Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer – Adam Smith, An Inquiry Into The Nature And Causes Of The Wealth Of Nations, 1776 (Book IV, Chapter 8, Paragraph 49)
The meeting with major automobile importers in the country was very fruitful as it provided the opportunity to iron out lingering issues. It also afforded us the opportunity to understand what their concerns are. They have all endorsed the policy but what they are asking for is a level playing ground for every player in the auto sector and also to have more input in the implementation of the policy.“This is not a problem at all because the next step we usually take with all the policies that we have is to have an industry group to monitor and work with us in the implementation stage. So, we have set up a committee to work with us in the implementation of the policy
A third and very crucial element of the policy is to guaranty consistency through legislation. Accordingly, the government is proposing that key aspects of this plan should be legislated to give comfort to investors that there will be no abrupt policy changes
- It would appear that Aganga made the car importers aware of the date the new policy would kick in. It also appears they had all been in discussion for a while designing the best way to shaft consumers. The implication of this advance notice is that it presented the car importers with a mouth-watering arbitrage opportunity – import cars at 35% duty and sell them to unwitting buyers at 70% duty. No brainer.
- The policy was announced on October 2nd and was to take effect from October 3rd. So any letters of credit opened after the 3rd would attract the new 70% and 30% rates. Any letter of credit opened before October 3rd would thus be subject to the old duty until February 28, 2014. In other words, from March 2014, the gap will be closed and all cars will attract the new rates irrespective of when the LCs were opened
- Now, the car importing cabal, Auto Manufacturers Representative Group in Nigeria (AMRGN) are claiming that the policy announcement caught them by surprise i.e. they had no way of benefiting from it. This is a good thing as it means we have a level playing field. But…
- AMRGN are claiming that Stallion Motors must have known about the policy announcement in advance because, allegedly, it ‘rushed’ to its (five) banks to open LCs to the tune of $382m. In fact, AMRGN claims it did this ‘rushing’ on the 2nd of October as the FEC was meeting in Abuja, after which the policy was announced.
- Normally, according to those in the industry, Stallion Motors opens LCs for around $100m in any given year. So $382m, if true, is definitely unusual and bears all the hallmarks of activity based on inside information.
- The Vaswanis, who are behind Stallion Motors, are of course no saints and they have plenty of form in this area. Indeed, the battle between Elizade’s Chief Ade Ojo and the Vaswanis is almost as old as democracy in Nigeria. The Vaswanis have also been deported twice from Nigeria in the last decade or so.
- The Vaswanis, by their own account, claim that they (car importers) ALL knew about the new policy coming into effect and were thus ‘free’ to take advantage of the arbitrage opportunities. The implication of this is that the Vaswanis are claiming the other guys weren’t able to raise LCs while it did and such they are #bitter not better. It does seem that Stallion Motors, by virtue of being part of Stallion Group, have the largest balance sheet of all the importers. So when it comes to raising LCs, it would have been easier for them to do compared to the other guys.
- AMRGN are now claiming that the government will be cheated out of N134bn of revenue as a result of Stallion Motors move as cars that should have attracted 70% duty will only attract 35% etc. This is probably an exaggeration given that the new duty will kick in in 3 months time anyway regardless of when the LCs were raised. It is very doubtful that Stallion can shift 3 years worth of cars in 3 months at significantly higher prices. But there can be no doubt that Stallion will make a very tidy profit on this.
What can we make of all of this? For one thing, leaking such sensitive information to one person is a very serious offence and crime against the Nigerian people. But then, Stallion are claiming everyone knew about it and were ‘free’ to take advantage of it. Who is being taken advantage of here? It is again the Nigerian people. The tariffs will be paid by ordinary Nigerians who buy cars. So what kind of government makes suya of its citizens just so some importers can make a fast buck? Either way, it is a tragedy.
Going by quotes attributed to Aganga, who is a tool of business interests anyway, I am inclined to believe the Vaswanis version of events, that perhaps they all knew of the policy in advance:
The new policy is an adaptation of the South African Automotive Policy. Since South Africa started manufacturing cars, the industry today contributes 7 per cent to the country’s GDP, it accounts for 12 per cent of exports, and is the second largest employer of labour there.
Also, Chief Ade Ojo was one of the first persons who approached me to adopt the South African model. It was for this reason I studied what my counterpart in South Africa had done to the extent that their minister became our consultant.
As a result, when the policy was eventually approved on October 2, Chief Ojo was in my office on October 4 to intimate me of the plans he has with Toyota to set up an assembly plant.
This is what I expect the policy will do: encourage investment and catapult us to industrialisation, not accusation being hurled by importers who want the status quo to remain.
They are clearly all in it together.
But it is in the interest of consumers for them to fight each other in this way, regardless of whatever the truth may be. This is the only hope for the consumer because the more they are able to ‘cabalize’ (word hereby invented), the greater our doom.
4. A couple of years ago I met Professor Pat Utomi and our discussion shifted to his time at Volkswagen Nigeria. He said that when he saw the direction policy was heading under SAP in the Babangida days, he recommended that Volkswagen Nigeria be converted to making rubber for cars. According to him, Nigeria has/had the highest grade of rubber in the world and he had spoken to the German manufacturers to source all the door and windscreen rubbers from the plant if the plans went ahead.
This is where the infamous quote credited to him that cars should not be manufactured in Nigeria came from. In any event, the backlash to his suggestion was sufficiently great that the plan was dead on arrival. Of course, his fears proved correct – car manufacturing died in the country and we had no rubber making to at least cushion the effects.
Today Nigeria does not even manufacture car paint not to talk of any other components. And these things have only gotten more complex with time. We used to manufacture tyres in the country, not anymore. (Innoson was supposed to start manufacturing tyres in Enugu last year but I am not sure this has happened).
What has happened here is that the government has decided on an expensive policy and has decided that Nigerians are the ones going to pay for it. I don’t know why it cannot put its money where its mouth is and back such a policy with cash if it’s so important and will do all the wonderful things its threatening to achieve.
Anyway, this is what I know of this policy for now. I will update the post below if any new information is made public. Or, horror of horrors, if we actually get to see the policy document.