Getting in the fast lane: An expanding auto market offers potential for local manufacturing

Vehicle sales in Nigeria are growing rapidly, with automakers seeing double-digit growth over the past year. In order to capture more demand, firms are looking to expand retail detailerships while some are even attempting local assembly. The government has taken steps to support domestic production, but investors say that without greater protections for the nascent industry, further development may be challenging.

EXPANDING SALES MARKET: Nigeria imports nearly all of the cars on its roads, with 50,000 new and 150,000 used vehicles entering the country each year. The largest supplier of new cars is Toyota, accounting for 70% of imports, although others are making inroads. These include Ford Motors, which announced in September 2013 it would introduce more than five new models to the Nigerian market, including the Fusion, Edge, Escape, Ranger and Focus. The company saw a 33% increase in sales in the first half of 2013, and 44% year-on-year sales growth in July 2013, selling 2156 units compared to 1617 in July 2012. “Nigeria is a significant market in Ford’s sub-Saharan Africa region and accounts for a solid percentage of our regional sales. Sales in Nigeria grew more than 40% from 2010 to 2011; and 8% from 2011 to 2012, despite overall challenges in the Nigerian auto industry,” Eugene Prinsloo, Ford’s senior manager in sub-Saharan Africa, told local media.

Nissan has also identified Nigeria as a key market for expansion of its small passenger vehicle product lines, saying in July 2013 that it aimed to double vehicle sales in sub-Saharan Africa to 220,000 units by 2016. Honda announced in September that it would begin to sell passenger cars at its first showroom in the country, having already established a motorcycle production base in Nigeria. Other companies, including Mercedes-Benz and Skoda, have also recently expanded in the country, with Mercedes-Benz opening a new showroom in Lagos in August 2013, and Skoda introducing two new models, the Octavia and the Rapid, the following month.

DEVELOPING A LOCAL BASE: Private firms, including UAC, Leventis and Bewac, established Nigeria’s first auto-assembly plants in the 1960s. The government invested in auto and truck manufacturing in the 1970s, with joint ventures involving Peugeot, Volkswagen, and later General Motors. More recently, local conglomerate Innoson Group embarked on a plan to manufacture a “Nigerian car”, opening the Innoson Vehicle Plant in Anambra state in 2010. The factory assembles completely knocked down parts from Chinese, German and Japanese makers to produce around 300 units per month. Innocent Chukwuma, the chairman of Innoson, says a key challenge for his firm has traditionally been a lack of local demand, particularly from large clients. Earlier in 2013, Chukwuma told the media that both the government and consumers have been slow to buy locally made vehicles, preferring imports.

The government’s reluctance to buy domestic autos was noted by Kola Jamodu, the president of the Manufacturers Association of Nigeria, in an interview with OBG in 2012. “The government, as the largest single spender in the economy, should patronise locally assembled vehicles in the spirit of the ongoing Made-in-Nigeria campaign,” he said. Jamodu added that it was important to provide protection to local suppliers. “It is necessary to create adequate tariff differentials between knock-down kits for assemblers and imported fully built units. Strict adherence to the age limit on vehicles imported into the country would also help.” With regard to tariffs and limits on the age of used vehicles, the federal government in recent years has moved to reduce trade barriers, rather than erecting them. In 2010 it raised the age limit on used vehicles that could be imported, lifting it from 10 to 15 years. Over time, it has reduced tariffs on fully built units, from 30% to 10% for commercial vehicles and 20% for cars.

Government moves to incentivise local manufacturing are evolving slowly, and clearer import policies will be key to capitalising fully on elevating automotive demand. This may mean an increase in price for foreign-made cars, but global automakers could instead find it profitable to invest in local production facilities.