The Federal Executive Council (FEC) has just approved the 2020 Finance Bill with some economic measures that are expected to impact on the economy in more ways than one. The stand out policy statement in the bill that is already generating heated controversy is the proposed slash of import duties on tractors, trucks and other transport vehicles.
The intention in approving this tariff regime, according to government sources, is to cushion the current harsh socio-economic conditions. Much as we agree that the times are hard, this tariff regime is not a viable way out. The government describes it as tax incentives that will bring about import duty reductions from current levels of 35 per cent to 10 per cent and further to about zero per cent. We see it as a disincentive to investment that is totally ill-advised.
On the face value, this policy, as claimed, can be assumed to be directed at alleviating the negative impacts of some recently adopted measures like the hike in electricity tariff, fuel price increase and of course, the effect of coronavirus (COVID-19) pandemic. If there is, indeed, an embedded benefit, it will only be short term just like other import-substitution policies that killed auto companies like Volkswagen, Mercedes Benz, Peugeot and other vehicle assembly plants that were thriving in the 1970s and up to the 1990s.
Before embarking on that journey of import substitution again, it is important to remind the authorities that the exit or downsizing of the operations of these once flourishing assembly plants contributed a lot to the present unemployment in the country as many jobs were lost when they could not compete with heavily subsidised imports as well as the flooding of Nigerian markets with junks from Europe and elsewhere. Even worse, the country lost an opportunity to acquire technology.
Bearing this in mind, we are of the opinion that the plan to slash import duties on tractors, buses and trucks as contained in the 2020 Finance Bill, if eventually implemented, will be exceedingly counterproductive. For one thing, it will push back, irretrievably, the positive intentions of the local content policy which is designed to put the country and her citizens on the path of developing what is variously described as Nigerian technology. The local content policy insists that Nigerian ingenuity must be given room to assert itself. This newspaper has good reasons to be circumspect about the feasibility of this policy in the long run. If the nation goes ahead to make the importation of these classes of vehicles any comer’s game, then the economy will be in for it.
In our considered opinion, this aspect of the Finance Bill, if allowed to blossom, it will be difficult to predict with any measure of certainty how far it can go in dampening the economy. It will be seen as one policy somersault too many. One foreigner who bought into an earlier call by the government to take advantage of the perceived good investment climate in the country but who had to leave because of the incessant policy shifts, described Nigeria as a dream killer. This new tariff approval will certainly confirm that assertion. Importing built up trucks and other vehicles for whatever reason is a mistake whose impact will reverberate across the country for a long time to come.
Government will, inadvertently we hope, be jeopardising its own policy on local content, stifle local efforts to develop technologically while at the same time discouraging the long sought after transfer of technology. It will surely make genuine foreign investors interested in the automotive industry have a rethink. What most countries elsewhere do is increase the tariff on imported, fully built up vehicles as a way of encouraging local manufacturers who will receive reduced tariff on completely knocked down (CKD) parts used in local assembly plants.
It is lamentable, in our view, that Nigeria is yet to get over the inclination towards short term benefits that leads no one to anywhere. We are compelled to suggest that what the government ought to be thinking about is how to revamp the moribund steel industry, make it viable again so as to be able to provide materials that will, in a meaningful way, support local content development as well as in-puts to the vehicle manufacturing plants.
However, we appreciate the anxiety on the part of government that influenced this policy thrust. But it is not what the nation needs at this point in time. What the country requires is heavy investment in the real sector that will give the economy a measured boost, create sustainable jobs and enhance the Gross Domestic Product (GDP).
This newspaper insists that this tax incentive is counter-productive to these laudable goals that any government should be pursuing especially at this time that the army of unemployed youths is beginning to constitute themselves into avoidable disruptive forces.