Nigeria Autos Report Q2 2008

Nigeria's automotive industry will continue to require government support following privatisation if it is to survive and grow, according to BMI's latest Nigeria Automotives Report.

Carmakers Peugeot Automotive Nigeria (PAN), Mercedes bus and truck manufacturer ANAMMCO and Volkswagen of Nigeria (VWoN) are all now in private hands. However, BMI doubts that the new owners will be able to bring production to anything near capacity without sustained assistance. The size of the domestic market does not justify the level of installed capacity. Nigerian car plants will need to generate interest from foreign partners to inject new capital and extend their reach to the rest of Africa.

This will depend on Nigeria's overall business climate, which is improving. Unless the new plant managers can improve efficiency and cut costs, the future of these assembly lines will remain dim. A stable automotive market for local assemblers is also necessary for forward planning, and this can only be guaranteed by restricting imports, either through raising tariffs or the imposition of non-tariff barriers.

Yet, Nigeria's automotive industry has plenty of unrealised potential. At present, capacity utilisation in the industry stands at just 10%, while 70% of materials used in production are imported; Nigeria's automotive capacity includes 108,000 cars, 56,000 commercial vehicles, 6,000 tractors and 1.2mn motorcycles. In a move that promises to help enable Nigeria to reach its potential, the VWoN vehicle plant indicated in January 2008 that it could recommence production. Barbedos Ventures, which won a controlling stake in VWoN in 2006, hopes to restart production at the plant with the assistance of lowinterest loans from the Auto Development Fund, managed by the Bank of Industry (BoI), and various tax waivers and reductions for industries in economically disadvantaged areas, for research and development and for industries with high labour to capital ratios. Sources now claim that the new owners have plans to bring the plant back into operation, which will begin with the import of completely built units (CBUs).

Machinery at the plant will be reconditioned, enabling full assembly to follow. The installed annual production capacity of the plant is 39,000 units, which if achieved would triple the industry's current output.

In Q108, BoI argued for a broad range of trade protection measures and subsidies to build automotive industries. Specifically, BoI is calling for exemptions from antitrust statutes, industry-specific assistance to enhance the use of new technology and restrictions on imports of CBUs, but also advocates duty free imports of automotive parts for use in assembly. The intervention by BoI on the future of the recently privatised Nigerian automotive industry will be welcomed by the country's carmakers, which have called for government intervention to bring mothballed plants back online. BMI also believes that the government needs to support the automotive industry to assist new car plant owners in a post-privatisation environment.