• Friday, July 19, 2024
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Why Nigeria’s auto industry is going nowhere

Why Nigeria’s auto industry is going nowhere

Back in 2012, Nigerians could afford to buy new cars at N4 million each.
Six years after, prices of new cars have shot up to N20 million per car on the average, pricing out the middle-class who often make up a large percentage of buyers.
The reason for prohibitive prices of new cars can be found in the 2013 National Automotive Policy which, first, imposed 35 percent levy and 35 percent duty on imported vehicles, amounting to a total of 70 percent.
Even with 70 percent fees paid on imported vehicles, importers of damaged or ‘accidented’ vehicles officially enjoy a rebate of 30 percent.
What this has done is to encourage the importation of rickety vehicles, which make up 70 percent of imported cars today.
The age of most imported used cars in Nigeria is 15 years, whereas that of Algeria, Angola, Chad, Mauritius and Seychelles is three, according to a research done by PwC, presented by Andrew Nevin, partner and chief economist at PwC Nigeria in Lagos.
“Imported used car segment (Tokunboh) dominates the industry, accounting for 74 percent of all vehicle imports, making Nigeria the largest market for such cars in the world. Ten percent of imported cars are less than three years old, while 63 percent are over 11 years,” Nevin said at a Lagos Chamber of Commerce (LCCI) automotive sector event.
The prohibitive levy and duty paid on imported cars have encouraged smuggling of vehicles into Nigeria.
Only 6,999 new cars were sold in Nigeria in 2017 as against 555,716 in South Africa; 181,001 in Egypt; 168,913 in Morocco, and 94,408 in Algeria, according to PWC data
“There is no market for even the investors,” said Thomas Pelletier, managing director, CFAO Nigeria.
“The fact is that cars are too expensive. We have seen a market drop of 75 percent in the last three years. Increase in duties has increased smuggling,” Pelletier said.
The National Automotive Design and Development Council (NADDC) has issued licenses to 54 vehicle companies for local assembly.

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Industry experts estimate the capacity of these firms at 400,000 units per annum.
The National Bureau of Statistics says Nigerians imported 105,189 units of vehicles (mostly used and accidented) in 2016 through the ports and raised the number to 181,404 (72.46 percent increase) in 2017.
“If we want to develop a market for 54 companies that have got licenses with 400,000 capacity plants and we import a huge number of used vehicles, how are we going to support vehicles being assembled, since the ones assembled locally will be more expensive?” Bambo Adebowale, chairman, Auto and Allied Sector group of the Lagos Chamber of Commerce (LCCI), asked in a recent interview with BusinessDay.
PwC estimates that 410,000 cars were imported into Nigeria in 2014, out of which 74 percent were used.
Passenger cars and commercial vehicles lead vehicle sales with a combined share of 61 percent.
Corporate purchases account for the largest share of vehicle sales with 34 percent of the market, while individual purchases are a close second, accounting for 30 percent of the market.
At this point, the auto policy is not making any headway with government losing a significant amount of revenue from smuggling and importation of accidented vehicles; while the local assemblers not selling because of pricing, key players say Nigeria needs to come up with a policy that will make vehicles affordable.
“The real issue is affordability. We control 80 percent of the market today because used vehicles are cheaper,” Ajibola Ajiboye, chairman of car dealers in Nigeria, said.
A sample list of 1.6-liter engine cars used by banks and other corporate buyers shows that prices have more than doubled between 2014 and 2017.
In 2014, a brand new Kia Cerato 1.6 litre automatic transmission saloon car sold for N3.96 million but now costs N9.54 million in 2017, while a Picanto 1-liter engine capacity which costs N2.25m three years ago sold for N4.95 million in 2017.
Toyota Corolla 1.6 liter GLI automatic transmission fabric sold for N4.45 million three years ago, but the same specification now costs not less than N18.9 million.
During the same period, a Mercedes-Benz C200 luxury sedan which is sold with a dealership price tag of N10.5 million costs N25 million in 2017, while a G63AMG model sold at N50 million before presently wears a price tag of N78 million.
This shows a price jump of over 100 percent and this applies to other brands of vehicles in the market plus those manufactured in Korea, Japan or Germany.
The 2016 recession was a setback to the Nigerian automotive industry, according to PwC.
Challenges to the automotive sector include poor patronage of made in Nigeria goods, inadequate power supply, corruption and bureaucracy stifling the business environment, Dearth of transport infrastructure, lack of skilled manpower and gaps in auto servicing and repairs.
“Without structural reforms, poor infrastructure will impede Nigeria’s ability to leapfrog and adopt emerging global trends. Consequently, Nigeria risks becoming the dumping ground for old vehicles,” said PwC.