Hold the phone: Manufacturers set up shop as the mobile market shows its true potential

The government is leveraging packages of fiscal incentives and one of the world’s fastest-growing mobile phone markets, to entice international mobile phone producers to assemble products locally. As a result of these policies several handset firms, including Africa-focused Mi-Fone and China’s Tecno, have already announced intentions to set up local operations.

GROWTH MARKET: Nigerian consumers spent $1.2bn on 21.5m mobile phones in 2012, excluding purchases of used or refurbished phones, according to research firms Gfk Retail and Technology Nigeria. With a mobile penetration rate of 82% as of July 2013, according to the Nigerian Communications Commission, and only around 10% of subscribers using smartphones as of 2012, Nigeria’s handsets market offers promising growth opportunities to producers that get it right. The number of smartphone users is expected to rise from 5.6m in 2012 to 35m in 2017, according to data from Informa Telecoms and Media. “The African market is really a different market to more developed countries. Price is a very important factor in a place like Nigeria,” said Matthew Dawes, CEO of All Amber, a conference firm focused on West African mobile and web industries.

While high-end shoppers purchase the latest mobile handsets from abroad, the vast majority of Nigerians are still using feature phones, not smartphones. Nokia dominates the market with a 73% share of handsets, with Samsung a distant second at 4%, according to local press reports. Neither produce locally. Given the sizeable growth the sector is seeing in terms of consumption, there has been a push by manufacturers to capitalise on this trend. Currently, mobile phone production in Nigeria means assembly of imported parts.

MARKET TARGETS: Mauritius-headquartered Mi-Fone, which is targeting the low-end of the smartphone market through retail distribution, is working with the Ministry of Communications Technology and individual states to identify a site for a $30m assembly plant, according to Seyi Onabanjo, special assistant on local content to the minister of communications technology, told OBG. Together with its Nigerian partners, Mi-Fone plans to assemble low-cost, high-quality smartphones that can compete with Chinese imports.

“Nigerian labour costs are much cheaper than China,” Mi-Fone’s CEO, Alpesh Patel, told local media in April 2013. “There is a big push in Nigeria for increased employment. There is also a big push for localisation. I think we need to play our part in ensuring that these objectives are attained.” If Mi-Fone does as well as their models project over the next several years, the company hopes to produce 20% of their African market units in the Nigeria factory, according to Onabanjo. “And then if another player comes in and does similarly, it will be possible to get to 1m units produced in Nigeria annually within five years,” he added.

Tecno may be that second player. At the Nigeria launch of the Techno P3 smartphone, the company announced its intentions to invest in a Nigerian plant. The Chinese firm is holding off finalising plans until the government offers the right packages of rebates and incentives. “Nigeria is Tecno’s biggest market in terms of volume, and the plant will be set up in Lagos,” Tecno’s vice-president, Arif Chowdhury, said in May 2013.

CRITICAL MASS: Lenovo, the Chinese PC firm, is planning to launch mobile handsets at six different price points in Nigeria, and local media reported that Microsoft is considering talks with the government about producing cheaper smartphones for the market. Still, given the high costs of local production and the economies of scale manufacturers abroad benefit from, the sector may be in need of additional support to obtain critical mass. Government tariffs or border enforcement are unlikely to stem the tide of cheap imported phones into Nigeria. “The government is prepared to offer incentives to companies that assemble mobile phones locally,” Onabanjo told OBG. A team will work with companies on a case-by-case basis to develop packages including reduced tariffs for imported inputs, streamlined taxation and other subsidies. “A huge plant offering lots of employment would warrant bigger breaks.”