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2016: How recession dealt big blow to nation’s auto sector

By Theodore Opara

SINCE the Nigerian economy officially slid into a steep recession in the second quarter of this year, most sectors have been performing below capacity due to shortage/high cost of buying foreign exchange, especially the United States dollar, needed to import either finished products or raw materials for local industries. The auto sector in the country is not immune to the vagaries of the recession as the new forex regime in the country has not been favourable to many auto firms.

According to Director-General, National Automotive Design and Development Council, Aminu Jalal, the demand for automobiles in the country has declined drastically, falling from the annual sale of 400,000 vehicles to 250,000.

He said: “The current economic situation is affecting the market share of vehicles. For every one per cent growth in Gross Domestic Product, the demand for vehicles grows by two per cent.

“But when there is recession, people stop buying vehicles and the demand goes down. A lot of people will not want to change their vehicles because of the economic situation and you will expect them to keep using such car for a longer period.”

Jalal may have put it mildly as the figures of vehicle imports from the nation’s seaports are frighteningly low. For instance, the Operation Manager, Ports and Terminal Multiservices Limited, Mr. Jack Angrish, said recently that the volume of vehicles imported into the country witnessed a 80 per cent decline in the last six months. He said the unstable and high cost of the dollar over the naira had discouraged “vehicle remained empty.”

 

Patronage of new vehicles

According to him, “vehicle imports have reduced from 30,000 to 6,000 in the last six months with the attendant problem of loss of jobs by terminal officials. Many vehicle seats are empty and this is the last quarter of the year. It is very unfortunate.”

He lamented that the loss of revenue by Nigeria on vehicle imports had continued to be the gain of the neighbouring ports, adding that while Nigeria continued to suffer from car smuggling, the ports of Cotonou (Benin Republic) and Lome (Togo) were reaping the benefits.

The Chief Economist at PricewaterhouseCoopers Limited, Dr. Andrew Navin, also noted that the auto industry was still dominated by used car imports more than two years after the introduction of a new auto policy that was meant to galvanise local production and patronage of new vehicles, adding that the local production accounted for only one per cent of the market.

Indeed, the situation is worse at local assembly plants. Activities at many of the recently established or refurbished plants across the country have nosedived as the automakers grapple with low patronage of their products. Most of them have had to suspend their workers indefinitely while others engage personnel on a part-time basis.

A survey carried out by Prof. Okey Iheduru of the Arizona State University showed that the annual capacity utilisation of the auto plants in Nigeria had dropped by 97 per cent, from 500,000 vehicles to just 15,000.

Iheduru and Navin spoke recently in Lagos at a recent symposium organised by the Lagos Chamber of Commerce and Industry, which focused on ‘The Nigerian auto policy: Reality checks on the economy and the future.’

 

Investment in local manufacturing

Navin also noted that the auto policy, which was introduced in 2013 to reduce the nation’s dependence on automobile imports and stimulate investment in local manufacturing, had not been able to do well as continued depreciation in the value of naira and foreign exchange crisis had led to increase in the prices of new vehicles.

“Vehicle ownership is low (in Nigeria) compared to other African countries,” he said, adding that vehicle production figures for the last year showed that South Africa did 615,658 vehicles; Morocco, 288,329; Egypt, 36,000; Algeria, 20,000; and Nigeria, 3,500.

Things are getting more difficult than the nation anticipated or expected, according to the Managing Director, Elizade Motors Limited, Mr. Demola Adeojo.

He said: “What we see today is a shrinking market. In 2014, we had a total size of 50,000 units but the market size has crashed. Market size is going down, while we are increasing market capacity. In terms of population and size, Nigeria should have a viable auto industry. But as long as 800,000 used vehicles are being imported into the country, we can’t favour the importation of ‘tokunbo’ vehicles and expect a new car market to grow. Things are getting more difficult than we expected.”

Ford Motor Company had to suspend the shipment of over 500 units of vehicles meant for the Nigerian market because the Coscharis Group, its local representative, could not accommodate them.

Abiona Babarinde, General Manager, Marketing and Corporate Services, Coscharis Group, attributed the development to “forex-related issues.”

He said the vehicles were “to be imported as SKD (Semi-Knocked Down) kits for (auto) assembly but got stuck in South Africa because of slow sale of what we already have in stock in Nigeria.”

Before recession came, the full implementation of the 70 per cent import duty imposed on new cars as provided in the Nigeria’s auto policy had jacked up the prices of new vehicles. This was said to have slowed down new cars sale and reduced vehicle imports by about 60 per cent.

 

Way forward

Angrish advised businesses to begin to look inward and improve on available resources and opportunities so that Nigeria could be insulated from unexpected fluctuations of the dollar.

“This is the time for vehicle business operators to pool their resources together to facilitate domestic manufacturing,” he advised.

Navin said for Nigeria to become Africa’s automotive hub, it must address certain gaps in the industry such as improving the chances of owning a car; tightening the borders; protecting the consumers through safety and quality standards; as well as setting up and developing ancillary industries.

But it seems all hope is not lost as the Central Bank of Nigeria, CBN, has said that the Nigerian auto makers will benefit from the over $600 million foreign exchange the bank plans to release to the nation’s manufacturing companies.

The apex bank’s Acting Director, Corporate Communications, Isaac Okorafor, in a statement said the auto manufacturers were specifically mentioned as one of the industrial sectors pencilled down to benefit from the forex to enable them to procure imported automobile components for local assembly plants.

“The CBN is committed to ensuring that manufacturers of goods for which Nigeria does enjoy comparative advantage are able to get letters of credit to import the required materials for their businesses,” he said.


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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.