Nigeria’s position as Africa’s most populous nation is still not enough for some large global investors to stake cash in its economy.
That’s after Toyota last week entered a Memorandum of Understanding (MOU) with Nigeria’s West African neighbour, Ghana – an economy that is one tenth the population and eight times less Nigeria’s market size – to establish an assembly plant in the country by 2020, despite lobbying by President Muhammadu Buhari to get the investment deal into Nigeria.
The assembly plant will enable the car manufacturing firm to cater for its West African market, including Nigeria, for the assembling of Toyota and Suzuki products, according to a statement by Ichiro Kashitani, president and chief executive officer of Toyota Tsusho Corporation, during the signing.
Kashitani noted that the decision to set up the car assembly plant in Ghana was necessitated by the favourable economic climate prevailing in the country.
“I am very happy that we have reached the consensus and principal agreement to start the Toyota and Suzuki assembly plants. We are planning to kick off the project immediately, and, hopefully, we will have first car made in Ghana this time (August) next year,” he said.
Nigeria is Africa’s biggest market with a gross domestic product of $440 billion and with a population of over 200 million people, according to the United Nations estimate. But being Africa’s giant, the economy is still faced with infrastructural challenges ranging from power, inadequate road network and stiff regulation.
The World Bank in its Ease of Doing Business report for 2019, a metric which investors use or look out for when making investment decision, ranked Nigeria 146th among 190 countries and cited the aforementioned challenges as responsible for the low ranking.
Aside from the issue of infrastructural challenge, the country has an automotive policy that encourages the importation of used cars at the expense of newly produced cars, which has also been fingered as deterrent to investment. Currently, there is import tax (duty and levy) of 70 percent on new vehicles while that of used cars is 35 percent.
To tackle the rising menace of smuggling, President Buhari ordered the closure of Seme, the country’s busiest land border, without a second thought on how the directive would hurt legal exports and imports going out and coming into the country.
There are, however, concerns that if these and many more of such bottlenecks are not fixed, Nigeria would lose big when the deal that would allow for a free trade among 55 African countries take effect, as many companies might set up operations in other markets with better macro-economic indicators so as to easily penetrate into a larger markets like Nigeria.
“Before now, it is expected that for a country to enjoy the benefit of a larger market, it would need to set up operations so as to eliminate taxes on excise duties and other levies charged on imported goods but with the trade pact coupled with Nigeria’s current infrastructural challenge, many would rather build and operate in other markets and ship their products easily since there is free trade,” Pascal Odibo, group country director, Jeff & O’Brien Knowledge, told BusinessDay.
Africa’s biggest economy took a bold step in joining the league of countries in the continent that would benefit from the N3 trillion potential markets from the African Continental Free Trade Area (AfCFTA), after President Muhammadu Buhari signed the deal at an extraordinary summit of the African Union (AU) in Niger Republic.
Upon implementation, the deal would lead to the removal of tariffs on 90 percent of goods produced by 2020 while 10 percent of traded goods are expected to be phased in later. Similarly, it will ease non-tariff barriers to trade on the continent and provide economies of scale as firms try to sell to the bigger African market, leading to increased efficiency.
Even Ghana’s President Nana Akufo-Addo, during the signing, noted that the assembly plant would serve as a base to reach the larger African market with the coming into force of the AfCFTA.
MICHAEL ANI
