INTERVIEW: Why Nigeria’s new vehicle tariff won’t affect auto industry – Finance Minister

In this interview with Channels TV, Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, speaks on the reviewed Customs and Excise Tariff in the recently passed Finance Bill 2020.

She says the import duty reduction from 35 per cent to 10per cent, and zero per cent levies on tractors, transport vehicles and others, 50 per cent reduction of the minimum tax, is to ultimately reduce the rate of food inflation and not to hurt the local automotive industry.

The interview was transcribed by PREMIUM TIMES’ Ayodeji Adegboyega.

Read excerpts of the interview below.

Channels TV: Yesterday we heard the member of the House of Representatives who raised concerns about some provisions of the Finance Act, which he said lowers the tariffs for imported vehicles. He said that is going to adversely affect the automobile manufacturing concerns in this country. So could you shed some light on the reasons behind that decision?

AHMED: The finance bill 2019 and the finance bill 2020 were both designed to enable us to adopt counter-cyclical policy measures to be able to adequately respond to the COVID-19 pandemic by providing financial relief to taxpayers, and some of these provisions in the bills also are designed to reform fiscal incentive policies that have been existing for a long time and also to prioritise job creation and accelerate economic recovery and also to foster greater collaboration between the monetary, fiscal and trade authorities.

So when we were designing the bill, we adopted five thematic areas, one of these areas in addition to counter-cyclical is to provide fiscal for mass transit. This is important because we have inflation running at double-digit and increasing on a month to month basis, and when you decouple the inflation you find that one of the major components of inflation is food inflation, one of the major drivers of food inflation is transportation cost, so we were looking for how to reduce the cost of transportation for the benefit of Nigerians, this reduction in duties and tariff will have an impact in reducing the cost of transportation. It Will have the impact of enabling Nigerian’s to bring in more trucks for agricultural production, more mass transit vehicles, and also more trucks that move goods across the country, this will reduce the cost of transportation and will also reduce the cost of food and provide relief to the greater proportion of Nigerian.

Of course, we realise it was going to have an impact on the auto industry because of the penalties that we have imposed and the high duties to encourage investment in the sector. Our design of this policy is not to hurt the industry if it had that consequence, the government has already started discussing with the industry, we have had one meeting chaired by His Excellency, the vice president, in which the auto industry was engaged and we are to continue engaging to say what do we do to provide relief. We are not one of those countries that have so much in terms of fiscal space that will provide cash or monies to Nigerians. So we find fiscal ways in which to reach Nigerians to help people conserve their resources so that they can use that resource for consumption purposes which has the impact of driving economic growth within the system.

Channels TV: We will say, Madam, we are solving one problem and creating another? Or fostering another? Because part of the national automotive plan was to recruit Nigerians in their millions looking at the direct employment and indirect employment that the automotive plan detailed out over the past few years. So it’s not just the automotive industry, we are talking about the investors now, but the opportunity to create jobs in that sector which could empower so many other people to have money in their pocket. So has that been factored into this policy? How is that being addressed?

AHMED: Yes, it has. We said we realise it was going to hurt the industry and that it will affect some of the intended outcomes of the automotive policy. This is a policy that has been reigning for seven years today, we have 14 automotive plants in the country, their combined production is under 50,000 the needs in Nigeria is about 750,000 vehicles. We have a global crisis, the economic showdown, and the covid 19 pandemic is a crisis that we have not seen anywhere else in this country or even globally, so we have to take measures that are difficult or tough but necessary to be able to have the desired relief to the greater population.

When you take a policy as a government, it is always you are providing the benefit on one hand and then you are hurting maybe another aspect, then you now look at that other segment that you are hurting and say how do we address it? So the government has started discussing and we are saying ok we can uptake your vehicles, the federal government had a commitment to but buy made in Nigeria, so the federal government this year must stand with that commitment and buy all the vehicles that these assembly plants in Nigeria produce and we will engage the state and encourage them and the local government and encourage them to do the same. This is a time-bound relief; it is not a perpetual provision that has been made.

We make provisions during times of crisis to provide relief to people and some of these provisions in the finance act are correcting some wrongs that have been there before of difficulties from businesses but some are to provide immediate relief in the best way that we can under the circumstances that we find ourselves in Nigeria today.

Channels TV: Madam, is it that today that the automotive industry is not employing people or doing as well as it ought to do? Is the automotive plan not working as expected by government?

AHMED: The plan has not produced the result that was desired, and maybe it had to do with the design of the plan itself so, you see these policies makes a provision that allows you to bring in an SKD and CKD at a reduced import rate and that when you assemble one vehicle, you can import two. The policy didn’t define which type of vehicle you import when you assemble that vehicle so it had the effect of not helping the industry grow at the rate at which it is growing.

We were hoping that by now we will have all kinds of value chain addition company building glasses for the cars, building components, nuts, and bolts, we don’t have them, we don’t have them, what is being done is assembly, assembly in some cases very simple and basic level, yes there is staff that is employed but they could have been more. And then the industry would have grown more now and that is not to say that this policy is going to be jettisoned.

This policy had been reviewed by the federal ministry of trade and investment and all of the trade operatives, I understand that the review has been completed, there will be a report that will be submitted because bee has to review this policy so that we get the impact that we need to get from that policy.

But, the decision that we took in terms of these import duties we realized was going to affect the industry and we are engaging the industry to discuss and agree with them on the type of relief that they have. The type of relief that we provided is for Nigerian taxpayers, the large population, that is what this is intended to achieve.

Channels TV: I mean, yes it’s good to improve the transport sector, been all want to see that but how did the government arrive at that conclusion that laying this tariff or bringing in buses would affect and ensure that the transport fares go lower, because, I mean we don’t have a structured transport sector in the country.

AHMED: Our transport sector is largely driven by the private sector, the cost of acquisition of trucks for agriculture production and trucks for the movement of goods is done by the private sector, so if you lower that cost it will have the intended consequences of having more of these trucks coming into the country, that is one. The cost of the larger availability of trucks will reduce the cost of transport, it is very expensive to move goods within Nigeria, it is very expensive to move goods from farms to market and also it is costing people a lot to pay for made transit to move from one place to the other.

Apart from the issue of the cost of transport, Nigerian ports also, people say have become unattractive, one of the reasons that are learned is because of the very high duties, there is a lot of smuggling of vehicles into the country and trade, traffic trade of imported vehicle has moved away from the Nigerian port.

We also have a loss of revenue, also this very high incidence of smuggling that is costing lives of law enforcement officers, this smuggling is not limited to vehicles alone it is also small arms, drugs, some foods that are banned from import but the imported vehicles through our the country and the smuggling of vehicles is very hard, it denies is of revenue. This decision that has been taken means that the levies and the duties are now low for businesses that are bringing in vehicles to bring them through Nigerian ports a that the revenue accrued to the federation.

There is also this very important aspect of the scarcity of agricultural tractors, we have a scarcity of agricultural tractors and for us to be able to progress to meet our aspirations of sustainable food security, we must mechanize agriculture. Mechanization of agriculture can only be done if you are able to bring in trucks, so it means now you can bring in agriculture trucks into Nigeria at a very low cost and we feel that that will encourage more people to bring in tractors, not only for farming but also for leasing to farmers that are not able to themselves buy tractors for their farms

Channels TV: Well, you have said this a temporary relief of some sort for tax-paying Nigerian but it will seem like it is a blanket life of the import duty on almost all classes of the vehicle so that even though tractors are clearly spelled out in that policy, they are in a separate class by themselves, all other vehicles are from the ones meant to move food proto private vehicles, all of them have their import duties reduced to a large extent.

First and foremost I would like to ask why that blanket removal if ideally what we are targeting is food inflation and then secondly, do we have a mechanism for monitoring because this is not the first time that we are talking about food inflation, I do recall when Mrs Adeosun was minister of finance, there was a conversation around the high cost of moving food from north to south and it seemed like resolutions were not. Quite clear at that time, the resolutions that we have come up with now, do we have a mechanism for monitoring to ensure that the policy will actually have an effect on the cost of food?

AHMED: Yes, we do have a mechanism for monitoring, but let me first of all answer the first part of your question which is why the blanket adjustment, for cars, the Import duties is still 35 percent, what has been reduced is the levy from 35percent to 5percent, so there is still an Import duty and levy of 40percent on cars, and this is still the highest within the region. For tractors, mass transit vehicles, the change was from 35 percent to 5 percent and 10 percent respectively, and for trucks for movement of goods from 35 percent to 10. Percent as well so it’s not a blanket removal, and then we remove the levies as well but the import duties are still there for all of the classes of the vehicles except that they are there at a reduced rate.

On monitoring, we do have a national bureau of statistics that report on a monthly basis index relating to consumption and this report entails extensive surveys, gathering of data, and reporting on the movement of each of the key components that make up our consumer perception index which is a major tool for measurement of inflation so on monthly basis, this is measured, so we will be able to tell by this monthly assessment how the cost of transportation is moving and any policy that is made, that is reviewed means there is always an opportunity to amend and to improve. Our main target is to provide relief to Nigerian through this mass transit and fiscal relief policy, that is our main focus, it is not to hurt the industry, again we will be engaging the industry, to discuss with the industry and find out, we have our own view, right? We will find out what they will want in this period where we have these adjustments that have been made to enable them to continue to maintain and grow their businesses to maintain staff and employ even more people and to really grow.

Again, we have reviewed the policy, unfortunately, I have not seen the result of the review, it’s seven years old, it’s been reviewed, the review process has been going on for quite some time, I understand that trade authorities have finalized it and they will circulate it and we will seat with the industry on the outcome of that review. And that review also involves the industry, and we just want to get the best out of auto-policy in Nigeria with the benefit of businesses but also for the benefit of Nigerians.

Channels TV: Considering where our greatest needles are right now which is about vehicles, mass transit, do you think that we could have encouraged our local auto industry to focus heavily on that and try to boost capacity in that respect? Rather than say we know you are producing vehicles, the government will take off most of the vehicles that you are producing instead.

Because some people will say that this policy, I don’t want to use the word somersault, but they will say that this policy adjustment could affect the trust which is oftentimes lacking. When the government comes up with a policy, the trust and the confidence, and the investors need to put their money where the mouth of government is in the long run, what are your thoughts on that?

AHMED: Our thinking is that they have to engage the industry to see how the automotive policy can be improved going forward. It is a policy that has been for seven years and it has actually been due for review at year five, and it wasn’t done. This review has just been concluded. Again let us not forget that the greater benefits we seek to achieve are for Nigerians when we have a patient that maybe has had an accident and comes to an emergency ward, what you want to do is to keep the patient alive, they are bleeding you keep them alive, you resuscitate them before you start worrying about whether they have hypertension or diabetes, so we are trying to make sure that inflation does not continue to run away, that food prices do not continue to surge, that Nigerians will be able to afford food and that they will have as a result from savings from transportation more disposable income in their hands to be able to spend and consume in all consumption aspect of the economy.

So this is targeted as providing tax relief to Nigerians and it’s all up to us in the industry and government to look at how we can refine the auto policy so that we can get the desired result. We didn’t design this policy to be able to reach 50,000 cars per annum at year 7, that’s not the intention, now the demand is 750,000 per annum, so it means we need to do more to support the industry so that more of these vehicles are assembled and we are hoping, manufactured in Nigeria eventually.

We are working with the industry to make sure that they have partners that will come in and actually partner with them to manufacture vehicles in Nigeria. Beyond the simplistic assembling of vehicles that are going on right now.

Channels TV: Madam, as we wind down on this one if I could just bring this up, but it has to do with a report that made the rounds about the sale of government assets to finance the budget. The chairman Senate committee on privatization, in reacting to those reports even as announced by the BPE, selling of Geregu, Omotosho and the rest of them, he was saying that the Senate was not aware, no member of the Senate was aware of this plan and that they needed a lot more clarification, so is that plan still on?

AHMED: Yes, so the privatization process is an ongoing process, every year in our annual budget, we have the provision for privatization proceeds, that is proceeds from the sale of government assets. Yes, there are some power assets that have been scheduled for sale for years, 2020, Afam IV was finally sold, it is a process, it is a long one and one of the things we provisioned in the finance act is to actually refine some of these privatization procurement processes to make them better so that they are more effective.

There are some government assets that are dead, that can be sold to private sectors to be reactivated and put to use for the benefit of Nigerians. I am a member national council of privatization, we are looking at different categories of government assets that the government has not been able to manage, that is lying down in some cases even completely run down, to sell them off to the private sector so the intention is not just funding the budget, it is to reactivate these assets and have them bring contribution to the growth in the economy.

I am not sure why, the chairman of the Senate committee on privatization has not been detailed or briefed on the privatization plan but in the last week of December, we had a meeting of the National Council for Privatization where we approved the annual work plan, the 2021 work plan for the Bureau of Public Enterprise, the BPE, I guess it will be in this first quarter that the BPE will now be engaging the senate committee and other committees on the report to say this is our work plan for the year.