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Nigeria should look
forward to automobile boom says PwC (Reuters/Monica Mark)
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By Yomi Kazeem (Quartz Africa)
New data from PricewaterhouseCoopers (PwC) predicts that
Nigeria can become a leading automotive hub in Africa by 2050 with an increase
in local production and an expansion in new car markets.
Nigeria is very far away such ambitious targets today
according to the report. PwC says this year Nigerians will import as many as
335,000 used cars, also known locally as ‘Tokunbos’, as well as 90,000 new
cars. But just 30,000 cars will be assembled locally.
Put another way, in 2014, locally assembled cars accounted
for only 15% of total car sales in Nigeria but that number could rise to 70% by
2050, according to the PwC report. In recent years, as former car assembly
plants have fallen into disrepair, Nigerians have spent an increasing amount
importing the majority of the vehicles on the road.
PwC’s forecast is based on optimistic economic projections for Nigeria over a
35-year period, which suggests rapid GDP growth in Nigeria will visibly impact
the country’s automobile sector. In the short term Nigeria’s GDP growth is
actually slowing down with IMF cutting forecasts to 4% from 6.4% due to lower
oil prices.
But GDP growth was not the sole condition necessary for the
automobile industry to boom. With 63% of Nigerians unable to afford a carwithout some form of financial support (pdf, pg 10), facilitating access to
vehicle financing loans is also important. Last year, less than a third of all
new cars sold in Nigeria, were sold to retail customers.
“One of the biggest barriers is lack of credit. Most of the
economies do not sell cars through a cash basis but they buy through borrowing,
this needs to be addressed in Nigeria,” Andrew Nevin, partner Africa strategy
and operations at PwC Nigeria has said.
Similarly, the challenge with porous borders which allow car
smuggling must be addressed to ensure that local production is protected.
Tightening borders and regulating importation will help Nigeria conserve
foreign exchange as its annual car imports value—half of which is believed tobe smuggled– stands at US$3.4 billion.
One of the key reasons for the progress in the growth of the
local automotive industry is the National Automotive Industry Development Plan,
an automotive policy announced two years ago.
The policy has already attracted interest and investment to
Nigeria’s automobile industry as 30 car brands have obtained licenses to start
assembly of cars in Nigeria but its implementation must remain enforced to
allow for consistent growth. Back in August the government awarded licences for
12 new vehicle assembly plants. Names included Toyota, Honda, General
Appliances West Africa and Nigeria-China Manufacturing Company.
Over the years, the market has been saturated by imported
used cars (Tokunbos)
which were popular among the middle class due to flexible pricing compared to
imported new cars but the expected spike in local production suggests that the
importation of used cars will be curtailed by 2034. Nigeria’s annual new car
market currently stands at over 50,000 but with projected growth, it can rise
to as much 7.6 million in 2050.
Nigeria - Africa’s Next Automotive Hub
A
new report on automotive industry in Nigeria released by leading professional
services firm, PricewaterhouseCoopers (PwC) says that Nigeria has the potential
to become the hub of Africa's automotive industry.
The
report titled Africa’s Next Automotive Hub took an in-depth look at the
Nigerian automotive industry from the 1960s to date and stated that the federal
government’s 2013 policy to revive the automotive industry through the National
Automotive Industry Development Plan (NAIDP), contributed largely to the
projection. The policy seeks to discourage vehicle importation and encourage
local production.
The
report noted that the new policy has attracted a number of top automotive
brands into the country with three already commencing assembly in the country
as at 2015. It pointed out that 30 other brands have signed commitments with
technical partners and have already obtained licenses to assemble passenger
cars, sports utility vehicles (SUVs), buses and trucks in the country.
Andrew
S. Nevin, a Partner with PwC Nigeria and Co-Author of the automotive report
said during the presentation of the report that industry experts believe that
Nigeria's potential annual new-car market could be as high as One million. It
currently sits at about 56,000 in a used vehicle dominated market. The National
Automotive Design and Development Council (NADDC) estimates annual imports at
about 400,000 vehicles (100,000 new and 300,000 used), valued at about
US$3.45bn.
He
stated that Local production capacity stands at 100,000, noting that
utilisation has over the years dropped to less than 15 per cent. The NADDC
believes the automotive industry, which currently employs around 2,600 workers,
has the potential to generate 70,000 direct jobs and 210,000 indirect ones.
The
report according to Nevin, presents three growth scenarios for the auto
industry. The growth projections highlight the potential of the industry and
present three different scenarios for the industry till 2050.
“In
these scenarios, growth is measured in term of car sales and we have assumed it
to be dependent on GDP. As a result we use PwC’s The World in 2050, a report
that forecasts economic growth for 32 of the largest economies in the world,
for the period 2014 – 2050”, he said.
He
continued: “In the first scenario, which projects rapid growth, the proper
implementation of the National Automotive Industrial Development Plan (NAIDP)
especially with the protection of the borders and strong government support,
puts real GDP growth at 6.6% till 2020, 5.1 percent till 2030 and 5.4 per cent
till 2050 making it among the ten largest economies by 2050. This scenario
predicts that Completely Knocked Down (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”.
The
second scenario projects medium growth in the situation that there is partial
implementation of the National Automotive Industrial Development Plan (NAIDP)
by subsequent administrations with moderate government support. Here, real GDP
growth is 6.6 percent till 2020, 5.1per cent till 2030 and 5.4 per cent till
2050 making it among the 10 largest economies by 2050.
In
this scenario, Completely Knocked Down (CKD) Production will begin in 2019,
manufacturing will start in 2025, Tokunbo (used imported vehicles) will be
phased out by 2040, while Semi Knocked Down (SKD) will cease to exist by 2041.
The
third scenario, which is pegged at slow growth with inconsistency in government
auto policy resulting in the stagnation of the industry and minimal government
support, has real GDP growth at 5.6% till 2020, 4.1 percent till 2030 and 4.4
percent till 2050.
With
the industry at the risk of stagnation, Completely Knocked Down (CKD)
Production will begin in 2024, manufacturing will start in 2030, Tokunbo (used
imported vehicles) will be phased out by 2044, while Semi Knocked Down (SKD)
will be phased out in 2045.
The
report listed some of the areas in the auto policy that the government through
the NADDC needs to include plans in order to position Nigeria as the next
automotive hub.
This
includes the availability of vehicle financing options to encourage patronage
of locally assembled cars, the tightening of our currently porous borders
through which cars are smuggled, especially as these grey market imports
account for about half of new vehicle sales in the country and adherence to
global quality control by Original Equipment Manufacturers (OEMs) setting up
operations in the country.
The
report also noted that the growth of companies with products and services
supporting auto assembly will improve the country's chances of becoming an
automotive hub and provide more economic activity noting that progression from
basic SKD assembly to CKD or manufacturing is highly dependent on growth of
auxiliary industries and supporting infrastructure such as electricity.
It
therefore stated that building the capacity for components such as batteries,
belts, lights and tyres is key for the success of the auto policy.
In
addition, it pointed out that there are existing gaps in the area of repair,
which will become even more obvious with increased local manufacturing
concluding that plugging this gap will require capacity building, training of
skilled labour and adequate supply of spare parts.
Other
business opportunities which the industry brings include the supply of
equipment to domestic assemblers, supply of spare parts and the setting up of
local component manufacturing plants.
The vehicle distribution
system and how vehicles get to the market also need to be restructured and
therein lies opportunities for many players.
Originally published in Quartz Africa and Proshare
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