Pat Utomi, political economist, Professor of entrepreneurship and former Chief Operating Officer of the defunct Volkswagen of Nigeria (VWN), has expressed misgivings over the national automotive policy introduced last year by the government.
Utomi, who also was once Economic Adviser to former President Shehu Shagari, said in a write up posted on his blog that the policy is not new and is bound to fail as it did when it was introduced about 40 years ago.
His words: “It was a little surreal to learn of a new automotive policy that had just been proposed for Nigeria. A close mimic of the import substitution industrialisation strategy made famous by Latin American economist, Raul Prebisch, from his time as Executive Secretary of the Economic Commission for Latin America (ECLA) and First Director-General of the United Nations Conference on Trade and Development (UNCTAD).
“The logic is simple. To create jobs through industrialisation the import list is taken up and some items deleted with substitution coming from local production.
“That local production may begin with CKD (completely knocked down) assembly in which on-costs may be quite high and uncompetitive. To make up, high tariffs or import bans are imposed to ‘protect’ local industry.”
Utomi said the trouble of the policy has been with the infant industry burden on local consumers as many infant industries fail to become competitive.
“When Nigeria began industrialising, the Nobel Laureate in economics, Arthur Lewis, was promoting the ISI idea in his work in the Gold Coast (now Ghana). It was natural that ISI strategy affect policy choice in Nigeria.
“When national planning during the Gowon era identified the automotive sector as having great potential to stimulate production in several sectors, an ISI strategy took firm root.
“To get things going, Nigeria signed agreements with several automakers to set up plants to begin with CKD assembly and backward integrate.
“The result was the setting up of plants in Kano by Fiat Iveco, Bauchi for Steyr, Lagos to host Volkswagen, Kaduna, Peugeot and Enugu, Daimler Benz. Ilorin was to host Nissan.
“On account of the agreements, import bans and tariffs went up to allow market demand build up. Nissan sold lots of Datsuns as part of that advantage. About 1977 the Datsun 180k was one of the most widely sold cars in Nigeria. When it came time to implement, Nissan begged off.
“Peugeot, VWN, etc, watched the policy environment; unable to advance the goals of sustainable motor manufacturing.”
Utomi said the Productivity Prices and Incomes Board (the price control agency) at the time stipulated prices which, relative to costs, meant giving away shareholders’ funds until the end could be seen.
The situation, he recalled, produced ridiculous outcomes in sales of used cars.
“As prices for used cars could not be fixed you generated used cars and auctioned them and people bid twice the price of a new car that was hardly available, for a used car. The reason I never remember my car number is we used cars for weeks just to generate used cars.
“When I went to work for VWN I declared the ISI model for automobile manufacture an anachronism.
“The nature of scale economies was such that the number of automakers in the world would shrink to a few, and the entry barriers were such that Nigeria competiveness was of little hope, and more importantly backward integration, otherwise known as local content; had failed very badly.
“The component manufacturers that established in Nigeria, like Fichtel and Sachs, were closing shop, etc.”
Utomi said it would have been better had Nigeria taken advantage of VWN, Peugeot, Daimler Benz, et cetera, to become suppliers into worldwide production of the firms in which its factor endowment gave it competitive advantage to become global leaders in its production.
“My favorite endowment was rubber, of which we had at a time the best yield per hectare in the world. In my view, if we became the leading supplier of one or two rubber components produced most efficiently at the highest quality for supply into global value chains.
“To know this and see the same old game being played in ISI logic with the same Nissan that was a no-show a generation before is to feel deep sadness.