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Author Name: Omotayo, J. A.
Number of articles: 211
During my time too, there were scholaships, grants and busary awards to students. Some of my friends... (0) Comment


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That Nigeria’s Automotive Policy Does Not Become A Nightmare – 2
Author: Omotayo, J. A. | March 17, 2014



For an oil producing country with an estimated national population of 167 million citizens, can anybody imagine why Nigeria's six automobile industries would all wind down even before the global financial meltdown in 2007? I shall in this part identify the issues and how they have contributed to kill the automobile industry in Nigeria. The potentials remain that they will kill any subsequent ones unless the key issues are addressed in the national interest. Perhaps it is better for us now to review briefly factors affecting the location of industries: Location, brand and market. All the six motor vehicle assembly plants in Nigeria were scattered all over the federation: PAN in Kaduna, VON in Lagos, Leyland in Ibadan, ANAMCO in Enugu, Fiat in Kano, and Styre in Bauchi. The distribution is even, three motor assembly plants in the north and the same number in the south. Going by the 2006 National Population Census (NPC) figure, Kaduna is home to over 6 million Nigerians apart from foreigners. Over a half the national population live in the north where Kaduna is situated. Kaduna is home to Nigeria's National Petroleum Corporation (NNPC) and First Mechanised Brigade of the Nigerian Army, among others. Lagos is the commercial capital of Nigeria and has for decades become the most populous State with over 9 million inhabitants going by the disputed 2006 NPC figure (The Lagos State government claimed she estimated over 18 million inhabitants). Enugu is central to Igbo population of over 16 million spread across five States. They are the most business inclined group within Nigeria. Kano is Nigeria's second most populous State with over 9 million inhabitants excluding foreigners. In addition, Kano is a commercial city for both trans-Saharan and Arabian trades. Ibadan was once the most populous city in Nigeria, a commercial nerve-centre of old Western Region. It serves over 40 million population from the predominantly Yoruba speaking area of Nigeria. Bauchi is about 4.7 million in population. In addition, it is closely linked to demands from over 23 million Nigerians living in the middle belt and north eastern Nigeria. In part 1 of this article, I outlined the various vehicles models and patronages enjoyed by the motor vehicle assembly plants. Consequently, we can conclude that the motor vehicle assembly plants did not closedown as a result of location, brand or market. Rather the following factors led individually and collectively to close down the affected industries: Exchange rate, Minimum wage, Interest rate, Labour Strikes, Public holidays, Power supply, Fuel price, Technical education, Political crisis, Religious crisis, Raw materials, Road transportation, Telecommunication system, High taxation, Quota system, Expertise and Corruption, among others. First, let us examine the issue of Exchange Rate. In 1985, one US Dollar exchanged for about 89 kobo (i.e. $1.00 = N0.89). In the late 1980s, our pseudo-Economists who called themselves âEconomic Expertsâ theorised that the Naira was too strong and artificially overvalued. They argued that a weaker Naira was necessary to make local productions cheap in comparison to imported goods. They added that this would boost domestic market, create employment opportunities, improve balance of trade, etc. Subsequently, the various forms of exchange rate models (FEM - Foreign Exchange Market, SFEM â Second-Tier Foreign Exchange Market, OMO â Open Market Operations, Dutch Auction System, etc.) were introduced. The Naira slid gradually to N8.50 to $1.00 in early 1992 and remained stable at this exchange rate. At this rate, the Naira had been devalued by 855% (i.e. [8.5-0.89]x100/0.89 = 855%). This was still not enough for the said âEconomic Expertsâ. They pointed to Japan where the Yen was exchanging for far more to the US Dollar than the Naira (I shall briefly review the Japanese Yen issue later). By March 1992, Naira was devalued officially to N18.50 to $1.00 or 1,922.5% (i.e. [18.5-0.89]x100/0.89 = 1,922.5%) devaluation. Between 1995 and 1999, the exchange rate was pegged at N21.89 to $1.00 or 2,359.55% devaluation while the parallel market had N71.70 â N88.90 to $1.00 or 7,956.18% - 9,888.76% devaluation. By 2000, the lid on official exchange rate was removed, thus in theory merging both official and parallel currency market rates. The Naira has since slid to N145 â N171 to $1.00 or 16,192.13% - 19,113.48% devaluation. Since we only had vehicle assembly plants, it meant that all of them depended on imported components. This implies that more Naira was needed to purchase the imported components. Consequently, the cost of the new assembled products skyrocketed. As average Nigerians were unable to get enough money to buy new vehicles assembled locally, just as it was difficult to get new ones from abroad, they resorted to cheap second-hand vehicles from overseas. The same applied to all other industrial products assembled or manufactured locally. Domestic consumption dropped sharply for all new products. Consequently, local industries were starved of patronages and were unable to break even. Then staff rationalisation (actually this was retrenchment) became the order of the day until all such industries could not operate any further and had to close down completely or relocate to some other countries with better business environments. The prism of greater domestic production and boost in employment then vanished. The âEconomic Expertsâ have not told us why their theories failed and have continued to fail. Yet the argument that brought down our industries from production into comatose remains the cornerstone of each successive administration's economic policy till date with strong supports from our so-called âEconomic Expertsâ (For further details see: Comments at âNigeria Exchange Rates To Dollar â History â Business â Nairaland, www.nairaland.com/498412/nigeria-ex...â). This distorted Economic Theory is still in place to bring down new initiatives on industries particularly the automobile industry being discussed. Our exchange rate theory is defective because it does not look beyond the fringes of textbook, laboratory or controlled applications. None of the so-called âEconomic Expertsâ reasoned that the average Nigerians would go for second-hand products. Yet the issue was there. In 1979, the late Mr. Obafemi Awolowo had remarked at a Unity Party of Nigeria (UPN) presidential political campaign in Aba that if elected president, he would scrap the second-hand business in Nigeria. Out of annoyance, the traders in Aba went wide and stoned his helicopter before he flew away to safety. Even in the Yoruba west then, there were women who traded in second-hand clothing. There were many staff of organisations who purchased used vehicles from their superiors, their companies, government ministries and agencies. In other words, the average Nigerians were already prepared for second-hand business market even before being forced by Naira devaluation. It may be interesting to throw more light on the Japanese Yen and Russian Ruble before closing this exchange rate issue. In 1985, the Yen to US Dollar was Â¥239 to $1.00. Following the Plaza Accord in 1985, the Yen became stronger exchanging for Â¥128 to $1.00 in 1988 and Â¥123 to $1.00 in 1992. After the Japanese asset price bubble, the Yen slid further to Â¥134 to $1.00 in 2002. In spite of the global economic crisis of 2008, the Yen continued to gain strength. By May 2013, it was exchanging for Â¥100 to $1.00 (For further details, See: Japanese Yen, Wikipedia, www.en.wikipedia.org/wiki/Japanese_yen). Today the Yen hovers around the same value. Japanese industries are still manufacturing and exporting their products. Toyota, Honda, etc have not closed down their operations in Japan as a result of stronger Yen. The Russian Ruble has been getting weaker year upon year since after the collapse of the Soviet Union. In 1998, Rubles exchanged for Rur6.29 to $1.00 before the Russian financial crisis. During the crisis, it was devalued to Rur8.90 or 41.49% devaluation but it slid further to Rur21.00 to $1.00. In 1999, it was Rur24.65 to $1.00 and as at 2013, it was Rur31.91 to $1.00. The worst exchange rate of the Ruble was Rur36.43 to $1.00 or 479.17% devaluation in 2009 (For further details, See: Russian ruble â Wikipedia, www.en.wikipedia.org/wiki/Russian_ruble). Yet both Peugeot and Volkswagen have opened mega motor manufacturing plants, not mere assembly plants, in Russia. Like the Japanese Yen , the Australian Dollar has been getting stronger in recent times. But both Ford and Toyota vehicle manufacturing plants have decided to wind down their operations in Australia before 2020 because the latter's currency was rather getting stronger. Why would a stronger Yen that appreciated by more than 100% support the export-driven and job-creation economic policy of Japan but a stronger Australian Dollar would cause the reverse in Australia? The truth is that countries with good governments enter into bilateral agreements to drive their economic bases. Rather than have such in Nigeria, our successive governments have been chasing fantasies: hosting international festivals, sports and meetings with attendant carnivals. The import is that a stronger Naira would have been more advantageous to Nigerians than our so-called Economic Experts imagined. The argument that the strength of the Naira was artificial and unreasonable fails because Yen has gained strength against the US Dollar without any adverse effect on this export-driven economy. On the other hand, Australia is losing for having a stronger currency. What a manipulative world trade that goes beyond textbooks, laboratories and controlled applications?

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