Increased support for local production in Nigeria

Thanks to a new policy on automobile imports and key foreign investment, passenger cars are being produced in Nigeria for the first time in decades, and could lead to a domestic automotive assembly industry in the country. While a small trickle of commercial vehicles have been assembled in Nigeria in recent years by local manufacturers such as Innoson Group, the first-to-market Nigerian passenger car was produced through a joint venture between the RenaultNissan Alliance and the Stallion Group to assemble Nissan models in the country. Stallion, a local conglomerate, repurposed an existing facility near Lagos for Nissan that it had been using for small-scale production of commercial vehicles.

The project has the potential to open a range of new labour-intensive, value-added manufacturing activities for Nigeria – something other African auto producers like Morocco and South Africa have managed with impressive results, developing supply chains that allowed for the emergence of domestic component providers and sub-contractors. Certainly, Nigeria’s comparative advantages are clear: the country’s domestic appeal as a consumer market is sizable, with a population of over 170m, and in January 2014 Carlos Ghosn, chief executive of the Renault-Nissan Alliance, said he envisions the country as a “significant manufacturing hub in Africa”.

However, reviving local auto manufacturing will take some time. As with other attempts in the past, both for cars and other goods, the current effort at developing an automotive industry is reliant on protecting domestic players by taxing imports. They are typically cheaper than Nigerian products on account of the high costs of production within the country, due to factors like the need to import supplies, sporadic electricity and poor roads, as well as other basic obstacles. The hope is that taxing imports will help local industries to develop.

Long Gone

During the immediate post-independence era, Nigeria had a number of large-scale auto manufacturing facilities, with government joint venture factories churning out vehicles from the UK’s Leyland, France’s Peugeot and Germany’s Mercedes-Benz, among others. However, output has declined significantly in the decades since and most of these facilities have now been shut down. Nigeria’s existing small production lines of commercial vehicles are complete or semi-knockdown assembly kits imported and constructed at plants such as those of Stallion and Innoson Vehicle Manufacturing, which is a domestic vehicle producer that has been producing since 2010 at a plant in Anambra State. About 1500 units were sent to market from these factories in 2012, according to Auto Africa News.

To further boost production and investment, the outgoing Jonathan administration launched the Automotive Industrial Policy Development Plan, which seeks to limit imports in favour of domestically produced vehicles. Import tariffs for vehicles start at 35%, whereas complete knockdown kits for domestic assembly can be imported without tariffs and semi-knockdown kits at either 5% or 10%, depending on whether the body parts are painted and glazed.

The rationale behind the tariff raise is clear: revenue from these measures is intended to be used on vehicle-financing schemes for buyers and to develop a supply chain for parts through the establishment of industrial parks. The government has also stated that automotive production could create 70,000 skilled and semi-skilled jobs, and another 210,000 at small and medium-sized enterprises serving as suppliers to the producers. For investors that are willing to set up an assembly line, tax holidays and incentives for local research and development and infrastructure developments are available.

First-To-Market

Stallion, for now the only producer of passenger cars along with Renault-Nissan, announced this joint venture in October 2013. The decision came before the final announcement of the new government policy, but was based on the expectation that it would be implemented. The plans call for repurposing Stallion’s existing plant west of Lagos plant to produce 45,000 vehicles a year, including the Micra, Sentra and Almera models, as well as some small trucks familiar from other markets such as the Terrano and the Patrol. This fits with Nissan’s plans to boost sales in Africa. It sold 110,000 vehicles in Africa in fiscal year 2012, and aims to double that by fiscal year 2016. The government, which has been the largest client thus far for new automobiles, took delivery of the first vehicles Renault-Nissan and Stallion produced in early June 2014.

In January 2014 Tata Motors and TVS Motors, both Indian companies, announced intentions to enter the market. South Korea’s Kia Motors also agreed with its Nigerian retailer Dana Motors to begin assembling in the country within two years. As of June 2014 there were a total of 12 foreign makers that had indicated interest in assembly in Nigeria, according to Aminu Jalal, director-general of the National Automotive Council, a body created by the government in 1993 to ensure implementation of automotive policies. An existing asset that may be of value to one of these investors is Peugeot’s old factory in Kaduna, according to local news reports, although this northern location may be a challenge. For now, the largest market for autos is Lagos, as well as being the cheapest place to produce them. Assembly kits would have a shorter journey from port to plant, as the condition of Nigeria’s roads present a logistical challenge for supplying inland ventures.

Consumer Market

Increasing automobile manufacturing in Nigeria will entail not only ensuring that producers have sufficient access to inputs, but also the ability to tap into the vast consumer base, which is no easy task, given the size of the informal market. The formal retail market is dominated by Toyota Nigeria, which accounts for around 70% of vehicle imports, according to local media reports. In the market for commercial vehicles, Tata Motors has been a strong performer in recent years, boosting sales by 100% annually since arriving in 2008. It supplies vehicles such as buses, garbage trucks, concrete mixers and dump trucks, often to governments such as that of Lagos State. The government is an important buyer, but now intends to favour domestically produced vehicles where possible in procurement, in accordance with its new approach.

Competitive Pricing

As in other low- or middle-income countries, consumers are price-sensitive, in particular at the lower end of the market. Kia currently offers new cars for between N1.5m ($9150) and NN2.5m ($15,250). Nissan’s vehicles are expected to sell in a range of N1.2m-1.5m ($7320-9150), according to a South African auto-industry report. Innoson, which currently produces commercial vehicles and a small truck, says it plans to build passenger cars that will sell for around N1m ($6100).

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