Nigeria Autos Report Q1 2008

Nigeria's recently privatised automotive industry is at a crossroads, with the potential for considerable growth limited by an unfriendly business environment and lack of proactive government support for the objectives set down by the National Automotive Council (NAC), according to BMI's latest Nigeria Automotives Report.

Most of Nigeria's six vehicle assembly lines operate well below capacity, although some are wellequipped.

Throughout 2006 and 2007, the federal government and some state governments reduced their ownership of the automotive industry. However, with a relatively small and volatile domestic market and enduring problems of corruption and political instability, foreign partners have largely lost interest in Nigeria. Consequently, the new core investors are locally-owned firms, which lack the expertise and capital to revive the sector.

The NAC has established the Automotive Development Fund (ADF) to award loans at low interest rates and favourable repayment terms. In October 2007, the NAC announced that it disbursed a total of NGN5.27bn (US$44.5mn) under the ADF to motor companies between 2004 and September 2007. BMI believes the sums disbursed are too small and mostly not directed towards the assembly and manufacturing sector and therefore are unlikely to make a significant impact on the automotive industry.

The Nigerian government is coming under increasing pressure to protect domestic car manufacturers from imported new vehicles. The new owners of Peugeot Automotive Nigeria (PAN) and National Trucks Manufacturers have complained that the government's preference for imported vehicles as one of the major factors in the industry's struggle to survive. As the federal government, state governments and oil companies make up a large bulk of Nigerian automotive purchases, their purchasing policies have a significant impact on the local manufacturing sector.

BMI estimates that automotive sales rose 15% y-o-y in 2007 to 84,398 units on the back of strong economic growth, the appreciation of the naira, public sector purchases and the government's car loan programme for civil servants and members of the armed forces. Fuel shortages and the rising cost of living were the main limiting factors in the automotive market. In the medium-term, public sector spending on car fleets and public transportation is likely to be a key determinant of the automotive sector.

With NGN94.36bn (US$800mn) allocated to transportation in the 2008 budget, the automotive market is likely to be buoyant over the next two years with BMI forecasting a peak in the market in 2010, when total sales will amount to around 95,700 units.

By 2010, total automotive sales will be up 13.4% over 2007 levels, with car sales up 11.9% and commercial vehicle sales (including buses) up 22.5%. However, with economic growth dipping below 4.0% in 2011 and 2012, the government is likely to consolidate spending by cutting its transportation capital budget and the car loan programme coming to an end, the automotive market will contract, with total sales falling to around the 2007 level.