Wednesday, July 13, 2016 11.05AM/ FBNQuest Research
A sizeable step upwards for Nigerian manufacturing is outlined in Africa’s Next Automotive Hub, a report published in October 2015 by PwC Nigeria. Under the second of three scenarios in the report, average GDP growth is projected at 6.6% through to 2020. 5.1% to 2030 and 5.4% to 2050.
Growth in new car sales is assumed to run at twice GDP expansion on the basis of other large emerging markets such as Indonesia. The scenario has production of 4.16 million locally manufactured vehicles in 2050, 463,000 new vehicle imports and no second-hand imports (tokunbo).
This scenario has a park of 40.4 million cars in 2050 including 18.3 million Nigerian used. We have chosen it because it has the same GDP growth as the first scenario but less vigorous government backing for the industry.
Nonetheless, it would amount to a transformation. PwC’s estimates for 2015 have a park of 14.5 million vehicles, tokunbo imports of 335,000, new vehicle imports of 91,000 including the grey cross-border market and just 30,000 locally manufactured cars. Just three companies were assembling vehicles when the report was prepared, all on a semi knocked down (SKD) basis, although the FGN has awarded 35 licenses.
There is a government plan in place (the national automotive industry development plan), which includes a tariff structure to encourage domestic vehicle production. Additionally, the report identifies required backing in several areas. The first is probably the cost of vehicle purchases. The report cites a survey showing that 63% of Nigerians could not afford a car without some support. Consumer finance in Nigeria is in its early stages, which we can also see from the mortgage market.
The report highlights porous borders, and notes that cars are the most smuggled items after rice and other foodstuffs.
Quality standards have to be established and enforced if the Nigerian consumer is to be weaned off a preference for imported vehicles. For the same reason, manufacturers would have to invest heavily in training.
Finally, the scenario assumes the development of satellite industries to provide parts for vehicle manufacture. The report cites batteries, belts, lights and tyres. We would add steel, which is essential to industrialization, and note the FGN’s determination to revive the industry.
There are major boosts to employment and skills development, as well as balance-of-payments benefits, from the development of a sizeable auto industry. Among the larger emerging markets, Nigeria is almost alone is not having just an industry. Motor vehicles and assembly represented less than 0.1% of constant price GDP in 2015.