Nigeria on track to revitalise stalled automotive sector

December 16, 2015, 1:10pm


Fuel shortages left motorists stranded in Abuja, Nigeria in May. The International Organisation of Motor Vehicle Manufacturers estimates that there are less than 50 cars per 1,000 people on the continent, compared with about 800 in the US. Picture: REUTERS  

By Liezel Hill and Emele Onu, Bloomberg

WHEN Nigeria first unveiled incentives for car makers to set up plants, its automotive industry had ground to a standstill.

Fast-forward two years, and there are at least 36 vehicle makers with production licences in the continent’s biggest economy, with Volkswagen, Nissan and Ford already making vehicles with local partners. The country is seeking to join SA as a manufacturing base for the car industry in sub-Saharan Africa, with countries from Ethiopia to Uganda hoping to follow suit.

"Africa really is the last automotive frontier," Mike Whitfield, Nissan’s head of sub-Saharan Africa, says in an interview. "You still have a very unmotorised population."

Vehicle ownership on the continent is estimated by the International Organisation of Motor Vehicle Manufacturers at less than 50 per 1,000 people, compared with about 800 in the US. Demand for passenger cars in particular is growing in sub-Saharan Africa, as road conditions and fuel quality improve and young populations with disposable income seek mobility, says Mr Whitfield.

For now, new-vehicle sales in sub-Saharan Africa are minuscule by global standards and almost all cars purchased outside SA are imports, many of them second-hand. While car makers in Nigeria have started final assembly of light vehicles including Ford’s Ranger from imported kits, it is still a long way to manufacturing.

Developing a large-scale automotive industry will require reducing the flood of used cars into the region and developing local manufacturing and supply of components, says Anthony Black, an economics professor at the University of Cape Town.

"You need regional integration, you need appropriate policies in the auto sector and you also need to upgrade infrastructure and skills," he says.

A group of global car makers recently created an African Association of Automobile Manufacturers to co-ordinate efforts and advise governments on policies, says Jeff Nemeth, CEO of Ford in sub-Saharan Africa. The group is in talks with Nigeria on how best to attract suppliers of parts to the country, he says. "We’ve done this many times in different countries all over the world. We’ve seen the good policies and bad policies, what works well, what works not as well."

Nigeria is not the only African country trying to promote domestic vehicle production and car makers are hoping their new association can help co-ordinate policies and investment in the region, Mr Nemeth says.

"Everybody can’t have an assembly plant at once. The idea would be having some kind of pan-African trade arrangement, where maybe we build engines in Uganda but put them in vehicles in Nigeria and then ship the vehicles back to Uganda, duty-free."

The only sub-Saharan African country with any real automotive production is SA, which has used government incentives to attract manufacturers. The local industry body is projecting record automotive exports this year of 344,000, rising to 386,100 next year.

Nigeria, which is hoping to emulate that success, had a flourishing automotive sector in the 1970s, but that has floundered. It is now seeking to revitalise the industry to diversify the economy away from oil as crude prices fall.

Nigeria has allowed firms to import two fully built vehicles at reduced duties of 35% for cars and 20% for commercial vehicles for every one built locally, while 100% importers pay a full 70% duty.

Bloomberg