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Nigeria’s Automobile Industry: A shadow of Itself

Category: Travel & Tours


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Nigeria’s Automobile Industry: A shadow of Itself

Thursday, April 25, 2013 /FDC

 

In the last couple of years, notably since the global economic downturn in 2008, patronage of the grey import market has grown due to its relatively affordable options. The grey market goods are relatively affordable due to the sharp practices of the grey market dealers who act with near impunity. Practices such as an under declaration of goods and other methods to pay lower import duty, have created distortions in the market.

 

The Nigerian automobile market is mainly divided into two categories “New” and “Used”. Used cars form a sizable portion of total imports. The new car segment’s profit margin is been eroded by the increasing grey import and patronage as the majority of Nigerians have lim-ited means to buy new vehicles from authorized sources.

 

The automobile industry in Nigeria dates back to the early 1960s, when private companies pioneered the establishment of local automobile assembly plants using completely/semi knocked-down parts. The federal government became involved in the local auto-mobile production 10 years later after concluding agreements with automobile manufacturers in Europe. Installed capacity of the Nigerian automobile plants were to produce 108,000 cars, 56,000 commercial vehicles, 10,000 tractors, 1,000,000 motorcycles and 1,000,000 bicycles annually.

 

Given that the industry works at full capacity, it could provide over 300,000 different jobs. However, as the country grew into an oil-dependent economy in the late 1970’s, and the government policy on importation became flexible, automobile manufacturing became difficult and local manufacturing plants could not bear the growing, high cost of production. As a result, capacity utilization in the automobile industry over the years dropped below expectation with vehicle manufacturing below 10%.

 

In order to revive the automobile industry, the government introduced several importation policies and established the National Automotive Council (NAC) to ensure the survival and growth of the Nigerian automobile industry using local, human and material resources. The overall goal was to enhance the industry's contribution to the national economy. Vehicle importation however continued to thrive due to the infinite duty evasion techniques by the grey market dealers and sloppy importation policy enforcement, despite the government’s efforts to boost local production.

 

Sufficient Local Production Turned Import Driven

The failed state of the local industry gave way to growing importation of global brands. The industry is almost entirely import driven occasioned by the non-existence of local brands, and the desire for personally owned vehicles, due to the poor state of public transportation in the country. Massive importation of vehicles led to sole distributorship arrangements with major global car makers and their Nigerian partners. The sole partnership was a good development as it provides employment (though not comparable to local manufacturing) and increased government revenue through customs duty and excise collection. In addition, indirect taxes are collected from the locally registered partners.

 

The Nigerian automobile industry also comprises of unauthorized car dealers who import vehicles from choice locations according to the customers demand. The unauthorized dealers are referred to as grey dealers and their smuggling/duty evasion activities in the Nigerian market have a negative effect on the authorized dealers and also limited government revenue collected through indirect taxes and customs/excise duty. The volume of vehicles annually imported into Nigeria is about 50,000 new vehicles and 200,000 used ones are imported via official channels.

 

Grey Imports

Grey imports can be put into three categories as “unintended”, “licensed” and “distress” goods. Unintended vehicles are vehicles that are authorized for sale in one country but get redirected to another and directly compete with the authorized distributors when they get to that country. Licensed vehicles are products manufactured in agreement with a trademark license but sold through unauthorized channels. Distress vehicles are the vehicles dumped by a dealer or company who is authorized in the circum-stances, because they have excess supply or the goods are out-dated.

 

Imported vehicles by grey importers in Nigeria fall in all three categories as they are manufactured and intended mostly for other countries. However, due to trademark agreements with other companies and excess production by the manufacturers, some of the vehicles are imported to and sold in Nigeria by the grey dealers. Grey imports compete on the basis of price. They are usually cheaper than the officially-imported vehicles of the same model that are imported legally and sometimes have more enhanced features compared to those from authorized dealers. The used vehicles market also provides consumers with a variety of choices for their taste and budget. Increased vehicle import by grey dealer is estimated at an annual rate of 15%-20%. In addition, customs duty and excise avoidance contributed to the in-creasing loss to government revenue through this sources while indirect taxes are usually not paid by the grey dealers due to their business structure.

 

Outlook

The potential for growth of the Nigerian automobile industry re-mains strong. In a country of over 160m people, there are approximately 8m vehicles bringing the ratio to 16 passenger vehicles for every 1000 persons. This does not compare favourably with South Africa which has a ratio of 159 passenger vehicles for every 1000 persons. This gap creates a unique opportunity for players in the industry.

 

Related Information

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4.    A.G. Leventis & others get N4bn Auto Fund from ADF - Proshare  

5.     ASD Motors Acquires Peugeot Automobile - Proshare 



Tags: Nigeria's Automobile Industry,  global economic,  market,  grey market,  auto-mobile production,  NAC,  global brands, 



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