Auto assembly revs up in Nigeria

Text size +-

The first made-in-Nigeria passenger cars for decades rolled off factory lots in Lagos State in June, marking what authorities hope is the beginning of a new era for automotive assembly in the country. The move also raises hopes among some of the world’s key automakers that Nigeria can become a bigger source of customers as well as a supplier for Africa.

The cars are Nissan models made in a joint venture between the Japanese manufacturer and Nigerian conglomerate Stallion Group. Alongside locally-owned Innoson Vehicle Manufacturing, which also assembles complete knocked-down vehicles at a plant in Anambra State, the Nissan-Stallion JV represents the beginnings of a push by Nigeria to attract automotive manufacturers, with some success.

International auto brands such as Kia, Tata and others have announced plans to assemble their products in Nigeria; as of June 2014 a total of 12 foreign makers had indicated interest, according to the National Automobile Council, a government body created to oversee automotive industry policies.  

Renewed interest in auto policy

This is not the first time Nigeria has attempted to build a domestic car industry. In the 1970s the government established joint ventures with companies such as Peugeot, Volkswagen, Mercedes and General Motors, while tariffs were put in place to protect the fledgling industry from cheaper imports. However none of these plans resulted in sustainable operations, and in the 1990s Nigeria adopted a more trade-oriented approach featuring lower tariffs, a by-product of financial assistance from the International Monetary Fund and the World Bank.

However, the rollout of the Automotive Industrial Policy Development Plan has provided additional incentive for domestic manufacturing, by establishing a floor of 35% for tariffs on vehicles, rising to 70% for passenger cars until 2019, when it will drop to 55%. The previous rate was 20%. Complete knockdown kits imported for domestic assembly can be brought in without paying tariffs, whereas semi-knockdown kits are taxed at 5%, or 10% if the body panels have already been painted and glazed.

Revenue will be used to help buyers access car finance, and to establish industrial parks where factories and suppliers can cluster. The government said it expects 70,000 skilled jobs to be created as a result of the policy, with a further 210,000 employment opportunities opening in the small and medium-sized enterprises that will develop into an automotive supply chain.  

Difficult market

Stallion and Nissan are using a repurposed factory once owned by Volkswagen of Nigeria. The facility is in Badagry, west of Lagos, and the cars are expected to sell for between N1.2m ($7375) and N1.5m ($9219). Innoson has said it will offer a sedan at N1m ($6146).

Whilst these makers may end up exploring a number of avenues to offer up a competitively priced car in what is already a very price-sensitive market, the biggest challenges they face may in fact be beyond their control. Smuggled vehicles – typically second-hand cars purchased elsewhere and brought in illegally through neighbouring Benin – loom as the biggest potential problem.

Indeed, the government’s efforts to use protectionism to support domestic industries have been challenged by the porous border in other areas as well. Rice is a current example – like for autos the government has hiked tariffs to stimulate local production, but in addition to a jump in total hectares of rice paddy there has been an increase in smuggled rice, to the extent that in April 2014 the minister of agriculture, Akinwunmi Adesina, asked the Senate to do more to combat corruption at the border posts, including jailing those who take bribes. Nigeria ranks 144th of the 177 countries assessed in Transparency International’s Perception of Corruption Index.  

Continental collaboration

Nigeria has been working on developing the new automotive policy with input from the South African government. South Africa rolled out its Motor Industry Development Programme (MIDP) in 1995 to boost production and improve export volumes. The programme consisted of reducing import duties on both vehicles and components along with rebates and credits for components inputs.

Over the course of its lifetime the MIDP was extended twice, and under it vehicle exports grew from a negligible number in 1995/96 to 277,893 units in 2012, while in value terms the nation exported around R4bn ($490m) per year at the start of the programme against around R86.9bn ($10.6bn) in 2012. The South African automotive industry has emerged as the largest local manufacturing sector, accounting for 80% of Africa’s total production. The MIDP has since been replaced by the Automotive Production and Development Programme, which provides another system of incentives, rebates and credits until 2020, in the hopes of boosting production to 1.2m units annually.

Should Nigeria see similar improvements to production, the impact on job creation and export revenues for the country would be significant.

Follow Oxford Business Group on Facebook, Google+ and Twitter for all the latest Economic News Updates. Or register to receive updates via email.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Nigeria

Focus Report: Ongoing efforts to strengthen Nigeria's health...

Nigeria has made tangible progress on health indicators in recent years, although structural challenges remain.

In Industry

Le Maroc veut accroitre sa production de phosphate

Au Maroc, les perspectives de la production de phosphate sur le long terme sont au beau fixe : en effet, le groupe public, l’Office Chérifien des Phosphates (OCP), a conclu le mois dernier un...


Colombia establece las bases para su incorporación en la OCDE

En virtud de una década de sólido desempeño económico y las claras intenciones de la Organización para la Cooperación y el Desarrollo Económico (OCDE) de aumentar el número de economías...