The ECOWAS AIPF is based on the Nigerian Automotive Industry Development Plan, which started in 2013. Under Nigeria’s policy, high taxes were placed on the import of fully assembled vehicles, also called fully built units (FBUs), while lower taxes were imposed on completely knocked down (CKD) or semi knocked down (SKD) kits. In addition, incentives—such as value-added tax (VAT) exemption and other tax breaks—are offered to part and equipment manufacturers, such as companies making tyres or other components.
Such CKD and SKD kits allow for the assembly of vehicles. It should, however, be noted that such sites are assembly plants rather than full-scale domestic manufacturing, and will require the import of the constituent components. Policies to encourage the manufacturing of components are necessary to maximise the spillover effects for potential value-added for the economy, as well as the number of high-skilled jobs created in the country. Nevertheless, even basic vehicle assembly from CKD or SKD kits are green shoots towards developing a domestic automotive sector, and other vehicle and part manufacturers will probably invest if these first movers are successful. In addition, the import tariffs will also continue to incentivise domestic investment.
A number of auto and component manufacturers have invested in Nigeria on the back of this policy. The country has a large and growing middle-class, and vehicle ownership rates are rising on the back of this. Under the Automotive Industry Development Plan, importing vehicles becomes more expensive, but the market is too large for many car manufacturers to ignore. The supportive tax breaks facilitate investment for basic vehicle assembly and component manufacturing, helping to create greater value-added in the country.