Thursday, October 29, 2015 05:11PM / PwC
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.
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