 It's time for a second hot topic on the breakfast glad you are still there Well licensed customs agents are projecting and if 15% rise in car import from tax removal and Basel Abia has joined us is a research associate Quacol research abuja. Good morning to you Basil Good morning, madam All right, so good to have you here as always Basil you were here with me on Monday And it's quite a great discussion. We had now. Let's talk about these new development. Is this good news? Do you think they believe that this? Removal of the import adjustment tax by President Bola Ahmed is going to encourage the importation of more vehicles not as much as it would have had the Narrow rates not being changed. However They believe that no matter what at least 10 to 15 percent of More imports would take place for cars. What's your take on this? I think we'll have to temper excitement a bit Is it good news to always reduce? Tax leave leave is especially for very important utility in this context automobiles. Yes It is good news. However, there's context that needs to be provided in this case first and foremost as you as you rightly mentioned the devaluation of the narrow by, you know more than 30 percent from not mistaken is Going to affect the rate at which We expect people to be able to import cars, right? The rationale behind the levies itself the import levies on automobiles was as a result of this protectionist idea that Governments from time in memorial always had about protecting our local Automobile industry. Unfortunately, I do not think that's the economically appropriate way to go about Developing a local automobile industry. I think what you need to do first of foremost is to ensure that there is appropriate capital for mission as well as skill set for mission With regards to mobile manufacturing when you are able to do that Then you are able to have an ecosystem that can compete and other that Besides that you also have to make sure that the structural issues that be devil local manufacturing are cleared first of all What do I mean by that? It is super Expensive to have reliable electricity just to run your factories for 10 hours Not to talk about 12 hours or fact the last I remember you know something even have to start rationing the Amount of hours that they were using to power their factories to continue manufacturing So if the largest automobile manufacturer in Nigeria is having to ration due to energy costs Imagine what it is for small other smaller players like Nord or you know The folks at equity that do pro-force who manufacture defense automobile Units so We have to actually look at that industry with this laser focus Economic thinking rather than say, okay, let's just slap import duties and hope that we can defend our local automobile industry We would see some improvement in terms of importation of automobiles But I don't think that is going to be the priority or prerogative of the local demand market I think the local demand market will still stick around buying second-hand and fourth-hand Nigerian used cars What I mean by that is there may be a neighbor wants to sell their car because they feel is no longer relevant or economically important anymore due to the Removal of subsidy and the high cost of PMS That would ensure that they would sell and give you a price I think that's how the demand market for automobiles will be able to survive in this very harsh price shocks environment It's always good. Again, I would have to be to it's always good to remove import levies Especially for important utilities like this where you don't have competitive advantage I think you don't have competitive advantage in a particular commodity and a particular utility and then you slap Tax levies or import duties on the importation of these particular Commodities or units what you're basically doing is you're practicing economic protectionism and that is a very 1970s antiquated economic pathway or policy to look out For except you have competitive advantage and the technology is a niche technology for instance say artificial intelligence or a particular defense Technology that you have that very anyone has for instance, maybe you have like competitive advantage in drone technology Like how talk he has that's when I would say it's appropriate for you to put some of those Economic protectionist policies because what you're trying to do is you're trying to ensure that your leverage In terms of global dominance for that commodity or for that technology is still maintained But in our case, we don't have any leverage. We don't have any competitive advantage We don't do original engineering when it comes to automobile engineering What we actually do is we take the parts from different parts of the world We couple them and then we fine-tune them first and then we sell them and we don't even do enough of those units In that sense. I remember when I used to research for a technology firm early to 2017 I had to access the database the database for FRSC, you know in the headquarters yen of Ujja The numbers I looked at were not really good when we Nigeria as at that time in 2017 We didn't we were not importing more than 10,000 units of New cars new automobiles while our own economic peer South Africa were doing more than 100,000 units every year And I'm sure that number is lower now So if you're doing less than 10,000 units and you reduce or remove import levels I'm not convinced that you're going to even have Higher numbers in that sense due to of course the price shocks due to the removal of subsidy due to the The cost reflective electricity tires and then of course the devaluation of the narrow that that's my take on The new announcement. Yeah, I like the way you've situated it It's like a sweet and sour pork kind of situation. Isn't it? Would you agree with some who I said that the government has missed a good opportunity to boost local production of cars increase IGR and employment for Nigeria Well, you mean you mean the removal of the import lead? Yeah, because some are saying instead of removing this what the government should have done would have been to subsidize local car Manufacturers like innocent that you've mentioned for instance Well, I don't agree with that I've always been at the school of thought and that your opinion that a better way to incentivize local production is to sort out supply side constraints in economics. What supply side constraints basically means is situational impediments or hurdles that are preventing producers from supplying to meet demand and from an automobile manufacturing perspective What that actually means is that can innocent be able to comfortably run their factories at least for 18 hours per day You know, I think really to marginal cost where It doesn't really affect their unit economics, you know, where the cost of production is far lower than the The amount of earnings they are making from selling a unit of an innocent car And they have their hurdles to being able to do 18 hours of production being able to access cheap and reliable energy being able to access cheap skilled workforce You have to be able to make sure that the power situation in the country dramatically And geometrically increases, you know, we're doing less than 5,000 megawatts every day actively in terms of Power generation and supply. Our grid cannot take more than 8,000 megawatts In any moment of time. It's just that we don't we have antiquated grid infrastructure We are not producing enough energy and then we are not enabling an electricity market where you know Some can decide to invest in a hybrid electricity Production unit where they use solar and then mix it with solid waste and you know, you know All of these things obviously now with the Nigeria electricity act You know some will now be able to engage in that but it's still expensive because if you want to engage in solar They are import levies and duties on solar equipment and components So everywhere you look at there's an impediment caused by a particular policy Yeah, that's part of the reasons why people are saying yeah, that's what part of the reasons why people are saying that local manufacturing Should be thoroughly encouraged For instance the importation of these Solar things if they are manufactured here in Nigeria, it will fix this issue of power this issue of alternative energy That local companies like Inosin and the rest are facing Well, we've got solar equipment only optional solar manufacturers solar equipment in Nigeria and they're not even ready with their factory Should I tell you why it is super expensive to manufacture in Nigeria, so we need to fix the structural issues That's just the honest truth, you know, we need to fix the structural issues We cannot say we want to depend a local manufactured industry When we are not producing up to 25,000 megawatts per day at least so once we get those numbers up I'm telling you almost everything we are like If you tell a manufacturer in Vietnam to come over to Nigeria and manufacture and you have At least 25,000 megawatts of electricity being produced. You don't have the situation where there are over 200 formal taxes in the country and over 60 formal taxes in the country in some industries You're paying as much as 20 taxes when you are able to streamline Taxation when you are able to ensure taxation is easier swifter is automated when you're able to make sure there's no Multiplicity of taxation when you're able to ensure that power is easy to access, you know, it's affordable Even if it's not affordable, it is accessible and it is reliable. You are getting 24 hours seven days A week electricity and this quality electricity is not somehow Stage voltage for full voltage. That doesn't put any of your equipments Then you can now attract manufacturers from Vietnam then you can now inspire local production So I think we're losing the bigger picture and as an economist Or someone who is an enthusiast of economics very good economics from a macro economics perspective You have to look at the macro first before you dive into the micro and the macro We're not concentrating on that. We're just diving into the very minute details Oh, let's put an import duty yet so that we can increase, you know, that's the same Economic mentality that was behind the closure of our land borders We thought that if you closed land borders and we thought that if we ensured that food importers didn't have access to foreign exchange Local production was going to increase. Well, yeah, you go food production has reduced Over the last three years, you know exponentially due to these structural issues. We have security situation You know, okay, imagine, you know, so now for instance with the security situation in the South is how do you want them to attract? Highly skilled talent to manufacture those cars, you know, obviously skill talent We would say okay I'm going to London to work because it's safer there than say walking in Mary or in Onitsha, you know For instance, so all of these structural issues they dive in we need to sort out security issues We need to make sure that there's a Affordable or at least accessible and reliable electricity. We need to make sure that our tax system is uniform and is automated You know, there's no Issue with formal taxes or agreements coming to the stock or you know people from the streets saying where is our own oniré But for the day for instance, you know, if you're in Lagos and you're manufacturing in Lagos All of these factors tie into why it is really hard to manufacture I do not think that the best way to approach this is to add more import duties or maybe remove import duties and say, you know Yeah, we need to look at it from a structural issue and unfortunately, I don't think that's the thinking right now of most of our policy makers All right, very interesting analysis there. Now. Well, these licensed customs agents are also seeking for a review of the 7% Port development levy They are spot on they actually spot on, you know, again, it dives back into Or piggybacks off my my conversation about the multiplicity of taxation in Nigeria You know, you go into certain industries and I'm telling you this from a legal and compliance perspective I have a couple of friends who are compliance officers for companies But not the amount of taxes they have to pay formally and informally, you know, it doesn't really make sense. It's almost like extortion They did that the right economy thinking about taxes or taxation is that first that for most Production or productivity is incentivized so that you can tax the benefits of that productivity that you've incentivized In the case for instance of the port development Levy our ports are not even functioning at optimal capacity. You know, you're you're not doing you're not doing eight hours of uploading from the best of course the containers and then Getting the commodities out of the containers. We are not yet reaching those Rotterdam port levels You know, nearby ports like we don't make all the ports in Porto Novo or the ports is even in Temer that they're functioning even more optimally than our ports. Our ports are not De congested. They need to be de congested There's a traffic lock jam. They're the logistical lock jams happening, especially around Apapa and Tinker Tinker Island ports If you're not sorting out these structural issues, then where is the impetus whereas the incentive for people to say We're going to pay that seven percent port development level. I think that's a wrong wrong wrong wrong Signal that we're sending to that particular industry the maritime industry and and the port operators that these agents are right They are right to be able to argue that the seven percent port development level should be reviewed Of course, of course and again, this also trickles down into why buying cars Especially second-hand Belgian based cars or cars from From Japan or original car units from the US are super expensive because the more you add this Multiplacity of taxation the more you have at this import duties. There is a price transmission into how much we're paying Not to talk of the the current evaluation of NERA or the fact that NERA is no longer highly valued On the market so all of these are down together to the issue that we have with regards Affordability of our cars and these agents are spot on about that. I think that They are right to push for a review of those those levies But I don't think that the body language of the federal government right now is One to think about removing those those levies. So we need to rethink how we do taxation in Nigeria That's what I'll say. Yeah talking about the affordability of these cars Whether they get to import 10 percent more or 15 percent more. How affordable would they be is the question? journalists did some sort of investigation around this and discovered from these car dealers the car dealers that Not many people are coming to their shops anymore How are they going to even sell these vehicles if they do get them imported because of the prevailing economic realities on grant today Hello, sorry about that. He was an internet glitch and Back back to back to your point madame. I'll be honest with you When whenever you were going through price shocks, what Nigeria is currently witnessing is a price shock Because we carried out three to four macroeconomic policy reforms at the same time, you know And now we are also introducing informal taxation Via vat where we're charging Informal traders vat taxes all of these things trickle down in the macroeconomy to ensure that purchasing power is Steamed and then there's no incentive to want to spend outside of the basics So what you're currently seeing right now with regards to the car industry For a lot of these agents like the journalist was able to find out first at foremost is that people who would Usually think of buying cars right now at this time of the year are no longer thinking of doing that Because there's an upward review of the amount they have to spend for PMS for fuel, you know Important to add that For prices have increased by over one hundred and ninety percent Our research team actually did the calculation across both nationally at least 190% increase in the last two months imagine that shock to your pocket and that there's that transmission to even what you're paying For instance with regards public transport or private transport. So when you do that and then you have an inflation rate of about 22% and then you have a food inflation rate of about 24% and increasing and then you have the devaluation of The narrow you got all of this Even if you have two million in your pocket Your first thinking of how you can secure at least the next one yet your rent for the next day because you know your rent Is going to increase again. Maybe by 20% you know you're going to spend more on Transportation they're going to spend more on food and you want to survive right want to eat well, right? So that middle class that usually would have the two million the one point five million two or the three million five Those cars are saying and that and human beings are rational thinkers. That's what classic economics teaches us that we're a reasonable thinker in fact That's why they in the economics were taught opportunity cost and Preferential order those two two concepts in in basic economics anyone who has done basic economics in secondary school your best thoughts Preferential order and opportunity cost That's the way we human beings think so Rational thinking right now for most of the demand side of the automobile industry in Nigeria is saying I want to be able to secure my feeding cost for the next six months because obviously as human beings You want to survive first before you drive a nice car, right? That's exactly what's happening and transmitting that in The ability of the demand side to be able to afford or acquire this cost But for the next nine months We're going to see the automobile industry in Nigeria badly hit and it's largely because of the price shocks due to the macroeconomic policy reforms carried out by the Chinibu administration and not until market forces begin to Determine the foreign exchange rate. We may not begin to see enough changes to reflect on The price of Gary the price of cars the price of tomato the price of that And you're thinking we may not be able to see all of that in place until say nine months from now Actually, let me even be more realistic Because we're also predicting our macroeconomic outlook should be out next next week for research and we're predicting that the the The the stability or the stabilization of the economy after all of these price shocks will take at least 12 months so one yet. Yeah, that's our prediction our prediction is that the price transmission Would take maximum effect by the 12th month. So in one year, we should see some some stabilization and this is in the hope and in the constant factor that All prices that global all prices don't fall below $70 per bar because obviously our economy is too heavily shaped on our oil exports And we do not Produce anything lower than 1.3 million barrels reports from If I'm not mistaken reports from last week or early this week says that we heat 1.4 million barrels in production oil production For the last month. So that's a good number However, we should be aiming to go back to our 2010 era 2 million or 2.4 million virus per day. We have not done that in years and affecting our economy and that's just the honest truth also We need to ramp up diversification, but you don't expect diversification to happen in 12 months, right? You expect that to start to happen in three to four years So for the meantime, let's ensure that we don't reduce oil production by any means Let's also ensure and pray that something doesn't happen And then all prices go lower than $70 when these things happen then I think with some common sense Macro-economic management from the Tinipu team We could see that stabilisation happen in 12 months However, I'm not betting on this government to be able to make the right decisions for the next nine months And we could even see things go worse. So for Nigerians I Don't know. I don't know how to put it, but things are going to be really hard Yeah, Nigerians have been told to continue to tighten the belt and tighten the belt Although some are beginning to say where is the waist that the belt the waist has shrunk to the point that Just not be anywhere to tighten it any further. Basilabia. Thank you so much for your time on the breakfast this morning Thank you. It's always a privilege to be on the breakfast show. Thank you Yeah, I've been speaking with Basilabia research associate Kwakor research Abuja. Well before we go We're gonna give you our quote of the day Of course, this is the much you can give you today and indeed this week on the breakfast But if you join us from Monday to today, I'm sure you would agree with me That's been a splendid time on the breakfast this week and I'll quote for the day Eleanor Reservat He says if life were predictable, it would cease to be life and be without flavor That's Eleanor Reservat. If life were predictable, it will cease to be life and Be without flavor. I am Maureen Menon. We say thank you so much for being there for us Join us again next week on the breakfast. Do have a great weekend. Bye