| Nigeria | Jan 25, 2015
The government has introduced policy guidelines to stimulate investment in local vehicle manufacturing.
According to statistics from the International Carmakers Association (OICA), Nigeria was the 5th largest car market in Africa in 2013. However, the majority of cars being driven on Nigeria’s extensive road network have been imported, rather than being assembled or produced locally. Consequently, Nigeria’s domestic automotive industry has suffered from a lack of investment to develop the sector, with the country missing out on a significant revenue stream that is the local production and assembly of cars. According to Aminu Jalal, Director General of the National Automotive Council of the Federal Ministry of Industry, Trade & Investment, Nigeria, “currently imports 90% of the vehicles we use. Automobiles and spare parts, including tires, are the second major consumer of foreign exchange in the country, totaling over $3.5 billion annually.”
In order to reduce the level of vehicle imports, stimulate job creation in local vehicle manufacturing, and find a way to unlock the revenue potential of the automotive market, the government designed and implemented the National Automotive Industry Development Plan in 2013. The main thrust of this policy is an increase in import tariffs for passenger cars from 20% to 70%, and to 35% for commercial vehicles, in an attempt to ensure the local manufacture of inexpensive cars that would be affordable to Nigerians. The import tariff led to a decrease in imports immediately after implementation of the policy, and has caught the attention of several companies willing to establish assembly plants in Nigeria, resulting in the commencement of 16 new vehicle-manufacturing plants in 2014. Nissan, Renault and Toyota have also indicated keen interest to invest in Nigeria as a result of the Development Plan, with the former two already being involved with a car assembly plant in Lagos.
Apart from raising import duties, the government has another trick up its sleeve to stimulate the sale of locally manufactured vehicles. According to Jalal, the government “will also be developing an affordable vehicle-financing scheme. Over 90% of automobiles in Nigeria are sold on a cash basis, as the vehicle financing through the banks is at an interest rate of 22% per annum, which is not affordable for many purchasers. This is why we are working with banks and agencies to see if we can obtain affordable financing at a single-digit level, which should make vehicles more affordable and boost the market.” It is estimated that the demand for vehicles will double to about 700,000 units annually as a result of the vehicle-financing scheme.
The Plan, which is set to run until 2018, has several elements that will ensure competitiveness and increased productivity in the sector to capitalize on the growing demand for locally produced cars. The industrial infrastructure will be enhanced through the establishment of automotive supplier parks and clusters where industries can share infrastructure, resources and technical expertise. Furthermore, safety and product standards will be enforced, and manpower will receive the necessary training.
At full capacity, the Nigerian automotive industry has the potential to create 70,000 skilled and semi-skilled jobs along with 210,000 indirect jobs in the SMEs that will supply the assembly plants. Around 490,000 other jobs would also be created in the raw materials supply industries. This would herald a dramatic increase in terms of the number of jobs generated by the automotive industry, since the assembly plants directly employed only 2,584 persons in 2013. Furthermore, vehicle manufacturing would enable Nigeria to acquire vehicle-manufacturing technologies, whose application in other economic sectors could have a beneficial spillover effect. The industrial base of a revamped automotive market would then form the foundation for other modern advanced manufacturing activities across the economy of Nigeria.
The government expects that after the first years of the plan, in which most vehicle parts will be imported and assembled locally, over time specific parts will be produced locally as Nigerian suppliers develop key competencies. Thus, local content in the automotive industry will be promoted, just as it has been in other sectors of the Nigerian economy, and will enable Nigerians to take fuller advantage of their own market.