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A great benefit to Kingstar minibus export:Nigeria’s will cut import duties on automobiles from 35 percent to 5 percent

Minibus export status is critical during this special hard time. Recently, Nigerians reported the news that will benefit minibus export in the future. In fact, it is news came out, but the specific law didn’t come out yet.

According to the Nigerian newspaper《The Attacker》, it was reported on 15th Jan that Nigeria’s new financial law will cut import duties on cars from 30 percent to 5 percent, trucks from 35 percent to 10 percent, and tractors from 35 percent to 5 percent.

The plight of the Nigerian automobile industry can be seen from the drop of automobile import duty(including minibus series products):
A new provision in Nigeria’s Finance Act 2021 has turned the dispute between car investors and used car dealers to be white-hot, as it will reduce import duties on foreign vehicles from 35% to 5%, which will greatly limit the development of local car manufacturing.

At the Nigerian Economic Summit, representatives of the local car industry expressed concern about the impact of the policy on billions of dollars of car investment: “We have invested all our money. What are we going to suffer as the policy strikes? Will the federal government provide incentives for the money already spent?”

In response, Nigerian Vice President Yemi Osinbajo explained: “The decision to cut the import duty on cars is to reduce the cost of cars and, by doing so, transport costs in Nigeria.” He pointed out that the earlier removal of fuel subsidies had increased the cost of transport across the country, and that the reduction in import tariffs would bring costs down again. Since Nigeria needs 720,000 cars a year, local production is now 14,000, barely enough to meet the demand and it has to rely on imported cars, so lowering the import tariff is a boon to the people.

Future is Promising?

Transportation is the lifeblood of global commerce. While pandemics have caused travel restrictions that have led to the scarcity of goods. Such as food, tools, and industrial raw materials. With 80% of the country relying on road transport and a relatively weak public transport system, according to travel platform Expat.com. Nigerians seem to rely on private transport (taxis, buses, tricycles, and motorcycles) every day. As of 2018, the Nigerian Bureau of Statistics (NBS) recorded about 11.8 million registered vehicles in the country. The population of 198 million at that time and a vehicle-to-population ratio of just 0.06.Of this figure. By contrast, private vehicles accounted for 39 percent (4.6 million). Moreover, commercial vehicles 56 percent (6.7 million), government vehicles 1.1 percent (135,216), and diplomats 0.4 percent (5834).

At the time, Nigeria’s adult population of more than 99 million seemed to provide a vast market for automobile makers. However, history has worked against them.

Nigeria has relied on imported cars to meet the huge annual demand for cars

Until now, Nigeria has relied on imported cars to meet the huge annual demand for cars and fill the gap that has not been filled by its booming auto industry. In response, the government has in the past been proposing different policies in the name of improving the investment climate for local car manufacturing.

During the oil boom in the 1970s, Nigeria established strategic partnerships with international automobile companies to build manufacturing plants. Such as Nissan, Peugeot, and Volkswagen, as well as with local companies such as Aramco. However, irregular policies and an increasingly tough economic environment are forcing some of these companies to close their local car operations.

The Nigerian Automotive Industry Development Plan (NAIDP), a new development strategy. In 2013 under Goodluck Jonathan encourage the development of the local auto manufacturing industry.

Among other provisions, the Plan includes:

1. Increase tariffs by raising the total import duty on vehicles to 70%.
2. Establish a vehicle test center to ensure locally assembled vehicles meet international standards.
3. Offered degrees in automotive engineering at three universities in Nigeria and mechanical training courses in different cities.
4. Establish a car financing system for Nigerians.
5. Digital solutions for detecting smuggling.
6. Issue vehicle assembly/production licenses to 35 companies.

Encouragingly, after quite a long time of development, (NADDC) in January 2020 report that Nigeria within 12 months successfully attracted $1 billion of investment. In spite of this, car imports continue to increase. Nigeria in 2019 imported 1.3 million cars. In 2017, 734000units which increased by 56%. It is hard to obtain the exact number of car imports in Nigeria. Nigeria’s director of General Administration of Customs said smuggling vehicles accounted for 90% of total car imports in Nigeria. Nigerians spent 1.08 trillion nairas (about $2.7 billion) on imported used cars and motorcycles between October 2018 and September 2019,

where the shoe pinches?

Speaking at the Nigerian Economic Summit, Vice President Osinbajo said the idea behind the previous policy was that if tariffs on imported vehicles increased, local manufacturing would be on track. However, the growth of local production could not keep up with the rapid growth of people’s demand for cars. Cars became more and more expensive, and the government finally decided to reduce import tariffs to reduce transportation costs.

The Nigerian National Automobile Design and Development Council (NADDC) will face difficulties. FG has set up a portal to help tackle smuggling caused by a 35% surtax on imported cars, but it is not yet accessible. NADDC tried to establish an automotive engineering degree in 2018 but hasn’t heard much since. NADDC claims to have provided loans of 12.575 billion nairas ($31.7 million) to 57 companies through the Automotive Development Fund (ADF). But most Nigerians must pay off their debts in full or get bank loans to finance car purchases.

Most of Nigeria’s population could not afford to buy a new car without loads from bank.

According to Deloitte, as of 2016, only 2 percent of Nigeria’s population could afford to buy a new car. However, banks’ interest rates can be as high as 20 percent, with down payments of at least 10 percent. Most finance providers agree that monthly loan payments should not exceed 35 to 40 percent of your monthly income.

However, most banks require short repayment terms, which can be difficult for low – and middle-income families. The initial policy may have begun to attract a lot of investors. By contrast, the decision to slash import tariffs may deter currently if the investors do not see stability. Although multiple licenses have been issued, the number of companies assembling cars in Nigeria is unclear.

As the academic study reveals, only a few players in the industry own car factories. In 2019, NADDC admitted that only nine assemblers are effective. Most of the participants work with well-known international car brands, while only a few are local companies promoting Nigerian brands.

The problems that beyond tariffs.

Carmakers in Nigeria must contend with a number of challenges, in addition to import tariffs that discourage imports. One of the biggest problems is the country’s chronic power shortage. Because producers using only about 90% of their electricity needs at a given time. “For example, I have an order for 50 cars. It would take me six days to assemble 10 cars.” says one auto assembly investor. “Even if I use diesel generators the whole time, it just adds cost to the production process.”

Some of the additional costs are hard to accept. For instance, it costs 1.3m naira to move a 40-foot container with assembled parts from Apapa port in Lagos to Ikeja. Because of port inefficiencies, buyers sometimes pay 500,000 nairas or up to 1m nairas in demurrages.

This news benefits minibus?

In general, Nigeria’s policy on automobile imports has vacillated between tax increases and tax cuts. In this case, automobile investors have been squeezed and incentivized. But there is no doubt that Nigerians are keen on automobiles(also including minibus). The overall decrease of the automobile import tariff is a great benefit to Kingstar minibus export. Since this, the export cost is expected to be significantly reduced. It provides a good opportunity for the development of Kingstar minibus export.




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