31 Jan The Nigerian Automotive Industry…a step in the right direction?
The clamour to arrest Nigeria’s over-dependence on oil has led to the Federal Government pinpointing the automotive industry as a potential area to stimulate economic growth, foreign exchange influx and job creation in Nigeria. Currently, crude oil accounts for between 8%-10% of Nigeria’s Gross Domestic Product (GDP). Globally, the automotive industry has been identified as “greatest engine of economic growth”.
Consequently, in a bid to revive Nigeria’s automotive industry, the Federal Government initiated a new national automotive policy, the National Automotive Industry Development Plan (NAIDP) aimed at attracting Foreign Direct Investment (FDI), curtailing the dependence on vehicle importation (annual spending on vehicle import is estimated at US$3.5bn) and promoting local production. The Nigeria Automotive Council (NAC), now the National Automotive Design and Development Council (NADDC) have been tasked with ensuring that the NAIDP is fully implemented.
A core component of the NAIDP is the duty applied to vehicles assembled locally which is set at 10% for SKD (Semi Knock-Down) Part 2 kits, 5% for SKD Part 1 kits and 0% for CKD (complete knock-down) kits. Also, manufacturers that assemble vehicles locally can import up to twice as many FBU (fully built units) as they do kits at the reduced import duty rate of 35% for passenger cars and 20% for commercial vehicles.
Some of the investment incentives stipulated in the NAIDP include:
- The NADDC has established an Auto Development Fund (ADF) to provide soft loan for companies that will produce auto parts;
- All new entrants into the automotive assembly industry will be given pioneer status
- The government through the Bank of Industry proposes to provide long term loans to industrial projects.
Nigeria currently only manufactures SKD vehicles and with adequate administration of the NAIDP and thorough governmental support, it is envisaged that CKD production will commence in 2019 with a view to phasing out imported vehicles as well as SKD’s. It is imperative to note however that this is best scenario and will require concerted support from all arms of the Federal Government.
We are already beginning to reap the benefits of the NAIDP as it has attracted a number of foreign brands, with three (Nissan, Kia and Hyundai) entering into Joint Venture Agreements to assemble cars in Nigeria. Furthermore, it is understood that other brands have entered into commitments with technical partners to assemble cars and trucks amongst other vehicles in Nigeria.
Exportation of vehicles as source of foreign currency income
As stated earlier in respect of Nigeria’s over-dependence on oil, it has become of paramount importance to explore other sectors in which to procure foreign currency. The current foreign currency shortages in Nigeria have made this need even more pressing. To allay some fears, one can look at South Africa as a case study. South Africa is the biggest producer of vehicles in Africa. To this end, 12% of its exports and 7% of its GDP are attributable from its automotive industry. This serves as an example that with proper application of the NAIDP and adequate structures being put in place, Nigeria can mirror South Africa in terms of utilizing its automotive industry as a key component of its export earnings. In addition, if the Federal Government executes the salient provisions of the NAIDP, there is no doubt that in the near too distant future, vehicle assembly will be pervasive in Nigeria, providing a catalyst for sizeable vehicle exportation and consequently additional foreign exchange earnings.
Can Nigeria be Africa’s next automotive hub?
The introduction of the NAIDP and the Federal Government’s recent move to ban the importation of vehicles through land borders effective 1st January 2017 are clear indications that Nigeria is moving towards a massive upheaval of its automotive industry with a view to promoting the following:
- Foreign exchange earnings/savings;
- Less dependency on importation of vehicles;
- Job creation;
- Skills development;
- Technology acquisition.
There is no doubting that the demand for vehicles is high in Nigeria, however, it is also common knowledge that the average Nigerian finds it arduous to finance a car. This is where the banks and other financial institutions will need to play a key role by providing vehicle financing alternatives to consumers to assist in the patronage of locally assembled cars.
In conclusion, the possibilities of the Nigerian automotive industry know no bounds. As stated above, requisite funding and assurances from the Federal Government that it will adhere to proper carrying out of the NAIDP as well as observing critical timelines will play a meaningful role in ensuring that the Nigerian automotive industry is revamped and revitalized.
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