Nigeria’s auto sector shrinks amid uncertainty over economic slump, forex
To most players in Nigeria’s automotive sector, the decline in economic activities visible in real gross domestic product (GDP) contraction of – 2.24 per cent (year-on-year) in the third quarter of 2016, the huge disparity between naira and major currencies and the scarcity of foreign exchange plunged the development of the sector to record low in 2016.
The National Bureau of Statistics (NBS) had said Consumer Price Index (CPI) increased to 18.3 per cent (year-on-year) in October from 17.9 per cent recorded in September, as $1 exchanged for N490 on Wednesday this week at the ‘black market’.
Besides, the exchange rate was volatile throughout the year and remained scarce as oil price drop created revenue shortfall in the economy.
The situation, coupled with current administration’s delay in revealing its roadmap for the sector, according to players, pushed prices of vehicles and spare-parts to record high and limited capacity of local assembly plants.
The Deputy Managing Director, Kewalram Chanrai Group, Victor Eburajolo, said people were not buying vehicles because prices of vehicles soared above the purchasing power of millions of people.
“In a situation like ours, you don’t go for luxury, you go for the basic items so that you can survive. The depreciation in the naira compared to dollar made prices to go up. We use, to sell Pajero for N9 million but in the beginning of the year it moved to 14 million.
He lamented that there was low market, “so we cannot produce because you produce to meet demand”, adding: “Whether you assemble here or not, there is little difference because you are bringing in the parts in dollar.”
President of the Nigeria Automotive Manufacturers Association (NAMA) Adetokunbo Aromolaran, had said economic recession took a toll on vehicle market with plummeting sales and subsequent production cuts across plants, including VON Automobile Nigeria Limited, which was one of the first to venture into vehicle assemblage.
He said demand for cars systematically dropped from 600,000 in the previous year to 350,000 last year and down to about half of that figure this year because of the prevailing situation.
The National Automotive Industry Development Plan (NAIDP), introduced in 2013, with a set vision of creating an enabling environment for the manufacture of Nigerian made vehicles already had 41 players in the first quarters of 2016, but the economic outlook forced the industry to a standstill.
Apart from the fact that the investors could not meet up with projected production capacities, most of the new assemblers like Suzuki and Globe Motors, promised churning out their first made-in-Nigerian vehicles but they could not meet up with their promises.
In 2016, against expectations that the sector will employ more hands, there was massive job losses as operators struggle to stay in operation.
Unlike the previous year, 2016 witnessed fewer introductions of new vehicles. Few of the organisations, which introduced new variants – Peugeot, Infiniti, Nissan, Toyota, Jaguar Land Rover, Ford, Hyundai, JAC and GAC unveiled limited editions.
Expectations were that people would concentrate on maintaining their vehicles to survive in the period of economic downturn but indications emerged that vehicle owners could not find replacement for necessary parts, while importers decried their inability to stock products.
The endless delay in review of the nation’s automotive policy, which government announced around June, also created a challenging market scenario for industry operators.
During a 2016 Fleet Managers’ Forum, titled; ‘Innovation at Work organised by Elizade Nigeria Limited, Chairman of the company, Herbert Ajayi, said: “The not-so-coordinated economic policy of government in the automotive industry is not helping matters.”
“It was not until the end of 2016 that the government came out openly on policies in the sector. The ban of vehicle importation through the land borders created a clear picture of government’s position. But the industry was badly affected by other situation,” Automotive Marketing Consultant, Oscar Odiboh said.
Odiboh pegged development of the sector in 2017 on the ‘language of the recession’, saying: “If the recession bites harder, the sector will be further affected but recession comes and goes so we hope for a better 2017.”
The Director-General, National Automotive Design and Development Council, Aminu Jalal sees government’s decision on banning importation of fairly used vehicles through the land borders, introduction of Vehicle Identification Number Scheme and commitment to launch a finance scheme to ease ownership of brand new vehicles as great achievement for the sector in the year under review.
He expects a better 2017, but admitted that 2016 was tough for the sector, considering the economic situation.
To the Principal partner at Media Advocate Limited, a marketing communications and automotive resource company, Manny Philipson, while there seems to be no clear-cut development of sort in the local auto industry during the outgoing year, 2017 could portend a huge success for the automotive sector if the Federal 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.
And 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.
Marketers of used vehicles also had a tough time throughout the year and this is not unconnected with the prevailing situation.
“Importation of vehicles is no longer profitable. It does not matter whether you are importing from Europe or through the Seme border. The current exchange rate has caused the naira to crash against every major currency,” President of Berger Car Dealers Association, Metche Nnadiekwe, told journalists recently.
A used vehicle dealer, Ogbonna Okechukwu, lamented that he had the worst year in recent years, stressing that the cost of purchase and clearing of vehicles limited purchasing power.
Reacting to recent policies of government, Okechukwu said: “The President needs to know that environment is not favourable and any further pain on the masses will increase the plight of the common man.”
He projected a further hike in prices of vehicles in 2017, should government embark on planned ban on vehicle importations through the land borders.