Vehicle Manufacturers Decry Lack Of Access To N250bn Auto Fund After 12 Years

12 years after the federal government introduced the Automotive Development Fund (ADF) to stimulate local vehicle manufacturing and provide affordable auto financing, vehicle manufacturers are still unable to access the fund or establish its current status, LEADERSHIP has learnt.

However, stakeholders have put the potential accrual at not less than N250 billion, a development that has raised concerns among automotive industry players, who are demanding transparency over the fund’s management and the release of resources they believe could help revive local vehicle production, expand manufacturing capacity, and make locally assembled vehicles more affordable.

LEADERSHIP reports that the NADDC-ADF was established under the National Automotive Development and Industry Plan, and was designed to support the automotive sector through two major components: auto finance and an auto credit scheme.

The auto finance component provides financial assistance for automotive projects, enabling companies to upgrade facilities, expand production and improve operations through funding accessed via the Bank of Industry (BOI).

The auto credit scheme, on the other hand, was designed to ease vehicle acquisition by Nigerians, particularly locally manufactured vehicles.

The fund is generated from a levy on imported fully built passenger vehicles, initially set at 35 per cent, then reduced to 20 per cent, and subsequently to 10 per cent.

Although the fund was introduced about 12 years ago, industry players say they remain in the dark about its actual balance, disbursement and accessibility. However, based on their calculations, the fund should have accumulated at least N250 billion.

Speaking about the fund at a Lagos Chamber of Commerce and Industry (LCCI) forum themed “From Subsidy to Credit: Can Vehicle Financing Replace Fuel Subsidy as Nigeria’s Mobility Equaliser?”, the Deputy Managing Director of CFAO Mobility, Otunba Kunle Jaiyesimi, said government funding support was critical to the development of a sustainable automotive industry.

He said the industry’s current difficulties were partly linked to government policies, stressing the need to revisit the long-standing proposal for a national automotive bank.

“I would say the challenge we are having now came from government policies. Someone mentioned having a national automotive bank. We had that promise over 10-12 years ago. I think it’s something that we need to bring on board now,” he said.

Jaiyesimi, a former chairman of the LCCI Automobile and Allied Services Group, said the N20 billion seed capital provided for the Nigerian Consumer Credit Corporation (CREDICORP) was inadequate to address the country’s vehicle-financing needs, particularly because the corporation’s mandate extends beyond automobiles to other consumer products.

“How many vehicles can N20 billion buy? And CREDICORP’s activities are not limited to automobiles. Home appliances and what have you are part of what you can disburse,” he said.

He explained that a single workhorse or pickup vehicle could cost about N50 million, meaning the N20 billion seed capital could finance only about 400 units.

Jaiyesimi therefore urged the Federal Government to make good on its commitment to deploy the proceeds of the automotive levy, arguing that the estimated N250 billion could provide the capital base for a dedicated automotive bank offering single-digit interest rates.

“From my last estimation two years ago, that fund should have accrued to a sum of N180 billion. And even then, despite the reduction from 35 per cent to 20 per cent, and later to 10 per cent, if we are estimating what should be in that fund now, I’m sure it shouldn’t be less than N250 billion.

“So, if we have an automotive bank that has a capital base of about N250 billion, I think that will go a long way. The idea is for this automotive bank to give out loans at single digits, even one per cent,” he said.

He cited the vehicle replacement initiative implemented during the administration of former Lagos State governor, Babatunde Fashola, as an example of how targeted financing support could improve access to vehicles and deliver lasting benefits.

According to him, the state government, in a bid to phase out rickety taxis, underwrote the interest component of vehicle financing for selected brands, allowing operators to acquire vehicles at subsidised costs.

“For a particular brand of vehicle that is maybe N2 million, they give it to the operators at N1.8 million without interest. Most of those vehicles are still on the road 11 years down the line,” he said.

He said a similar initiative, supported by the government, banks, and insurance companies, could provide a sustainable vehicle-financing model that incorporates insurance and long-term maintenance into the total cost of mobility.

Jaiyesimi also questioned why the automotive industry had yet to benefit from the increasing monthly allocations to states and local governments through the Federation Account Allocation Committee (FAAC).

He argued that establishing a national automotive bank and funding it with the proceeds of the levy would provide a sustainable financing mechanism for local manufacturers and vehicle buyers.

Meanwhile, the head of Research and Strategy at Sterling Asset Management and Trustees Limited (SAMTL), Dr Patrick Ejumedia, has urged Nigerians and businesses to explore alternative sources of financing for vehicle purchases and operational equipment rather than relying solely on commercial banks.

Ejumedia, who also spoke at the LCCI forum, said the wide disparity between interest rates in Nigeria and those obtainable in other countries had made conventional bank financing increasingly difficult for businesses and consumers.

According to him, vehicle financing attracts interest rates as low as five per cent in Côte d’Ivoire and about seven per cent in the United States, compared with the 30 to 35 per cent charged by Nigerian banks.

He said persistent inflation, high interest rates and the government’s efforts to stabilise prices and the exchange rate meant borrowing costs were unlikely to decline significantly in the near term.

“What we are looking at this time is credit as an alternative to subsidy removal. We have seen that interest rates and inflation are very high, while the government is trying to bring inflation down significantly and stabilise the exchange rate.

“Given all of that, we do not see interest rates coming down in the near term. So, what can be done? People need to start thinking about alternative sources of funding,” he said.

Ejumedia advised businesses requiring vehicles and machinery for their operations to explore the capital market through stock exchange listings, commercial paper issuances and private placements.

He said such funding options could provide relatively cheaper financing than commercial bank loans, urging businesses not to depend exclusively on government intervention.

“Since you cannot go to the bank, where interest rates are between 30 and 35 per cent, how do you then get cheaper funds? Firms that need machines or vehicles for their production processes should consider listing on the stock exchange, issuing commercial papers or opting for private placements.

“These alternative sources of funding can provide relatively cheaper rates than bank loans. Businesses should not rely solely on the government,” he said.

He noted that the government had competing priorities, including price stability, exchange-rate stability and economic growth, which might limit its ability to reduce interest rates in the short term.

Beyond financing constraints, Ejumedia identified high interest rates, inflation, exchange-rate instability, transportation costs and unreliable electricity supply as major challenges affecting Nigeria’s automotive industry.

He also called for a review of Nigeria’s bilateral investment treaties to ensure that they support domestic vehicle manufacturing, investment and industrial development.

“Otherwise, what we will continue to see is the importation of cars into the country, and that is not good for the economy,” he said.

Ejumedia further urged Nigeria to identify areas of comparative advantage within the automotive value chain rather than focus exclusively on manufacturing entire vehicles locally.

“Even if we cannot produce a car from beginning to end, we should identify areas where we have a comparative advantage, focus on them and begin to produce components that can be integrated into the manufacturing process,” he said.

He also called for a shift in consumer preference towards locally assembled vehicles, noting that the preference for imported cars could undermine efforts to develop domestic automotive manufacturing.

“Even if a car is produced in Nigeria today, many Nigerians may not want to buy it because they are used to foreign cars. Everybody wants to buy imported vehicles,” he said.