As a part-time worker in my university days, I took evening classes which afforded me time to work in the early hours of the day. Most of my course mates, who were also part timers, owned new cars which I came to realise were acquired on automobile loans from a diverse range of financial institutions. Coming back to Nigeria, it was a different reality, where even full timers can barely afford a used car unless juggling a side gig.
To afford a new car, one has to be well-placed in a reputable organisation that pays well or inherit that generational wealth. Beyond those classifications, most brand new cars one notices on the road are part of a new government’s procurement jamboree. It’s our public service culture, where every new government seems to need brand new vehicles even when those used by past administrations are in good shape. You may have come across the word ‘ Tokunbo’ tossed around, especially in conversation about car ownership.
For some perspective, Tokunbo is a yoruba word which refers to something foreign, also given to yoruba babies as names. In a different and far more popular context, Tokunbo is known across Nigeria as foreign-used cars. Tokunbo cars are mostly imported from Europe and increasingly from the United States and most smuggled into Nigeria through Cotonou and Lomé ports. The latter recently overtook Lagos as the busiest port in West Africa.
These used and damaged cars are sold at very cheap rates mostly by insurance companies caused by accidents and floods which renders them unsafe for use in the West. According to PwC, the Nigerian tokunbo market is estimated at N840 million compared to new car imports which only account for 30% of the market rummaging an estimate of about N360 million, 30% of the total car import market with a ratio of 1:131 new cars to Tokunbo used cars.
This trend has inarguably created a huge economy which, despite being fragmented, has created a striving market putting substantial income into the pockets of smallholder players. This nonetheless has pushed regulators to increase import tariffs to dissuade the import of used cars in hopes of motivating patronage of local manufacturers like the well-promoted Innoson Motors.
Despite regulations, import of Tokunbo cars have been largely unaffected due to Nigeria’s porous borders, which car dealers and smugglers outmanoeuvre to avoid payment of high tariffs slammed on imported cars. Random stop-and-search operations on the road by custom officials have also done very little to curb illegal imports of used Tokunbo cars, partly due to an established corruption network.
As government continues to regulate and ban Tokunbo imports, its inability to address underlying issues has made its effort result in failure because majority of Nigerians can only afford illegally-imported used cars, of which 63% of the population can afford to own neither a new or a used car. In its 2016 ‘Africa’s next automotive hub’ report, PwC predicts that tokunbo cars will disappear from the market by 2044 as a result of local production. With current government policies that do not support local automobile production, and lack of favourable conditions that afford credit to ordinary citizens by financial institutions, it’s difficult to trace the possibility of phasing out tokunbo cars by 2044.
The binding constraint to phasing out tokunbo cars is economical, most people cannot afford to buy cars at one go in most countries, but the availability of financing for automobile loans by financial institutions allow people to buy cars and pay in installments. Although some private banks do offer these loans, the interest rates are exuberant because of the high risk factor of automobile loan defaults, which prevent individuals from seeking out payment plans.
Automobile loans are high risk because of a systematic identification crisis which results in financial exclusion. Owing to lack of a centralised identity system in Nigeria, ID data collected exist in silos which is peculiar to one sector. This implies that each system is isolated from the other and unable to utilise valuable data sitting on other platforms. This system has proven to create financial exclusion defeating one of the pillars identity systems serve by encouraging shallow uptake and limited access footprints in financial products like automobile loans thereby excluding a greater percentage of the population limiting interoperalitibilty with financial institutions.
Harmonisation of biometric data between governmental agencies and synergising operations inclusive of financial agencies to create a database will aid in devising a social security system, citizen data and information registry. This will help establish a credit rating system that will aid financial institutions in determining credit worthiness and expanding access to financial instruments such as automobile loans at affordable interest rates due to decreased risk factor.
This can impact the tokunbo economy by creating favourable conditions to phase out importation of used cars. This means that individuals will be able to afford to buy new cars by accessing loans that allow them to repay in installments that is favourable to them.