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  • Business - Economy
  • Updated: July 17, 2021

Why Used (Tokunbo) Cars May Become Too Expensive In Nigeria

Why Used (Tokunbo) Cars May Become Too Expensive In Nigeria

Nigerians may need to spend more to acquire used cars in the coming months due to an ongoing "imported inflation".

Imported inflation refers to an increase in the cost of raw materials or finished goods imported from a country of origin that is experiencing high inflation.

The United States experienced an unprecedented expansion in consumer prices in June — an event that cast doubt on the U.S Federal Reserve's assertion that the nation's rising inflation will be temporary. The Bureau of Labour Statistics reported a monthly price increase of 0.9%, the largest one-month increase since June 2008.

Nigerians on the other hand have a large appetite for importation. Over 20 percent of Nigeria’s imports from the US are used vehicles. Nigeria is a huge market for used cars, imported from Europe, America and other countries, however, the United States of America is the leading country of import for Nigeria.

According to data from the National Bureau of Statistics, Nigeria imported about N140 billion's worth of used vehicles in the 1st quarter of 2021 and N150 billion in the 4th quarter of 2020.

Africa's largest economy spends roughly N600 billion or $1.2 billion annually importing used cars from the US alone, 90 percent of its total used vehicle imports.

In the U.S., the most dramatic price increases so far have occurred in sectors directly affected by the coronavirus pandemic. Travel-related costs, such as airfares, have risen, while a semiconductor scarcity has contributed to an increase in used car prices.

According to the US Bureau of Labour Statistics, a record increase in previously used vehicle costs accounted for one-third of the CPI increase last month. They increased by 10.5% in June over the previous month.

Economists predict that this rise will have an impact on nations that rely on U.S products since they would have to pay more for consumer goods sourced in the U.S.

These facts highlight the likelihood of rising inflation on consumer goods in the United States of America to trigger a wave of imported inflation into Nigeria, with a focus on used cars.

In addition, the tumbling value of the naira against the dollar strengthens the case for an increasing difficulty in the purchase of imported goods.

Actions and Consequences

If the cost of Tokunbo vehicles rises for importers, this could evolve into higher transportation and logistics expenses, a perfect storm for sustaining higher inflationary levels.

Nigerians seeking to acquire imported used cars may have to front-load expenses if they want to bypass the risk of spending more on vehicle imports due to imported inflation.

This might mean securing your foreign exchange as soon as possible and paying for the used cars rather than waiting till the prices go up.

An alternative, however, might be to wait till the U.S inflation dissolves as predicted by some economists. This, however, is not a certainty.

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