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How COVID-19 hurts Nigeria’s auto, rail sector

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BENJAMIN ALADE examines the impact of the coronavirus on Nigeria’s automotive value chain and the ongoing Lagos-Ibadan rail project.

The cost of the coronavirus outbreak for businesses is rising as the organised private sector explores measures to reduce the impact on the struggling local economy.
 
Besides, at the global level, its worrying effects on human life, the novel strain of coronavirus (COVID-19) has the potential to significantly slowdown not only the Chinese economy but also the global economy.
 
China has become the central manufacturing hub of many global business operations. Any disruption of China’s output is expected to have repercussions elsewhere through regional and global value chains.

 
Although cargoes are still received from China and other European countries, there is the fear of sustainability of business operations that require the movement of personnel for maintenance of plants and machinery as well as the disruptions in the supply chain.
  
An Automotive research firm, IHS Market expects automakers to lose about 350,000 units of vehicle production in the first quarter as local Chinese governments keep plants closed to keep the coronavirus from spreading.

Government officials in China have extended the shutdown in some provinces. If the plants remain closed until mid-March, as some industry analysts have speculated, IHS forecasts lost production of more than1.7millionunits for the first quarter. That’s a roughly 32.3 per cent decline from its initial expectations before the first patient was discovered in Wuhan, China, in the Hubei province on December 31.

In a technical note on global trade impact of the COVID-19 Epidemic, prepared by Division on International Trade and Commodities, United Nations Conference on Trade and Development (UNCTAD) sighted by The Guardian on Wednesday, revealed that China has become crucial to the global economy during the last two decades.

China’s rising importance in the global economy is not only related to its status as a manufacturer and exporter of consumer products. China has become the main supplier of intermediate inputs for manufacturing companies abroad.

According to the report, Chinese manufacturing is essential to many global value chains, especially those related to precision instruments, machinery, automotive and communication equipment.

Any significant disruption in China’s supply in these sectors is deemed to substantially affect producers in the rest of the world. Indeed, many companies around the world are fearful that the measures put in place to contain COVID-19 (i.e. restrictions to economic activities and movement of people), could hinder the supply of critical parts from Chinese producers, therefore affecting their own output.

A reduction in Chinese supply of intermediate inputs can affect the productive capacity and therefore the exports of any given country depending on how reliant its industries are on Chinese suppliers.

For example, some European auto manufacturers may face the shortage of critical components for their operations, companies in Japan may find difficult to obtain parts necessary for the assembly of digital cameras, and so on.

For many companies, the limited use of inventories brought by a lean and just-in-time manufacturing process would result in shortages that will impact their production capabilities and overall exports.

Impact on rail project
Already Nigeria is feeling the impact as the ravaging effect has extended itself to the country, particularly with regards to the Lagos-Ibadan standard gauge rail line, one of the major projects being executed by Chinese contractors in Nigeria.

Minister of Transportation, Rotimi Amaechi, had announced that the Lagos-Ibadan railway project was estimated for completion by June 2020, however, the reality of the announcement may be impeded by the effect of Coronavirus.

The Federal Government had taken a $1.5b loan from China EXIM, and part of the condition precedent for the loan was to ensure that a Chinese firm executes the project. The project was then awarded to China Civil Engineering and Construction Company (CCECC), who contrary to what the minister asked, has been acquiring most of the equipment and other supplies needed for the project from China.

Amaechi in Abuja yesterday while appearing on a national television programme, stated that the Lagos-Ibadan standard gauge rail project has been put on hold following the outbreak of Corona Virus in China.He said the contractor, China Civil Engineering Construction Company travelled to China but their government stopped them from returning back to Nigeria.

He said: “If not for Coronavirus we could have completed the Lagos-Ibadan rail project because the Chinese handling the project travelled but their government did not allow them to return to Nigeria.”

General Manager, Corporate Culture, CCECC, Vincent Liu, while speaking on the issue verified that some of its workers have delayed or rather postponed their return for safety reasons.

He, however, stated that “this has minimal impact on the project. We have been working round the clock to deliver the project based on the mandate of the Minister of Transportation.”

Regarding the equipment shipment, Liu said: “Quarantine efforts to contain the spread of the Coronavirus are in place along shipping lines. Global supply chain is suffering as a result of concerns for seafarers, cargoes and passengers, and quarantining of ships.

“This has implication for every business all over the world, not just CCECC. As a result, some equipment meant for the project may be delayed in arriving Nigeria”.

However, stakeholders in the transport sector especially the automotive value chain have continued to express their concerns on the effect of the outbreak.

Spare parts dealers’ worry
Automobile spare parts dealers who decried the effects of the Coronavirus on its business said the virus has led to low turnout in sales.

 
The Dean, School of Transport, Lagos State University (LASU), Prof. Samuel Odewumi, said the global economy is already pointing downwards. COVID-19 is no joke.

Odewumi said although it’s still unfolding, the impact is likely to be far more devastating than anticipated. The paradox is that its weakness is also its weapon of spread.

“Because it doesn’t hit the victims with a bang like Ebola, many carriers are not visibly sick and bedridden yet they go on infecting their contacts.”

He said as far as transport sector is concerned, it’s a direct hit. Flights are being cancelled, Visas are getting suspended, protocols at the airports are getting complicated, scheduled events are getting cancelled; in terms like this mobility gradually grinds gradually to a crawl.

“Three of my international Transport and Logistics are already postponed indefinitely. My students planning a U.S. tour are being told to hold on,” he said.

Secretary, Foreign Trade and Investment Committee, Automobile Spare Parts and Machinery Dealers Association (ASPAMDA), Sir Leo Okoye, said the effect of the Coronavirus is devastating to our markets. 
  
According to Okoye, being an international market that we operate in the outbreak of the virus has affected our business drastically. Foreigners are no more coming in for business. 

  
He said virus has caused hikes in the sales of auto parts. Some of the parts are triple the price because there is no supply. 
  
“The goods that came before the outbreak of the virus is already getting out of stock. An auto mechanic event coming up this month was cancelled because of the outbreak.”
 
Speaking on alternative markets to purchase spare parts, he said until the outbreak is curtailed there are no alternatives. 
 
“I don’t there will be alternatives because the Chinese are indoors, they are no more producing. 
 
“We are not receiving goods again, the last consignment we received will soon be out of stock and after then, we won’t be selling again, this Coronavirus is a threat to our businesses,” he added. 

Assistant Public Relations Officer, Ladipo International Market, Ezekiel Ezekwo, said: “It has affected our sales, because our people are not travelling to China again. 
  
“Nobody can import, nobody can send money to load container for now. Some of our members usually travel every month but can no longer do so. 

 
The business is dull now, people don’t want to travel because they don’t know where they can contact the virus,” he added.
While there is still uncertainty about the impact of the COVID-19 on China’s productive capacity, the most recent statistics point to a significant downturn.

Based on the analysis, two key points was made. First, even if the outbreak of COVID-19 is contained mostly within China the fact that Chinese suppliers are critical for many companies around the world implies that any disruption in China will be also felt outside China’s borders. European, American and East Asian regional value chains will be disrupted.

The estimated global effects are subject to change depending on the containment of the virus and or changes in the sources of supply.
Secondly, it is expected that the spill over effects of a disruption in Chinese supply will be diverse across economic sectors and dependent on the geographic localization of the COVID19 outbreak and of the containment measures within China.

For example, automotive industry’s intermediate exports may fall relatively more as the industry is geographically localized in the region where the outbreak of COVID-19 occurred.


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