Connect with us

Markets

Unless We Achieve 30% Local Content, We Won’t Have Nigeria-made Vehicles — VON MD

Published

on

volkswagen

The Managing Director, Volkswagen of Nigeria Automobile Limited, Mr. Tokunbo Aromolaran, talks about the local auto industry and sundry issues with ANNA OKON

What was it like taking over the administration of Volkswagen Nigeria after nine years of the company’s closure?

When I took over as the managing director, the plant was very empty.  There were only warehouses here because when they shut down Volkswagen in 1989/90, the staff wanted their severance pay. The pay was given to them but they said it was not enough. So they looted the place. They removed every single thing that was removable, leaving only concrete behind.

So when I got here, I did not know where to start.  We first of all spent money repairing the building and I told them to do the ground floor and a simple office for me.  I had to stabilise first before I started doing fancy office.

What has been the effect of the recession on your operations?

Business has been very slow. People are not buying and when they are not buying, we cannot keep producing.

There was hope that with the auto policy, your capacity utilisation would improve. What went wrong?

Foreign exchange is what is used to build the capacity and it is not available. The auto policy does not make cars available. One has to open letters of credit and import parts for the car assembling.

It is because of the auto policy that we started assembling in Nigeria in the first instance and that is the only reason we are able to do the volume we did last year.  But once the forex issue started, the challenge set in. Now a dollar is N470; six months ago, it was about N200. That means the price of my car should have gone up by more than twice.

Don’t you have access to official exchange rate?

No, we don’t; if they tell you that we do, it is a lie. We all have our LCs at the bank and we have been queuing up like every other person.

If it takes one or two months to get $200,000, that does not give me three vehicles. These cars are big value items and not things that you get $10,000 and just go and buy.

To fill up a container with engine blocks will cost about $1m but I keep getting $100,000 every three weeks, how long will it take me to fill a container?

The Senate Committee on Privatisation has instructed you to make small affordable cars for Nigerian low income earners; with this forex challenge, how will you achieve that?

It is possible if the stakeholders commit to the idea. The scheme the Senate is proposing is not new. I was the one that first gave the report of trying to get financing for those who could not get financing.  The finance houses will dictate the terms and length of payment because they are the ones who will put down the money and their terms are different from what the Senate is proposing.

The financial system is proposing about 25 per cent down payment over three or four years, while the Senate is proposing 10 per cent down payment over seven years.  But how many cars last seven years on Nigerian roads? No financier wants to hold your loan for seven years.

Practicality on the side of the buyer is what Senator Ben Bruce-led committee is talking about. Practicality on the part of the bank is that they are going to say no more than three years because they don’t want to finance the car when it becomes useless.  If a buyer is no longer able to pay, the bank will not recover a seven year old car.

The banks too are very jittery, knowing the attitude of some Nigerians. They can take the car and just drive away and you won’t see them again. Abroad, everybody has identity; they just punch the system and they will find you. Here, one can disappear into thin air. There are more risks here than anywhere else.

 The Senate Committee on Customs alleged that 1500 new cars were seen in your plant. What is your reaction to this?

Is it strange to see 1500 cars in an assembly plant? In 2014, Hope Uzodima was here to inspect the factory, he saw the production line. We showed him everything. He was very happy then; no issues with the plant then.

How did they conclude that the cars were imported and not assembled here?

I would not know. We told them that those vehicles were assembled here. This is an assembly plant. We have three assembly points for passenger and commercial vehicles.

Before this economy started getting bad, we produced close to 500 cars every month in 2015. In four months before April, we had done 2,279 vehicles. So it is strange for someone to ask us how come we have 1500 vehicles in our plant.

First of all, they were looking for rice because when they came, rather than go to the assembly plant, they said they wanted to see the warehouse. When they entered the warehouse, they did not see a single grain of rice because the rice policy too is not making it easy for anybody to import rice.

Senator Ben Bruce heads the Senate Committee on Privatisation and he and his team just visited our plant. They had told us that they wanted to come on a Saturday but I told them to come on Monday so that they could see people working in the factory.

But in the case of the Committee on Customs, they did not tell anybody that they were coming. They just showed up here on Friday afternoon with policemen, customs and pressmen and started looking for warehouses. At the end of the day, they saw the vehicles that we parked there and started saying duties were not paid on them.

The cars came in knocked down parts; they included 39 units of Honda and Hyundai vehicles. They were covered by duty papers and we showed them the papers to prove that we paid duty on every single vehicle. They were showed all the various things for the ones that we still have that have not been sent to the dealers or been delivered.

The Customs locked down our place for one week, verifying the duty papers.  They just messed our business up for one week for nothing.

Three weeks after their visit was when the story appeared in the papers. I was in church when my director called me because of the two stories that were embedded in one and everybody that read the story believed that it was from here that everything happened. They painted us as if we helped governors import vehicles for which duty was not paid because of the second story about 15 vehicles that were seized by the Customs.

As a local automaker, can you also import fully assembled vehicles?

Yes. The auto policy allows local automakers to bring in two fully built vehicles for every one vehicle they assemble to ensure that the market is not starved of cars and the prices don’t go up.

Once an assembly plant shows evidence of an assembled vehicle, the government allows you to import two fully built vehicles. So as we assemble vehicles here, we also do import. There is nothing against importing vehicles. All they need to ask for is to see the duty paid on the car.

Before now, at Stallion Group, we were among the biggest importers of cars. We just had the sense to start assembling locally because we knew that importation would stop one day or we would not have the money again. Nothing stops us from importing; it is not an illegal action.

What is the nature of loss you suffered during the one week that your plant was shut by the Customs?

We lost a lot of money. I have not sat down to compute because there were some people that came to take delivery of vehicles who were turned back at the gate. They stationed their vehicles at the gate and no vehicle could move out of the plant and nothing could come in either. At the end of the day, they found that all the duties had been paid.

How many assembly plants did they visit? They said the place looked deserted.  We are not the only assembly plant in the country and it is probably the three of us including PAN and Innoson that are in active production. The rest have folded up. Instead of encouraging us, they are making disparaging remarks.

Talking about volume, how many vehicles do you need to produce to break even in a country of 170 million people?

The annual vehicle sale in South Africa is about one million; ours is only about 27,000. Last year, our total sale of both new and used vehicles was 400,000. Used vehicles made up about 75 per cent of the sale while 25 per cent was made up of new vehicles. Now, because of the economic recession, our own has dropped by almost half to less than 30,000 new vehicles.

Last year, Toyota Camry was around N10m; today, it is N21m.  Last year, our buses sold for N13.5m, now, they are N27m. How many people are buying? These are the issues. We are buying forex at N470 to $1. Last year, forex was N197, N198, now it is officially N395 but in reality, it is N450 or N470.

People are not able to buy and when they are not able to buy, we just keep the vehicles in the parking lots to gather dust.

These are the problems that we face. People should be looking at how to help manufacturing industries solve problems not paint them in bad light.

But you should also export to other African countries; why are you not doing that?

What are we going to export? You only export what you originate.  Most of the things we make here, the components are all still imported. It is only when we start making our own components that we can say we are making things to export.

What stops you from making your own components?

We need local component suppliers in Nigeria.  There are more than 2,500 components in a car and each of them is being made by somebody abroad; they can be here. I don’t have to wait till I go abroad to buy components. That is why government is making efforts to bring them here.

What government is trying to do is build industrial parks with full facilities, one in the South-East, one in the North and the other in the South-West. Government will provide the infrastructure so that small manufacturers can just come in, install their plants and start making spark plugs, head lamps bulbs, exhaust pipes, car seats, wipers and others.

Car industry is dependent heavily on logistics, which is the ability to control these 2,000 parts and bring them together in a coordinated way so that they can get to us.  A car is not complete unless all those things are there and they are being supplied from all over the place.

That maze of supplying them is bad if you don’t have a proper logistics network. In that kind of industrial estate, you can get at least 15 or 20 components in one go. You order, they package it for you; you don’t have to come 20 or 30 times, it comes at once.

South Africa has that logistics base. If we don’t have 30 per cent local content, we cannot say that it is our own product.

Do you think the government made a mistake with the auto policy for failing to start with the component producers?

They were not mistaken. Every industry has a growth process. All the car industries in the world started with assembly. If you don’t have an assembly plant that will use the components, a man will not go and invest in doing headlamps, because if he starts an headlamp producing company, nobody  is going to buy.

Our industry starts from assembly because we are able to import and we can survive while importing and waiting for them to do it here.

If I want a component from outside Nigeria, it takes me three months to get it and if they set up a factory here, it will take two hours. We import some components, when they get to the port, the windscreen gets broken.  I have to call again and wait for another three months for the fresh order to come in.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Continue Reading
Comments

Energy

Massive Fuel Station Closures in North-East Nigeria Over Anti-Smuggling Clampdown

Published

on

Conoil Plc - Investors King

In a significant protest against an anti-smuggling operation, nearly 2,000 petrol stations in Nigeria’s North-East have shut down, causing widespread fuel shortages and forcing motorists to turn to the black market.

The closures began yesterday following a crackdown by the Nigeria Customs Service (NCS), which targeted petrol outlets suspected of smuggling fuel to neighboring countries.

Dahiru Buba, Chairman of the Independent Petroleum Marketers Association (IPMAN) for Adamawa and Taraba states, revealed that the closures were a direct response to the NCS impounding tanker trucks and shutting down some fuel outlets.

This crackdown, known as “Operation Whirlwind,” aimed to curb the smuggling of subsidized petrol to Cameroon, Benin, and Togo—a practice that has thrived for years due to the significant price difference.

Buba explained that the operation initially led to the seizure of tanker trucks belonging to IPMAN members. Although the trucks were released following protests by the association, the continued impoundment of more vehicles and the closure of several petrol stations led to the widespread shutdown.

“We wrote to them [Nigeria Customs] again, but there were no responses. That is why we decided to go on strike,” Buba said, adding that over 1,800 outlets had ceased operations.

“This is our business, and we cannot be quiet when our members are treated this way,” Buba added, emphasizing the association’s frustration with the ongoing situation.

In response to the closures, the black market has surged, with fuel vendors in Adamawa’s capital, Yola, selling petrol at N1,400 per liter—significantly higher than the official pump price of between N650 and N750.

This has placed an additional burden on consumers, who now face inflated costs amid the fuel scarcity.

Mangsi Lazarus, the customs spokesperson for Adamawa and Taraba, defended the operation, stating that the impounded tanker trucks were indeed being used to smuggle petrol.

“We are simply carrying out our duty to prevent illegal activities that harm the economy,” Lazarus said.

The fuel crisis comes as oil prices edged higher globally due to anticipated strong driving demand, geopolitical tensions in the Middle East, and drone attacks on Russian refineries.

Brent crude futures for August delivery rose by 0.9% to $86.04 a barrel, while US crude gained 1.1% to $81.63 per barrel.

“The chief underlying reason behind the price strength … is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere,” said Tamas Varga of oil broker PVM, referring to seasonal demand for oil products.

Continue Reading

Crude Oil

Oil Prices Inch Down Amid Dollar Strength and Interest Rate Concerns

Published

on

markets energies crude oil

Crude oil prices declined on Monday as the U.S. dollar strengthened and concerns over potential interest rate hikes resurfaced.

Brent crude oil, against which Nigerian oil is priced, slipped marginally by 3 cents to settle at $85.21 per barrel following a modest 0.6% decline on Friday.

Similarly, U.S. West Texas Intermediate (WTI) crude oil saw a minimal decrease of 2 cents to close at $80.71 per barrel.

Market analysts pointed to the robust performance of the U.S. dollar, which gained ground after the release of positive Purchasing Managers’ Index (PMI) data on Friday.

Tony Sycamore, a markets analyst at IG in Sydney, noted, “The U.S. dollar has opened bid this morning and appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election.”

A stronger dollar typically makes dollar-denominated commodities like oil less attractive for holders of other currencies, putting downward pressure on prices.

Last week, however, both Brent and WTI crude contracts managed to gain approximately 3% each.

This was largely driven by increasing signs of demand recovery for oil products in the U.S., the world’s largest consumer of crude oil. Additionally, ongoing supply constraints enforced by OPEC+ further supported market sentiment.

According to ANZ analysts, U.S. crude inventories continued their decline while gasoline demand recorded a seventh consecutive weekly rise.

Moreover, jet fuel consumption has rebounded to levels last seen in 2019, indicating a robust recovery in travel-related fuel demand.

Speculative activity in the oil market has also been notable, with analysts from ING observing an increase in net-long positions in ICE Brent as traders adopt a more positive outlook heading into the summer months.

“We remain supportive towards the oil market with a deficit over the third quarter set to tighten the oil balance,” they stated.

Despite these bullish indicators, geopolitical tensions persisted, providing a floor for oil prices.

Escalating conflicts in the Middle East, including the Gaza crisis and increased drone attacks on Russian refineries by Ukrainian forces, continued to underpin market sentiment.

In South America, Ecuador’s state oil company Petroecuador declared force majeure on deliveries of Napo heavy crude for exports due to severe weather conditions.

Heavy rains led to the shutdown of a critical pipeline and oil wells, impacting production and exports.

Meanwhile, in the U.S., the number of operating oil rigs fell by three to 485 last week, marking the lowest count since January 2022, according to Baker Hughes’ weekly report.

Looking ahead, the interplay between the U.S. dollar’s strength, geopolitical developments, and economic indicators such as PMI data will likely dictate short-term oil price movements.

Investors and analysts remain vigilant for any shifts in these factors that could influence global oil market dynamics in the coming weeks.

Continue Reading

Gold

First Commercial Gold Transaction Nets Nigeria $5 Million in Foreign Reserves

Published

on

gold bars - Investors King

The Ministry of Solid Minerals Development has concluded its first commercial transaction under the National Gold Purchase Program (NGPP), bolstering the nation’s foreign reserves by $5 million.

Minister of Solid Minerals Development, Dele Alake, announced the successful sale of over 70 kilograms of gold, refined to meet the stringent London Bullion Market Association Good Delivery Standard.

Speaking at the presentation ceremony, Alake emphasized the economic significance of the transaction, stating that it injects approximately NGN 6 billion into the rural economy.

He lauded President Tinubu for his unwavering support for reforms in the solid minerals sector, highlighting the pivotal role of the NGPP in enhancing Nigeria’s foreign reserves and bolstering the value of the Naira.

“This transaction represents a strategic move to use the Nigerian Naira to acquire a liquid asset denominated in United States Dollars, demonstrating a viable strategy for fiscal and monetary stability,” Alake stated.

He further expressed confidence in the NGPP’s ability to contribute to Nigeria’s economic diversification agenda, fostering greater economic confidence and attracting foreign investment.

Executive Secretary of the Solid Minerals Development Fund, Fatima Shinkafi, explained that adherence to the London Bullion Market Good Delivery Standard ensures that Nigeria’s gold exports meet global trading requirements.

She emphasized that only gold bars meeting these standards are acceptable in the settlement of Loco London contracts, reinforcing Nigeria’s credibility in the global gold market.

President Tinubu, upon receiving a symbolic gold bar, commended the Ministry for achieving a crucial milestone in the nation’s economic diversification efforts.

He described the transaction as a concrete step towards realizing the objectives of the Renewed Hope Agenda, aimed at reducing economic dependence on oil and gas revenues.

Through initiatives like the NGPP, Nigeria aims to further enhance its gold reserves, promote economic stability, and create an environment conducive to sustainable economic growth.

The successful completion of the first commercial gold transaction marks a pivotal moment in Nigeria’s journey towards becoming a key player in the global gold market, driving economic prosperity and resilience.

The Ministry of Solid Minerals Development continues to advocate for supportive policies and regulatory frameworks that promote transparency, efficiency, and sustainability in the mining sector, laying the groundwork for future economic growth and development.

As Nigeria moves forward with its gold refining and export initiatives, stakeholders anticipate continued progress in diversifying revenue streams and strengthening the nation’s economic resilience on the global stage.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending