Nigeria’s auto policy in the eye of the storm
Indeed, the capacity of the sector to drive growth across other sectors of the economy echoes analysts views that the country would be the sixth largest world economy should auto manufacturing come into full swing.
This is because in 2005 alone, world’s automotive industry made over 66 million cars, vans, trucks and buses. The record is equivalent to a global turnover of almost €2 trillion. With these figures, economies of major players were only not being fueled, poverty was being addressed, as more than 50 million jobs were being created the industry, even as the sector served as a major innovator, investing over €84 billion in research, development and production.
These were what most Nigerians envisaged in 2013, when the Federal Government launched the National Automotive Industry Development Plan (NAIDP). The vision was to create enabling environment for manufacturing of Nigerian made vehicles. The vehicles were expected to be of international standards. There were also expectations that the vehicles will be made available to ordinary people at very competitive prices since local human and material resources would be used.
Besides, the sector became imperative as the former government led by Goodluck Jonathan saw the need to design and implement policies, programmes and strategies for an effective, competitive and diversified private sector led industrialisation process to boost non-oil revenue.
Despite Nigeria’s population and the increasing middle-class with average monthly income range of N75,000-100,000, only South Africa boasts as top destination for vehicle manufacturing in Africa. Her automotive industry is capable of churning out over 600,000 vehicles every year. The country is also one of the largest bases used by global automakers to reach markets in Africa, Europe, South America, Australia, North America, and the Middle East.
In a short time (1999-2015), South Africa’s determination to overhaul its auto sector, already yielded Gross Domestic Product (GDP) of 7.5 per cent, total employment of 320,000 (manufactures, components, dealer network), total auto value chain impact on employment of approximate 700,000 jobs, an investment of $750 million in 2015 alone and exports (vehicles and components) of $11b in 2015 alone.
Organisations such as RT Briscoe, Leventis, UAC, SCOA and others started the development of the automotive sector in Nigeria in the 60s through menial establishment of automobile assembly plants using completely knocked down (CKD) or semi knocked down (SKD) parts.
In the 1970s the Federal Government entered the business when it sealed pact with number of automotive plants in Europe to set up assembly plants that will build passenger cars, trucks and light commercial vehicles, using completely knocked down parts.
Peugeot Nigeria LTD (PAN), Kaduna; Volkswagen Nigeria LTD (VWON), Lagos; Anambra Motor manufacturing Company (ANAMCO), Enugu; Styer Nigeria LTD, Bauchi; National Truck Manufacturer (NTM), Kano; and Leyland Nigeria LTD, Ibadan, were products of the agreement. But the companies were privatised in 2007.
Before privatisation, the firms had capacity to churn out 108,000 cars, 56,000 commercial vehicles, 10,000 tractors, 1,000,000 motorcycles and I,000,000 bicycles yearly. But the assembly plants could not survive the harsh economic environment, orchestrated by many factors, so they collapsed.
Component builders, including Dunlop and Michellin also left, though they had established Rubber plantations across the country to source raw materials locally. While the plantations are still in existence, they only produce raw materials to service factories outside the country.
When NAIDP was to launch in 2013, poor infrastructure, as well as, other challenges were cited by section of industry stakeholders as bane of the sector and reasons that should force the National Automotive Design and Development Council (NADDC) to rethink the implementation of the scheme.
The Managing Director and Chief Executive Officer of Admiralty Motors Limited Maryann Chukwueke, said: “My personal opinion is that the policy is premature. In economies, like in South Africa, there is an enabling environment and incentives to attract manufacturers’ profitability. This is not the case in Nigeria. We don’t even have regular power supply to begin with. For instance, my organisation runs on generator 24 hours daily. We have a water system that we put in place by ourselves. These are not the type of situations that the international market is used to.”
Chief Executive Officer of the Nigerian Economic Summit, Laoye Jaiyeola, had also lamented that though the size of the automobile market in Nigeria is worth over $4b yearly, it does not translate into anything meaningful.
Notwithstanding, over 41 automakers – including Ford, Nissan, Toyota, Peugeot, Volkswagen, Hyundai, Kia, set up plants to build vehicles from completely knocked down parts (CKD) and semi-knocked down parts (SKD).
The inability of government to sustain series of attempt to build a robust automotive industry over the years evidently left importation as one of the only ways out to meet local demands.
Rising inflation, lack of financing scheme, increase in tariff for both fully built (new) and Tokunbo vehicles and the disparity that weakened the naira against major currencies combined to shrink the market to all time low in 2016, as most of the plants could no longer continue full operations.
The President, Shippers Association, Lagos State, Jonathan Nicol had disclosed that with 75 per cent tariff and levy on imported new vehicles and 35 on used vehicles, which started in 2015, imports reduced by more than 50. While the automakers could no longer retain most of their staff, recent statistic showed that the Federal Government had lost about N800b.
NADDC expects the sector to generate 70,000 direct jobs, as well as employ about 210,000 indirectly, but experts believe that it is currently not feasible as the sector cannot boast of any local content.
PWC had presented three growth scenarios for the industry until 2050 if all things were equal. The scenarios, which pegged growth on car sales dependent on GDP, in the first case, which projects rapid growth, believes that proper implementation of the NAIDP, particularly with the protection of the borders and strong government support, puts real GDP growth at 6.6 per cent till 2020, 5.1 per cent till 2030 and 5.4 per cent till 2050, making it among the ten largest economies by 2050.
This scenario predicts that CKD production will begin in 2019, manufacturing will start in 2023, Tokunbo (used imported vehicles) will be phased out by 2034, while Semi Knocked Down (SKD) will no longer exist by 2035.
PWC’s second scenario projects medium growth in the situation that there is partial implementation of the policy by subsequent administrations with moderate government support. Real GDP growth is expected 6.6 per cent till 2020, 5.1 per cent till 2030 and 5.4 per cent till 2050, still making it among the 10 largest economies by 2050.
In this case, the group projected CKD production to begin in 2019, manufacturing by 2025, used imported vehicles to be phased out by 2040, while SKD is expected to cease by 2041.
In the third situation, which pegged growth at slow rate with inconsistency in government auto policy resulting in the stagnation of the industry and minimal government support, has real GDP growth at 5.6 per cent till 2020, 4.1 per cent till 2030 and 4.4 per cent till 2050. With the industry at the risk of stagnation, CKD production is likely to begin in 2024, manufacturing in 2030, Tokunbo (used imported vehicles) to be phased out by 2044, while SKD will be phased out in 2045.
Meanwhile, Nigeria’s GDP shrank by 2.1 percent year-on-year in the second quarter of 2016, compared to a 0.36 percent drop in the previous period and worse than market consensus of a 1.5 percent decline. It is the first contraction in 20 years due to a decline in oil prices, economists said.
To stakeholders, the sector still needs consistent or unclear policies, a stable economic performance, ideal macroeconomic environment, favourable interest rates, assemblage or design of cars suitable to the purchasing power of the masses, improved infrastructure, including modernised ports and customs administration.