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Research Insights: Nigeria’s struggling automotive industry: Can it rev up?

Research Insights: Nigeria’s struggling automotive industry: Can it rev up?

Nigeria, boasting one of Africa’s largest vehicle markets, struggles to grow its domestic auto industry. Despite several initiatives to optimally drive the sector’s growth, locally made cars remain vastly outnumbered by imported ones. The sector is performing sub optimally relative to similar emerging economies, with myriads of previous interventions yet to crystallise.

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In 2012, the sector was about US$3.2 billion in size, contributing 0.04 percent to the GDP, and barely employed 4,803 people. The country was witnessing an annual importation of approximately 700,000 vehicles valued at more than $6 billion. Among these, only approximately 50,000 vehicles were brand new. This led to the development of the National Automotive Industry Development Plan (NAIDP) in 2013, with import tariffs on fully assembled vehicles raised to 70 percent, while tariffs on partially assembled vehicles were reduced to between 5 percent and 20 percent. The policy strengthened the sector with an attraction of US$1 billion in foreign direct investment and an increase in the number of assembly plants to 30 with an installed capacity to assemble 400,000 vehicles annually. Nevertheless, a host of challenges have continued to debilitate the industry, hampering its potential.

In 2023, the government initiated a new ambitious plan, the new 10-year NAIDP, which seeks to transform Nigeria into a full-fledged vehicle manufacturer by 2033. The plan seeks to capitalise on the country’s strengths: a large domestic market, a skilled workforce, and access to raw materials. The question remains: can the rubber meet the road with the implementation of this updated plan?

Set Targets for NAIDP 2023.

Source: NADDC, 2023

Auto scenes across borders

In various contexts, the automotive industry serves as a cornerstone of economic development and stability. On a global scale, it contributes approximately 3 percent to the overall GDP and plays a critical role in job creation, driving technological progress, nurturing local talent, and fostering the expansion of domestic value chains. Collectively, these factors contribute to enhancing the overall quality of life and standard of living for people.

The African region has a car parc rate of just 40/1000 with a total vehicle population of about 50 million, contributing to less than 1 percent of global vehicle production. The low rates in the region point to the low GDP level, which affects affordability, significant underinvestment in the sector in terms of vehicle production capacity, as well as insufficient infrastructure to support the sector’s growth.

Read also: Chery: A peep into the future of automotive innovation

The sector plays a significant role in South Africa’s economy, contributing about 5 percent of its GDP in 2022. South Africa is the region’s largest producer and consumer of new automobiles, contributing almost 50 percent of the region’s production and 40 percent of its sales, driven primarily by notable OEMs (original equipment manufacturers) such as Volkswagen and Toyota. It has a robust supply chain to support local production, but despite the relatively impressive manufacturing capacity, it still does not have a significant export footprint on the continent.

 “Offering incentives such as tax breaks and subsidies for locally manufactured vehicles can encourage more investment in domestic production facilities.”

Morocco has seen a similar impressive growth pattern in its automotive sector. In the early 2000s, the industry began to expand significantly. This growth was fueled by a series of intentional policies aimed at enhancing trade relations and improving local infrastructure to increase domestic production.

Source: Economist Intelligence Unit (EIU), 2023.

The Road map to growth

Nigeria’s automotive industry is undergoing a significant shift, marked by the rising prominence of Chinese car brands and a surge in the sale of used vehicles. This shift reflects a complex interplay of factors, including the depreciation of the naira, escalating import expenses, and evolving consumer tastes.

Chinese automakers producing semi-knocked-down (SKD) cars such as MG, GAC, Chery, Geely, and Changan have emerged as key players in this evolving market. Their success can be attributed in part to their competitive pricing strategies and diverse array of models, particularly in the SUV segment. Meanwhile, traditional automotive powerhouses from Japan, Korea, Europe, and the U.S. still hold market share, but Chinese offerings are creating stiff competition.

By capitalising on strategic opportunities, Nigeria can drive growth in its automotive sector, benefiting the overall economy as a whole. Offering incentives such as tax breaks and subsidies for locally manufactured vehicles can encourage more investment in domestic production facilities. Besides job creation, it also reduces reliance on imports, contributing to the growth of the local manufacturing sector and thus contributing to economic development.

Investing in research and development (R&D) initiatives can spur innovation within the automotive industry. This can lead to the development of more fuel-efficient vehicles, alternative fuel technologies, and safety features, making Nigerian-made cars more competitive both domestically and internationally.

Read also: Here are top 10 automotive exporting countries in 2022

Source: BusinessDay Intelligence Survey, 2024

Based on the survey results from BusinessDay Intelligence, which indicate that a significant (total) 62 percent of participants are optimistic about supporting Nigerian-assembled cars, a compelling story emerges, pointing towards a bright future for the domestic automotive sector. This high level of confidence reflects an increasing trust among consumers in the quality, dependability, and overall value of locally assembled vehicles.

Considering these factors, there is palpable hope and rationale for consumers to consider purchasing Nigerian-assembled cars. Beyond mere economic considerations, such a decision may be viewed as a vote of confidence in the country’s industrial capabilities, a contribution to national development objectives, and an affirmation of the quality and competitiveness of locally produced vehicles.

 

BusinessDay Intelligence

Contact: Chief Research Officer: Nike Alao (+2348034856676)