Aminu Masari, to discuss on areas of cooperation as the council plans to de- velop a mechanic village in Katsina.

At the event, Aliyu said that the automobile sector had the capability to provide thousands of direct and indirect jobs, but lamented that over $8 billion was being spent by Nigerians to bring in automobiles from overseas every year.

The DG stated that the council was building three automotive industrial parks and three automotive testing centres in Zaria, Enugu and Lagos as part of the many programmes of the agency in pushing for an industrialised auto sector in Nigeria.

Apart from new licences issued for the construction of assembly plants, the council announced three years ago that the agency would roll out a financial scheme that would afford Nigerians the opportunity to purchase vehicles with only 10 per cent of the total market price of the vehicle, and a window of many years to pay the remaining balance at an interest rate of six to eight percent.

“In other nations, when you want to buy a vehicle, you go, you put down 10 percent to 15 percent of the total money, you drive off with the vehicle and you pay for it for a number of years at just six percent interest rate, but that is non-existent in Nigeria,” he said.

He faulted the existing financing scheme in the country, stating that, “When you have vehicle financing system with interest rate of about 20 percent, it is high”, adding that the council had concluded plans with three indigenous banks to enable access to vehicle financing at low interest rate.

“In about a month and half, we will roll out the vehicle finance scheme so that Nigerians will be able to put in maybe 10 percent or less and drive off with the vehicle and pay over a couple of years at just six to eight percent interest rate.”

The Automotive Industry Bill was passed by both chambers of the National Assembly late 2018 and it is said that President Muhammadu Buhari declined assent to the bill.

Many are of the view that when the bill is assented to, it will open doors of investment into the sector.

Basically, the automotive industry has three requirements for production, the metal components which include iron and steel, aluminum, copper, lead, zinc, and magnesium, while the electrical electronics components of vehicle manufacturing need plastics, rubber, glass and textile and the non-metal aspect requires paint and chemicals.

Many of the component requirements needed for local production can be sourced in Nigeria.

While government was quick in taking steps forward to end importation, the haphazard implementation of the policy in some areas has now caused hardship to the country.

Few years ago, the country imposed a 70 per cent levy on new vehicles as a way of discouraging importation with the hope that more assembly plants were going to come on stream to close the importation gap.

But as the implementation of the policy lingers and with economic downturn in the country, vehicle dealers are boycotting the ports afraid of high levies and have resorted to smuggling. In 2016, the former director-general of NADDC, Mr Aminu Jalal at the third annual mPAD & Nigeria manufacturing expo in Lagos said the council had set up a programme to curtail smuggling and goods diversion on the imposition of protective tariff and levy.

He noted that “Smuggling of second-hand vehicles and the lack of reliable data make the exact size of Nigeria’s vehicle market and fleet size difficult to quantify. Challenges concerning the licensing and identification of vehicles fur- ther contribute to this difficulty.

“The country’s current vehicle fleet ranges from 1.3 million to 10 million vehicles. Due to insufficient domestic vehicle production, Nigeria is highly dependent on imports to meet local demand.

“For example, in 2017, passenger vehicles constituted the second-largest item after wheat of all of Nigeria’s imports from the United States, according to the US Census Bureau.

“Overall, automotive related imports stood at $6.9 billion (passenger vehicle imports: $2.9 billion) accounting for approximately 11.5 per cent of Nigeria’s total imports in 2014. “While auto imports recorded rapid growth between 2004 and 2014, the current slowdown in the economy and the recent introduction of high import duties on vehicles (70 percent) linked to the new automotive policy has led to approximately a two-third contraction in vehicle imports.”

In 2018, the Comptroller-General of Customs, Hameed Ali, called on the Federal Government to reduce the 70 per cent levy on imported vehicles so as to check the rising cases of vehicles smuggled into the country.

He stated that “vehicles imported into the country attract an import duty of 35 percent and an additional levy of 35 percent, bringing the total duty payable to 70 percent”, which he said was too high and fuelling smuggling.

“The 35 per cent is a baseline which is the duty, but the other 35 per cent levy is what we think should be tin- kered with. We should be able to reduce that to a level that it would be affordable. 70 per cent is on the high side. There is no doubt about that for new vehicles, but we cannot touch the baseline of the tax regime,” the Customs boss noted.

A source in the Stallion Group who pleaded for anonymity told Nigerian Tribune that the problem with the auto- motive industry was high price for new vehicles.

The source blamed the situation on the unavailability of local content, saying: “Even bolts and nuts, we import. It is important that we produce pair parts here in order to beat the price of new cars down. Currently, the rise in dollar is another factor fueling high price of these vehicles.

“New vehicles are really expensive in Nigeria Hyundai 1.2 litres which is one of the lowest cars assembled here is sold for N7.2 million. Honda City, 1 5 litres in a similar category is sold for 9.4 million.

“Nissan Almera, 1.5 litres is selling for N9.2 million while Changan CS 35 1.6 litres is sold for N8.5 million. How many people in Nigeria will afford to buy these cars at this rate?”

The launch of the Automotive Industry Development Plan (NAIDP) in 2014 attracted the interest of leading in- ternational carmakers and has led to the resumption of small-scale vehicle assembly in the country. So far, the Nigerian Automotive Council has licensed 35 companies to produce cars under the NAIDP, yet the number of locally assembled units remains very low.

In 2017, government was hoping that at least 400,000 new vehicles would roll off assembly lines, but far less than this number were built due to huge funding, infrastructure and capacity gaps.

Experts in the industry, according to Aliyu, believe that the sector at full capacity can only produce a total of 10,000 to 50,000 units per year.

According to a PWC report, the new tariff regime coupled with the depreciation of the naira has led to prices doubling between 2014 and 2016 to 2021 resulting in over a 60 per cent decrease in vehicles sales. It is hoped that when the auto industry bill becomes law, it will foster, rapidly, the development of the auto sector, open door for investment, create huge employment opportunities and also contribute significantly to the GDP of the country