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.
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.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
Crude Oil Holds Steady Above $55 Per Barrel on Tuesday
Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.
Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.
While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.
On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”
“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.
Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.
Crude Oil Pulled Back Despite Joe Biden Stimulus
Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.
Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.
On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.
OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”
“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”
Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.
“The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.
Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.
But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.
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