Nigeria Faces Supply Crunch as Used Vehicle Imports Plummet

With the sharp decline in used vehicle imports in Nigeria and the corresponding shortage of affordable cars, analysts say that consumers will face rising prices, while local dealers will continue to experience shrinking inventories. The attendant difficulty in the transport business may therefore strain an already challenging economic environment, writes Festus Akanbi

There are indications that the biting economic challenges in Nigeria are already taking a toll on the nation’s auto industry as import bills on used vehicles, popularly known as ‘Tokunbo’, fell by 83 per cent year-on-year to N138.62 billion in the first half of the year, from N819.15 billion in H1’23.

According to the National Bureau of Statistics (NBS) report, in Q1 ’24 no used vehicle was imported compared to N69.23 billion worth of used vehicles that were imported in Q1’23, while the value of imported used vehicles stood at N138.62 billion in Q2’24, representing an 81.5 per cent decline YoY from N749.92 billion in Q2’23.

NBS noted that the used vehicles were imported mainly from the United States of America, stating: “On the other hand, total imports from America in Q2’24 stood at N971.84 billion.

To protect the local auto market and to create jobs for Nigerians, the federal government introduced a new set of taxes on imported vehicles, among other things last year. The new tax regime stipulates that imported vehicles between 2,000 capacity (two litres) and 3,999 capacity (3.9 litres) engine will pay an additional charge known as Import Adjustment Tax (IAT) levy of two per cent of the value of the vehicle, while vehicles with 4,000 capacity (four litres) and above engines will attract IAT of four per cent of their value.

The new levy is in addition to the 35 per cent import duty and 35 per cent levy being paid by importers of vehicles. However, vehicles below 2000cc, mass transit buses, electric vehicles, and locally manufactured vehicles are exempted from the IAT levy.

The government also revised the import prohibition list, including motor vehicles used more than 12 years from the year of manufacture.

With a huge gap in local vehicle production and the economic situation which makes it hard for an average Nigerian to afford a brand new car, many Nigerians are highly dependent on imports of used cars, popularly called ‘Tokunbo’, to meet demand amid reports that 63 per cent of Nigerian households cannot afford to own a car without some kind of support.

In 2013, the federal government established the National Automotive Industry Development Plan (NAIDP) to attract foreign direct investment (FDI), curtailing the dependence on the importation of vehicles, and promoting local production of automobiles.

As Clearing Agents, Car Dealers Count Losses

Some car dealers who spoke with THISDAY last week blamed the fall in vehicle importation partly on forex exchange (FX) scarcity, the increasing devaluation of the naira against the dollar, and the increasing fall in the purchasing power of the people.

Similarly, some clearing agents, while lamenting the attendant lull in business activities said the drop in vehicle importation is already taking a serious toll on port activities, “At the moment, the ports are “dry”, Frederick Atufe, a port operator in Lagos lamented.

He disclosed that the development has pushed up prices of used vehicles to the roof as dealers had to rely on the few units in their possessions for their income. He added that the scenario will lead to job losses as many people relying on used imported vehicles for commercial activities are becoming jobless these days because it is now becoming increasingly difficult to own vehicles needed for their operation.

This, according to him, is in addition to the prohibitive cost of fuel and the hardship that has forced many prospective customers to cut costs by curtailing their movements from place to place. He explained that as the cost of transport continues to go up, many Nigerians have reduced their movement, saying the cost-cut measures are affecting the transportation business.

Sources, however, said the drop in vehicle importation has led to the booming smuggling of vehicles through the nation’s borders. Some car dealers told THSIDAY that although the importation of used vehicles from Nigerian ports has reduced, some people are still smuggling used vehicles through the Nigerian borders.

“We have seen a lot of cars being smuggled through neighbouring countries – mainly from Benin,” the source said. This, according to the source is because Benin maintains low import tariffs compared to Nigeria, which for years has been beset by chronic congestion in its ports.

Palliative Efforts

Analysts said the fall in vehicle import came as a shock considering some palliative measures introduced by the current administration. Last year, the federal government suspended the implementation of the Import Adjustment Tax (IAT) and Green Tax imposed on certain vehicles. The IAT which was approved by former President Muhammadu Buhari took effect on June 1, 2023.

In addition to the suspension of IAT, the Green Tax has equally been suspended. (The federal government introduced a green tax made up of excise duty on single-use plastics (SUPs), including plastic containers, films, and bags, at a rate of 10 per cent).

In another breadth, the federal government recently approved the suspension of the 25 per cent penalty previously imposed in addition to import duty on improperly imported vehicles. A statement quoting the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, said the measure was to ease the stress in the economy. Thousands of vehicles are improperly imported into Nigeria, often from land borders with neighbouring countries such as Benin and Niger. Many such cars do not undergo proper documentation at customs, including payment of levies, leading to the imposition of the 25 per cent penalty when the owners of such vehicles eventually decide to register them. It is that penalty that has now been suspended.

When the fall in vehicle importation reached the 45 per cent mark in the first quarter of the year, the Comptroller General of the Nigeria Customs Service, Adewale Adeniyi, explained that vehicle importation dropped by such a margin due to foreign exchange challenges in the country. 

“It affected car dealers. We had as much as a 45 per cent decrease in the volume of cars that were brought into Nigeria in that period. 

“And they were not the kind of cars that fetched optimum revenue for the customs. Not only cars, but even regular imports were also affected because people could no longer import raw materials as they wanted and the volatility did not allow them to plan for tomorrow,” the CGC stated. Speaking on a programme monitored on ARISE NEWS, the customs boss was optimistic that things had started picking up in the second quarter of the year, saying, some of the policies being put in place by the current administration would change the narrative. The 83 per cent fall in the first half of the year has shown that nothing has changed.

Data from the International Trade Administration of the United States showed that Nigeria’s annual vehicle demand was 720,000 units, while local factories could only produce a fraction of 14,000 units annually, resulting in a substantial shortfall that necessitates imports to meet consumer needs. 

According to the National Bureau of Statistics, in the first nine months of 2023, the country imported used vehicles valued at N926.09billion from the United States and the United Arab Emirates. 

The consensus among transporters, clearing agents, and car dealers is for the government to put in more effort to ease the logjam in the interest of the economy. It may not be a bad idea for the government to effect further cuts in vehicle importation tax especially given the inadequacy of the few vehicle assembly plants in the country to meet demand.