Nigeria’s lubricant market is poised to become a profit spinning centre for investors taking early strategic position at the different levels of the value chain needed to make the product available to customers.
Nigeria has an installed lubricant capacity of 600,000 metric tonnes but there is no independent reference laboratory in the country, people familiar with the matter say. This presents investment opportunities.
“Nigeria’s lubricant market offers enormous opportunities for investors looking for high returns,” Emeka Obidike, executive secretary, Lubricants Producers Association of Nigeria (LUPAN), said.
“We are driving advocacy that will see import duty of 50 percent slammed on imported finished lubes. Early investors can also enjoy pioneer status and a five-year tax holiday should we pull through,” Obidike said at the recent Oil Trading and Logistics (OTL) Africa Downstream Week, 2019 in Lagos.
With the recent increase of import duty on base oil and additives (10 percent duty and 5 percent value-added tax) and 30 percent duty, 5 percent VAT on finished lubes, investors have a chance to take advantage of investment opportunities in the sector. Nigeria currently accounts for 700 million litres (1 percent) of global demand.
Nigeria’s automotive lubricants market is projected to reach $683 million by 2023, according to a report by TechSci Research, a research-based management consulting firm. The demand for lubricants in the domestic market is met by supermajor international oil companies (IOCs), as well as independent marketers in Nigeria. The IOCs operating in the country have a major share in the market in terms of sales volume as compared to the independent marketers.
Other areas in the industry where investors can put money and expect high returns include blending plants, additives plants, reference laboratory, recycling plants and base oil plants.
The lubricants market in Nigeria has grown over the years from 2012 to 2017 with the growth in the number of second-hand and new passenger and commercial vehicles in the country. Penetration of used cars and the requirement of more frequent lubricant changes in older vehicles as compared to newer models have contributed to the volume demand of automotive lubricants in Nigeria.
But the slowdown in economic growth in Nigeria impacted this industry negatively. The slowdown arose from the 2016 recession occasioned by the significant drop in oil prices globally. The year 2016 opened with $36.76 per barrel of oil, reaching a year high of $54.06. Given that many players in the industry imported, at the time, large volumes of base oil and other raw materials needed to blend lubricants, the shortage of foreign exchange had a serious adverse impact on various lubricants manufacturing companies’ ability to do business and imposed severe costs on key sectors of the country which further cascaded into all areas of the economy.
The investment landscape is changing with major oil marketers taking advantage of the fact that the lubricants market is deregulated and with little government interference.
Most major oil companies have invested heavily in upgrading synthetic lubricants facilities and have embarked on nationwide awareness campaigns and promotion to make sure that this area of their business, where government does not have as much involvement or control and where there are no issues of subsidy, yields optimum profits.
“We are able to produce world quality lubricants and can price them appropriately. Based on the quality we deliver, our customers are able to reward and pay us slightly more than they may pay some of our competitors because of the quality that we deliver,” Tunji Oyebanji, managing director, 11 plc, told BusinessDay in an exclusive interview.
Total Nigeria plc is the market leader with the highest market share in terms of sales volume in the Nigerian lubricants market, followed by Ammasco International Limited, 11 plc, Oando plc, Tonimas Nigeria Ltd, Forte Oil plc, Conoil plc, Lubcon, MRS Oil Nigeria plc, A-Z Petroleum Products Ltd, Dozzy Oil and Gas, Eterna plc, Techno Oil Ltd and Ascon Oil Company Ltd.
With progress and upgrading of technology, lubricants producers and retailers in Nigeria are tagging alongside global trends. There have been improvements in marketing and branding of lubricants, the introduction of base oil refining and used oil processing.
Experts say increasing favourable regulations in Nigeria’s lubricants market, collaboration with transportation companies, increasing knowledge of consumers and providing better quality lubricants at lower costs will aid the manufacturers of lubricants in the country to grow and achieve higher profits.
STEPHEN ONYEKWELU
