Nigeria as the automotive Hub for Africa

Recent data from PricewaterhouseCoopers predicts that Nigeria can become a leading automotive hub in Africa by 2050 with an increase in local production and an expansion in new car markets. According to this PwC report, in 2014, Nigerians were estimated to import as many as 335,000 used cars (also known locally as ‘Tokunbos’) as well as 90,000 new cars; but just 30,000 cars were assembled locally.

In effect, this means that in 2014, locally assembled cars accounted for only 15% of total car sales in Nigeria. But according to the PwC report, the percentage of locally assembled cars could rise to 70% by 2050. With a population estimated at 170 million people (including a middle class of over 40 million) and a largely imports dependent automotive industry, Nigeria is Africa’s largest economy and is increasingly seen as an attractive destination for investors interested in the automotive sector.

One of the key reasons for optimism for growth of the Nigerian automotive industry is the National Automotive Industry Development Plan, the automotive policy launched in 2014. The policy has already attracted interest and investment to Nigeria’s automobile industry as 30 car brands have already obtained licences to start assembly of cars in Nigeria. Reports also claim that the government awarded licences for 12 new vehicle assembly plants to automotive manufacturing companies, including Toyota and Honda. This means that there are also good opportunities for producers of vehicle parts, accessories and associated chemicals as Nigeria embarks on this new programme of revitalising the local automotive industry.

The huge potential for job creation in the automotive and allied sectors of the economy has been highlighted by a recent study by the National Automotive Council. The study showed that if the 100,000 – 120,000 new vehicles currently imported annually were assembled locally, it is estimated that this would create jobs for more than 280,000 people who would be directly engaged within automotive manufacturing and assembly, whilst creating some 490,000 other jobs in the raw materials supply industries. The study also showed that assembling the 100,000 – 120,000 cars locally would generate some $185million revenue for Nigeria and help to reduce Nigeria’s huge foreign exchange bills.

Vehicle assembly started in Nigeria in the 1960s when some companies such as UAC, Leventis, SCOA, BEWAC, and RT Briscoe led the way using semi-knocked-down (SKD) kits. The Nigerian government became involved in the automotive industry in 1972 when it signed Joint Venture Agreements (JVAs) to set up two car assembly plants (Peugeot Automobile Nigeria Ltd, Kaduna and Volkswagen of Nigeria Ltd, Lagos). This was then followed by four more joint ventures agreements in 1975 to establish commercial vehicles assembly plants (Anambra Manufacturing Company Ltd in Enugu, STEYR Nigeria Ltd in Bauchi, the National Truck Manufacturers Ltd in Kano, and Leyland Nigeria Ltd in Ibadan).

These six assembly plants established by the federal government used completely-knocked-down (CKD) kits; and had an installed capacity for producing over 100,000 vehicles annually by the 1980s, with a provision for meeting specific local contents. However, the financial crises which started from 1985 and the subsequent introduction of the Structural Adjustment Programme led to a drastic reduction in demand for new vehicles and the beginning of the shift of demand to second-hand vehicles.  This coupled with the lack of government patronage and the lowering of the vehicle import tariffs in 2005 led to the collapse of the industry. It should be noted that all six assembly plants were privatized by the federal government by December 2012 when it withdrew from these investments having recognized private sector initiative as essential for a profitable auto industry operations.

The objectives of the government in entering into the JVAs to set up the six assembly plants were:

§  aid the early integrated development of the industry by exercising some measure of control over both the passenger car and commercial vehicle arms of the industry;

§  accelerate the stagnant pace of local parts incorporation, halting the trend towards a    proliferation of makes and models, thereby ensuring that parts for the few makes available can be locally manufactured in commercial quantities;

§  to stimulate the growth of indigenous automotive components manufacturing and ancillary industries; and

§  toensure greater standardization of technology and a more efficient utilization of costly equipment in the industry.

Unfortunately, the objectives of setting up these assembly plants were not realised, and federal government took the decision to withdraw from these agreements and privatised the plants in 2012.

Unlike the JVAs the Nigerian government entered into, the Indian government was able to establish successful agreements. Indeed, JVAs played a large part in the development of the Indian automotive industry, in particular after 1991, when the government removed restrictions on the setting up of new automotive plants. This JVA policy resulted in an influx of foreign car manufacturers, with many foreign automotive car manufacturers entering into JVAs with local Indian firms.

One of the objectives of these JVAs was to fast track technology transfers, and promote local content with the strategic goal of India becoming a major global supplier of automotive parts and components. The success of this JVA policy has meant the local content in locally assembled vehicles is over 80% and that the local Indian firms were able to master automotive technology, as demonstrated by Tata Indica (produced by Indian manufacturer Tata Motors since 1998) and Mahindra and Mahindra Scorpio (produced by Mahindra and Mahindra Limited).

 

Ndy Ekere