Items filtered by date: January 2017

A lack of proper enforcement and a culture of corruption at borders enables smugglers to sink Nigeria’s promising car hub dream, writes Dianna Games

Nigeria’s car industry is a good illustration of the embedded dysfunction of the country’s economy.

Policy interventions and incentives to date have not been sufficient for the sector to realise its potential. Despite some progress, the initiative has been undermined not only by the economic slump, but also by other problems that have dogged industrialisation for years, including smuggling across the country’s porous land borders.

The automotive sector was targeted by former president Goodluck Jonathan to drive industrialisation. Incentives were put in place to attract global car manufacturers to set up assembly operations in Nigeria as part of efforts to diversify the economy and reduce imports. It worked.

From 2014, big names such as Nissan, Ford and Renault began to import semiknocked-down kits for assembly in Nigeria with a view to full manufacturing down the line. Nissan planned to make Nigeria its Africa hub.

Analysts warned that SA’s manufacturing sector would eventually be overtaken by the giant of Africa.

In its carrot-and-stick approach, the government hiked tariffs on new car imports to 70% from 35%. This aimed to get Nigerians to buy cheaper, locally produced vehicles. The carrot was the fact that the manufacturers were household names. This would counter the Nigerian tendency to regard locally produced goods as inferior — a pervasive consumer attitude that has led to the country’s import dependency.

It was, some believed, a return to the 1960s when Nigeria last had a successful car industry. But it has not turned out that way. The new policy made all the right noises. But it was almost immediately undermined by smugglers bringing new and used cars to Nigeria from neighbouring Benin.

As tariffs rose in Nigeria, so the number of cars arriving at Cotonou’s port doubled. A lack of proper enforcement and a culture of corruption at borders and roadblocks along Nigeria’s highways have made smuggling easy. Thousands are employed in this enterprise; it represents entrenched interests.

The situation highlighted another longstanding problem – the inefficiency and high costs at Nigeria’s main port in Lagos. Even legitimate importers have found it was faster and cheaper to bring in cars via alternative routes.

More than 80% of vehicles arriving in nearby countries are destined for Nigeria. The aversion to Lagos has not only resulted in the diversion of imports for Nigeria and its landlocked neighbours to other countries’ ports, it has also affected the ability of new vehicle investors to timeously import kits and components. Surrounding countries have been eating Nigeria’s lunch.

In the past year, the economic climate has pushed up vehicles prices and pushed down demand. Imports have dropped 60% and vehicle sales in Nigeria about 50%.

In December, the cash-strapped government banned all vehicle imports across its land borders in an attempt to boost domestic port revenues.

It is also reviewing the tariffs, saying they are uncompetitive. The ban is contentious. It was recently rejected by the senate, which says it is affecting jobs and making life more difficult for ordinary Nigerians. Other critics say it will increase smuggling and corruption.

While it may have little control over the price of its key export — oil — many of Nigeria’s problems are homegrown. Years of neglecting official graft and failing to improve key areas relating to the country’s competitiveness and efficiency have led Nigeria here.

Even as the recession continues to bite, responses to challenges continue to be drastic and short-term, rather than part of a more nuanced and sustainable package of properly enforced interventions.

• Games is CEO of business advisory Africa @ Work

CHAPTER:  'Sasol's Changing Landscape in and with Mozambique', Chapter in Africa to Africa Internationalization: Key Issues and Outcomes Dianna Games and Lyal White (Palgrave MacMillan 2016) 

Zimbabweans are sceptical, fearing they will again be left with worthless paper in place of real money, writes Dianna Games.

Resistance to Zimbabwe’s new "currency" has not disappeared nearly two months after bond notes were introduced amid widespread protests by citizens who feared the notes were a step back into the past.

The Reserve Bank of Zimbabwe is feeding the quasi-currency into the system in tranches. In the first phase, the equivalent of just under $80m is being circulated. But a lack of trust persists. After all, the exercise is being presided over by the same government that took the country to 80-billion percent inflation less than a decade ago.

The new notes resemble the much-despised Zimbabwe dollars, last used in 2009 when the multicurrency system was introduced.

The US dollar was just one of nine currencies designated as legal tender, but its popularity for trade and commerce rose from 49% in 2009 to 95% in 2016. The rand’s use has declined despite the fact that more than 40% of Zimbabwe’s exports are to SA and 60% of its imports come from here.

Zimbabwe’s high import bill, lack of foreign direct investment and the illegal movement of dollars offshore have eroded stocks of the US currency.

A novel black market has emerged in which dollars are sold at a premium for yet more dollars. One Zimbabwean says he regularly has customers in supermarket queues offering to pay for his goods with a card in return for the US dollars in his hand.

The bond notes are a drop in the ocean in terms of demand for cash, but the central bank hopes that by managing the supply, the parity with the US dollar will be preserved. It maintains that it will not circulate more than the originally denominated $200m worth of bond notes to preserve their value.

Zimbabweans are sceptical, fearing that in time they will again be left with worthless paper in place of real money. This has led to hoarding of cash, and those who can are building US dollar nests outside the country, exacerbating the problem.

While the bond notes may have some usefulness in this embattled market, their existence is again isolating Zimbabwe as it cannot use the quasi-currency to pay for its imports. The notion of a nontradable currency is also unattractive to investors, already wary of Zimbabwe’s high-risk reputation.

Even public servants, desperate for the 13th cheque they were promised in 2016, have refused to accept bond notes — or the residential stands being offered by the government — in lieu of hard currency. The 2015 bonuses were paid in April 2016.

Government workers are seen as a key voting bloc and with elections coming up in 2018, Zanu-PF cannot afford to lose their favour during 2017. But once the bonuses are paid, there is the thorny issue of monthly salaries.

The government has turned to treasury bills (TBs) for funding, issuing $1.2bn of TBs between 2012 and mid-2016. But it has failed to honour bills maturing in 2016. Banks, suffering from high levels of nonperforming loans, have been active in the TB market; the default raises fears of rising risk.

As serious as the liquidity crisis is, the bigger problem is a political one. Zanu-PF’s economic machinations now, as in the past, are about avoiding structural reform and political accountability.

As the country cranks up the electoral machinery for 2018, a political solution to the mounting socioeconomic crisis is likely to be more elusive than ever. - Published in Business Day SA, 16 January 2017. Picture: Reuters

• Games is CEO of business advisory Africa @ Work