The Managing Director of Grimaldi Agency Nigeria Limited, Mr. Ascanio Russo, whose firm owns the biggest terminal for vehicle importation in West Africa, speaks to ANNA OKON on the impact of the ban on vehicle importation through the land borders on terminal operation
Do you see the ban on importation of vehicles through land borders as a good development for terminal operators?
Yes. We believe it is a positive development and it is going in the right direction because we do not see why vehicles that are not produced in neighbouring countries should not be discharged in the Nigerian ports.
But this has not had any significant impact on the number of vehicles being discharged in Lagos and other Nigerian ports because the closure of the border alone will not be sufficient inducement for importers to use the Nigerian ports. The level of difference in duties in Nigeria is still too high. It is too expensive to import a car or truck into Nigeria.
We believe that the next step should be to review the level of duties payable in Nigeria and also increase the level of transparency in the Customs clearance process.
What do you mean by increase in the level of transparency?
At the moment, unfortunately, the level of duties per vehicle is not published for everybody to know the vehicle price used by Customs to determine the amount of duties to be paid. We know the duty percentage applied but we don’t know the value of the vehicles.
If one knows that he is going to pay 35 per cent or 70 per cent for vehicles, the person should also know the price of the vehicle to determine the actual amount to pay as customs duties. The minister of finance had since 2013 demanded the publication of the prices of vehicles but for some reasons, these prices have never been made public.
Lack of transparency makes the process of vehicle importation in Nigeria cumbersome and expensive. There is a lot of manual intervention in the process.
The process of clearance of the vehicle should be made electronic with as very marginal human interaction as possible. We should try to reduce the level of physical intervention in the valuation process because it brings additional costs; which make the process of importation through Nigerian ports uncompetitive.
The customs duty on clearing vehicles at the ports is the same for clearing at the land border; why do people prefer the land border?
It is a very peculiar situation here in Nigeria and that is why we believe that this policy is a good one. In the past, when you are talking about vehicles that were discharged in Cotonou and then moved into Nigeria, it was usually said that these vehicles were smuggled into Nigeria.
In actual fact, most of the vehicles were not smuggled; rather they were cleared at Customs Command at the border, where for some reasons the level of duties payable was lower than the ones payable at the Nigerian Customs Sea Ports Commands.
This is obviously not right because there is only one Customs in Nigeria and whether you clear your car through Lagos, Port Harcourt or Seme, you should pay the same duty.
The discrepancy in the level of duties payable between Customs Command at the border and in the port is the main reason why many Nigerian importers preferred to ship their vehicles to Cotonou rather than Lagos.
Immediately after the introduction of the new duty regime in the second half of 2014, we estimated that over 70 per cent of all cars coming into the Nigerian market were discharged in Benin Republic before being moved to Nigeria. The revenue losses for the government have been massive, likely well over N250bn per year.
Having acknowledged this huge revenue leakage, the Federal Government is now saying this is not possible anymore. All the cars should come through the port and should pay the appropriate level of duty. The problem though is that since the introduction of the automotive policy, the new level of duties is still far too high for the average importer to pay and therefore the incentive to continue to bring the vehicles through Cotonou is still be very high.
So I suspect that the old vehicles that were coming through the border will now be smuggled and nothing will be paid. Something similar had happened on rice importation.
If the Federal Government does not make the process transparent and review the level of duties downwards, it will still be too expensive for importers to bring the vehicles through the ports. Some of these vehicles will be smuggled into Nigeria because the border between Benin Republic and Nigeria is very long and it is almost impossible to patrol.
At the same time we should also bear in mind that there has been a dramatic slowdown in the level of imports because of the recession and naira devaluation, and now even the importation through Cotonou has drastically reduced.
Why do you say that?
What we have seen in the last few months is that the newest vehicles are going to Cotonou ports because of the difference in duties charged at the border and at the ports. Before the ban, the newer cars were being discharged in Cotonou while the very old cars were discharged in Lagos.
Another trend we have seen since last year is that the quality of second-hand vehicles coming into Nigeria has deteriorated a lot. At the ports, we see a lot of crashed vehicles being discharged. Because the level of duties is too high, the importers are now bringing damaged, salvaged cars.
The trend for trucks is even worse. The number of trucks discharged has collapsed because importers find it difficult to replace their vehicles and that is why the age of the average truck on the road in Nigeria is increasing and it is well over 30 years. You can appreciate the consequences in terms of accidents, congestion on the road, pollution and poor productivity, among others.
The government increased duties for imported vehicles in 2014 when the National Automotive Policy was introduced. The idea behind this was that by increasing the level of duty, this would make local production increase.
In actual fact, almost three years after this policy was introduced, we have not seen the made-in-Nigeria vehicles making any impact in the market for the very simple reason that these vehicles are too expensive and therefore there is no demand. People can’t afford them.
The reality is that as of today, the production of new vehicles in Nigeria is very limited because there is no market and very few people can afford to buy new vehicles.
At the same time, with the current high level of duties, the people cannot even afford to buy decent used vehicles like they were doing before and that is because the duty has been increased and the naira has been devalued. That is why there is a huge contraction in the market, not only in Nigeria but also in Benin Republic.
What do you advice the government to do?
I believe that cars, buses and trucks in this country are not luxury; they are very essential tools for people to work with. The way forward would be to review downwards the level of duties so that Nigerians can commence importation of decent second-hand vehicles.
At the same time, if the Federal Government has the resources, it should support the local automotive industry by providing financing to help the buyer because as it is now, very few people can buy new vehicles in this country.
Eighty-five per cent of car market in Nigeria is second hand. So if the Federal Government wants people to buy new cars, it will have to support them financially with loans that can help people to buy new vehicles.
Have the stakeholders discussed this with the government?
Yes. We have made several presentations to key decision makers. We made a presentation in the past, highlighting the huge number of vehicles that were coming in through the border and we are happy to see that the Federal Government listened to us.
We also highlighted the issue of the high level of duties and the lack of transparency in the clearing process, and we would like the Federal Government and Customs to look into them. We have stressed that there is a huge loss for the Federal Government because of this diversion of traffic. At the same time, if they want to attract this traffic, they have to make the importation of vehicles into Nigeria through the seaports competitive and transparent. As of now, it is not competitive because the level of duty is still too high.
What has been the feedback from the government?
So far, they have been listening to us and we believe that this closure of the border is a reaction to our figures. They have told us that they would intervene on the import duties but there are different interests in the automotive policy. Some people are of the opinion that the importation of second-hand vehicles should be discouraged as much as possible to favour the local automotive industry.
But what we have seen so far is that the importation of second-had vehicles has been discouraged and the volume of second-hand vehicles coming into Nigeria has gone down by 60 per cent but the growth of new vehicles produced in Nigeria is not there.
This shows that even if the new cars were produced in Nigeria, the purchasing power to buy these cars is very limited, unless there is a supporting scheme from the government; unless the government gives financial support to the people to buy these new cars.
What has been the impact of the exchange rate, import tariffs and cars going through the land borders on your operations?
The last three years have been very hard for us. When the automotive policy was introduced, the level of duties was increased by almost 100 per cent in actual terms. At the time, every month over 30,000 vehicles were discharged in Lagos port. Almost overnight from July to August, the volume dropped to about 10,000 units.
The difference was just diverted to neighbouring ports and then brought back to Nigeria through the land border. You can imagine the losses suffered by Customs, NIMASA, NPA, and private operators like us. Add to this, the rising cost of cars in Nigeria, which had a negative effect on cost of transport and as a result on inflation. Thousands of jobs were lost in the process.
Then in 2015, the slowdown in the economy started to affect the level of importation of all commodities at the ports. The overall volume went further down because of the recession and this affected not only the number of vehicles discharged in our terminal but also our containers and general cargo business.
How many vehicles were you discharging before now?
At the peak period, we were doing between 16,000 and 17,000 vehicles per month. Now we are doing about 5,000 per month. It is like doing one third of what we were doing at the peak period. We have lost traffic; some of these vehicles are no longer coming to Nigeria because people are just not buying cars anymore.
How much is your loss in terms of revenue?
It is a huge loss. In terms of revenue, I think we are down by 75 per cent because there was also a loss in container volumes and this has to do with the recession in Nigeria. PTML is known for cars. We are the biggest terminal in Africa for vehicles but we also do containers and general cargoes.
In the general cargo segment too, we have been incurring significant losses.
Considering the situation, we did not have any other option than to cut our overheads. So we had to retrench a significant number of staff which was a very sad and costly exercise. With that workforce, our company was not able to make it so we had to retrench. It was very painful, especially in the beginning because we knew that traffic was going to Cotonou port.
We know there is a huge potential in this country and we are waiting for the potential to come. We are hoping that government will take another look at the level of duties and the clearance process to ensure that it is transparent and competitive.