They have come again:
Aganga disclosed that the national automotive policy will further encourage local manufacture of vehicles, adding that car import takes the biggest share of the country’s foreign reserves followed by machineries.
The minister, speaking on the advantages of the new policy, said the Industrial Training Fund (ITF) is working with car-maker, Cena of Brazil, to open automotive training centres in Nigeria while two Nigerian universities have agreed to commence degree programmes in auto-mechanical engineering, all in a bid to provide adequate local manpower for the industry.
Nigeria, with 38 million middle class, is expected to benefit greatly with the creation of over 700,000 jobs.
“Council also approved that government should direct that all vehicle purchased by government should be from the local assembly plants unless it is specialised nature and National Automotive Council (NAC) have certified that it is not produced in Nigeria”.
“The council approved that the approved recommendation should be backed by appropriate legislation to give comfort to investors that there will be no abrupt change in policy”.
He explained that the policy was drawn over the last nine months and had the input of the National Automotive Council (NAC) and foreign car manufacturing giants like Toyota and Nissan that are expected to soon start announcing their specific investments in the country.
Leave aside for a minute that Aganga is a serial over-promiser and chronic under-deliverer. Nigeria wants to make cars and hopefully reduce/stop importation of cars. Given that this is not the first time we will launch a policy like this, can we somehow pull it off this time?
This is also worth noting:
He informed that government would put in place appropriate tariff regimes to discourage car importation and encourage local manufacturing.
The minister disclosed that the new policy would run as a 10-year plan and would be reviewed every five years, adding that Nigeria and Bangladesh were among the few countries without national automotive policies.
In short, the Nigerian government is going to do that thing it likes to do – ban things so that we will start making them locally.
I think we’ve gone past the point of believing that some document will solve our problems in Nigeria – the country is littered with action plans and failed government policies. What might be novel and useful is checking out what other countries did to get to where they did.
So finally I have an excuse to share a story I have been wanting to for a minute.
The year was 1974 and Chung Ju-yung had used his mouth to make a promise that would have been tough to deliver on. Ordinarily it wont have been the end of the world but in this case, the person he made the promise to was none other than General Park Chung-hee, strongman of South Korea at the time and all round maximum ruler.
A bit of background – one of the things General Park first did when he seized power was to ‘refurbish’ a special prison where he planned to jail entrepreneurs who didn’t toe the line of national development. General Park wasn’t playing – before he came into office he had already written a book/pamphlet on national development outlining his vision and how South Korea could create a ‘miracle on the Han river’. He had made up his mind he was going to use businessmen to achieve his development goals so he worked out the kind of whip he was going to hold over them.
Korean businessmen were made to sign agreements that contained lines like ‘I agree to forfeit my assets to the government if I do not contribute to national development‘.
Back to Mr Chung. The guy was a born hustler. His parents were dirt poor peasant farmers so he was the archetypal self-made millionaire. He also wasn’t afraid of starting something he knew absolutely nothing about – he started Hyundai without being anything remotely like an engineer or construction expert. General Park’s policy at the time was to support local businesses by protecting them from foreign competition with protectionist policies and giving them loans to expand. But there was a catch.
Once you got government support, you had to export. This was the whip hand that Park held and his main reason for seizing assets or even throwing businessmen in jail. It was absolutely compulsory. You had to agree to export a certain number of whatever products you were manufacturing before you could obtain any government support. Bear in mind, at this time South Korea was a rather poor country and nowhere near what we know today. So if you could get government help to grow your business, it was useful indeed.
In 1974, Mr Chung’s Hyundai had barely started making cars but General Park had decided that he wanted the country to start producing ‘citizen cars’ – they had already had pretty successful policies in the ’60s of making various car parts and kits so it was time for the real deal. This was where Mr. Chung made his crazy promise. He told Park that in his first full year of car manufacturing, 1976, he would export 5,000 cars. At this time he hadn’t manufactured a single car.
The local market was never going to be a problem because the government set car prices and it set them very high – given that the domestic market was protected, Koreans didn’t really have a choice but to pay.
Mr Chung had a British manager – George Turnbull – working for him at the time and his promise to Park was so ridiculous that he didn’t tell him (Turnbull) what he had done until manufacturing started the following year. It was a silly promise to make as they were nowhere near ready to export their cars. But they had to make those cars and they had to export them.
When production started, Chung confessed to Turnbull what he had promised Park. Turnbull was incensed. But there was no way out. As soon as the cars started coming off the production line, trouble started. A worker would try to open a door and the handle would come off. After 2 weeks in the sun, the paint would fade completely. Some of the parts were held together by glue. There were brake problems. There were steering problems. There were engine problems.
But Park was never going to go to jail so they started looking for countries they could export the cars to. The government had set a price of $5,000 per car for the local market but Chung and co could set their own price for the foreign market. Given that the cars were rubbish, they decided to export them at a heavy loss for $2,200. But who was going to buy the pangolos? I guess you know where this is going.
One of the countries they sold them to was Nigeria (along with Peru, Saudi Arabia and Ecuador so don’t feel too bad). According to Turnbull ‘In Nigeria, someone pulled off the roof like peeling off a banana’.
It took Japan’s Toyota 32 years to export 10million cars. It took Hyundai 28 years to do the same. This is the definition of industrial learning. Those numbers were not just about a 4 year difference – Korea was much poorer than Japan, to say nothing of Japan being its former colonial overlord. After those early mistakes in 1974, by 1987, the Hyundai Excel was the top imported compact car in America. In fact, by 1977, Chung threw a big party for Turnbull and his other British managers, thanked them for their service and said ‘ we will take it from here’ (he was very wary of joint ventures and all that sort of thing as he felt it slowed down their development)
But there is another very important point. At no point under Park was there only one car manufacturer. There was Kia and there was also Shinjin (some of these companies existed long before Park seized power but their car manufacturing mostly began under him). Each one was held in by export discipline and as such there was never any chance of the government being held to ransom. If a firm was acting the fool, the government simply forced it into bankruptcy and moved on.
Contrast this with Malaysia under Mahathir Mohammed aka Dr. M. Proton Motors was established in 1983 as the sole car manufacturer and the government gave it all kinds of support including protecting the domestic market but never bothering with forcing it to export. Have you seen or heard of their cars? I didn’t think so.
This thing is not easy.
It requires an incredible amount of discipline and a strong hand of the government not just to protect but to discipline. You can immediately see that the Nigerian one is going to be a joke but I will be delighted to be proved wrong. Whereas the Koreans developed a system for eliminating losers – Shinjin was bankrupted by the government – we have perfected the art of picking ‘winners’. These winners are usually losers but the government backs them anyway for as long as possible and they never improve.
You can bet your bottom dollar that we will get the first part of the equation right – we will protect the local market by raising tariffs on imports and outright bans. But for the second part? No chance. You can already see the signs – government is promising to patronise local manufacturers to ‘stimulate’ them, as if this is something that has not tried before. What sort of feedback will that give to the manufacturer? Absolutely none. If you have a guaranteed customer in the government in a protected market, even if you want to improve, you simply cant because you will only get fake feedback (Zinox?). The Koreans were never going to be selling cars at a loss to countries like Nigeria indefinitely. They had to start making a profit or else the government would force them into bankruptcy or a merger. And the only way they could do this was to quickly improve quality such that they were then good enough for Europe and America.
But our government believes that we have a ‘huge’ and ‘lucrative’ market and as such producing for the local market is all you need. But this hardly ever works because as soon as businessmen and government get cosy in the name of ‘policy’, laziness sets in and the costs of their increasing inefficiencies is passed to the Nigerian consumer not to talk of the amount of time they then spend forming cabals to eliminate competition.
I haven’t seen the Automotive Industrial Policy Development Plan that the government just announced (I cant find it anywhere on the internet) but I am ready to bet against it. Aside from the fact the minister promoting it is a joker, we simply lack the discipline to pull off this kind of thing. All that will happen is that Nigerians will end up paying more for imported cars and smuggling via Benin Republic will greatly increase.
But this time, I want to lose my money.