Factors that will shape auto sector in 2017
As the global automotive market looks to 2017 with more potential challenges than in recent memory, the development of the sector in Nigeria has been pegged on a number of variables. These include positive improvement in the volatility of the naira compared with other major currencies, availability of foreign exchange, stable macroeconomic situation, government policies and commitments and a host of others.
The sector witnessed all-time decline in 2016, as economic realities showed negative results and plunged the development of the sector into record low.
In the previous year, assemblage of vehicles was halted across pants; demand for cars dropped from 600,000 in the previous year to 350,000 in 2015, and down to about half of that figure in 2016. The market for luxury cars was worst the hit, as prices soared beyond the reach of buyers, the naira-dollar disparity also jacked up prices of spare parts and maintenance.
In 2017, the Chairman, Automobile and Allied Sectoral Group of the Lagos Chamber of Commerce and Industries, (LCCI), Oseme Oigiagbe, predicted a marginal improvement in the sector should the prevailing economic situation becomes stable.
At the global level, crude prices rally, China’s gross domestic product (GDP) growth, or further increase in the country’s debt levels, the impact of Donald Trump’s Presidency on the global economy as well Brexit, would shape the development of the sector this year, experts said.
Without factoring in the shift to electric vehicles and lightweight materials, and the longer-term sea-change in demographics, most experts believe that global automotive market would be shaped by macroeconomic conditions that dictate the strength of auto demand. However, the conditions are mixed and confused across the globe following a series of shock events in 2016, particularly with the basic volatility of conditions.
For instance, GDP in Nigeria contracted by -2.24 per cent (year-on-year) in the third quarter of 2016, exchange rate was N490 to $1 earlier this week at the ‘black market’ as dollar scarcity persists, Consumer Price Index (CPI) rose to 18.3 per cent (year-on-year) in October, and oil price drop created revenue shortfall in the country.
Though oil price at the international market is inching upward as local output is stabilising in Nigeria, but the development is unpredictable. Should crude rally extend, the industry could be faced with the undesired twin spectre of rising costs and falling sales, experts said.
Oigiagbe said: “We are not expecting any significant change. The shortage in the inflow of foreign exchange in the economy may still continue. People will focus on maintenance because they will want to keep their assets. Production will still be slow, unless there is direct investment. But there will be marginal increase from where we are in 2016.”
Government has increased tariff to boost local production, importation of vehicles through the land borders is also being banned to boost local patronage, and plan is also underway to introduce vehicle identification number (VIN) scheme. If these are implemented, Oigiagbe expects a steady growth in the sector, insisting that the sector is key to economic revival, adding that government needs to take the industry more seriously by encouraging production and provide fund to bring in spare-parts.
But the situation may be as the expense of the masses, who rely on used vehicles. A used vehicle dealer, Ogbonna Okechukwu, said prices of used vehicles may soar this year, as government policies may worsen business environment.
He said the cost of purchase and clearing of vehicles would limit purchasing power
The Director General, National Automotive Design and Development Council, Aminu Jalal, also shared Oigiagbe’s opinion. To him, government’s decision to ban importation of fairly used vehicles through the land borders, introduction of the VIN Scheme and commitment to launch a finance scheme to ease ownership of brand new vehicles would make 2017 a better year for the sector.
The Federal Government announced plans last year to launch N7.5 billion credit purchase scheme to allow Nigerians buy locally made vehicles. The scheme, which expects to provide loan at a single interest rate may boost sales of new vehicles in 2017, but buyers would have to contend with high price, as prices of brand new vehicles have increased exponentially.
“If the recession bites harder, the sector will be further affected but recession comes and goes, so we hope for a better 2017,” Automotive Marketing Consultant, Oscar Odiboh said.
The Principal Partner at Media Advocate Limited, a marketing communications and automotive resource company, Manny Philipson, said 2017 could portend a huge success for the automotive sector if the Government implements the proposed policy effectively.
Philipson expects increasing activity at the vehicle plants, influx of OEMs (original equipment manufacturers), more jobs, and healthy liaisons with the banks and rising demand for locally assembled vehicles.
“The government, it is hoped, would in the New Year, create a window of access to FOREX at controlled rate to ensure prompt availability of locally assembled vehicles to bridge the shortfall that might be created by the prohibition of vehicle imports through land borders.
“On the other hand, stakeholders in the auto sector, particularly dealerships should begin to liaise with relevant financial institutions and the National Automotive Council to workout effective modalities, to introduce amicable vehicle financing schemes that could attract effective demand,” he said.