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In October 2013, the Federal Government of Nigeria announced its National Automotive Industry Development Plan (NAIDP). In order to stimulate investment in local vehicle production and thereby bolster Nigeria’s economy instead of revenues heading abroad, a core component of the plan is an increase in import duties for passenger cars from 20% to 70% (35% duty and 35% levy) and to 35% for commercial vehicles. However, the duty applied to vehicles which are assembled locally is set at 10% for SKD (semi-knockdown) 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.
The plan was fully implemented on July 1 and, not surprisingly, new car sales soared as consumers took advantage of the lower duty rates while they still could. The Executive Director of the Nigerian Automobile Manufacturers Association (NAMA), Mr Arthur Madueke, was quoted on July 8 on This Day Live that “between January and December 2013, about 52,000 new vehicles were imported, while by May this year, 37,000 cars have been imported.” With CBU imported vehicles paying the old rate of duty until the end of June, sales are likely to have boomed in the month and a 30% growth rate for the first half of 2014 is therefore not out of the question.
However, locally-assembled vehicles in Nigeria are currently limited to the Chinese models assembled by the Innoson Vehicle Manufacturing Company (IVM) and the recent start of production by the Stallion Group of the Nissan Patrol, although assembly of the Peugeot 301 by Peugeot Automobile Nigeria Limited is also imminent. According to sales data from the international carmakers association, OICA, Nigeria was the 5th largest car market in Africa in 2013 – behind South Africa, Algeria, Egypt and Morocco. However, with demand pulled forward into the first half of 2014 and a limited choice of vehicles which are not subject to the higher import duties brought in with the NAIDP, sales will inevitably slow significantly in the second half. In fact, it is likely that Nigeria will fall back to 6th place behind Tunisia in the African market rankings for the full 2014 calendar year. Nevertheless, the potential is great in Nigeria and 2014 can be seen as a period of adjustment.
Although the choice of vehicles that are assembled locally in Nigeria and thus exempt from the higher import duties brought in with the NAIDP is currently rather limited, some manufacturers are already looking to expand their operations in Nigeria. For example, series assembly of the Nissan Almera (more commonly known as the Nissan Sunny) from kits imported from Chennai is planned for August. Similarly, Peugeot SA issued a press release on July 16 confirming that “On Friday, 11 July 2014, PSA Peugeot Citroën (Paris:UG) and PAN Nigeria Limited signed an assembly and sale of cars agreement in Nigeria. The first vehicle concerned by the agreement will be the Peugeot 301, the assembly of which will begin in the second half of 2014 at the Kaduna plant. Under the terms of the agreement, PAN Nigeria Limited will also be able to assemble the Peugeot 508 and the Peugeot 308.” The increasing portfolio of locally-produced models that are only subject to maximum 10% import duties will naturally generate sales but the core point is that the market potential is too great to ignore.
As is the case in Nigeria, new car sales in Mexico compete with used imports from the US but annual volumes still typically equate to 10% of households with over US$25,000 annual disposable income. The same is true for Turkey, where new car prices are high because of costs associated with the OTV registration taxes. Applying the same logic, Nigeria should be able to support a new car market of 200,000 units per annum, rising to over 300,000 by 2020 and over 600,000 by 2030 based on Euromonitor’s detailed incomes data. These projections are broadly in line with comments made by Mr Sunil Vaswani, the chairman of Stallion , who is quoted on the Nigeria Auto Summit website; “the current population of Nigeria can convincingly support more than half a million vehicles annually, which is more than sufficient to sustain an emerging automotive industry.” In order to unlock the market’s potential, the Nigeria Auto Summit website also reports that the Stallion Group “seeks to offer passenger cars and pick-ups at around Naira 2 million in the near future. The group is currently involved with leading banks to dramatically decrease the cost of financing of vehicles in order to make it much easier for the customer to own new vehicles.” Even with reduced financing costs, however, one of the key facts on the Nigeria Auto Summit website, i.e. that “Nigeria has a potential market of one million plus vehicles a year” may be rather ambitious, at least for a couple of decades.
Whereas the Stallion Group is seeking to offer vehicles for sale around the Naira 2 million mark (US$12,000), there is a significant opportunity to introduce vehicles at a lower price point and thus compete against used cars, which are of course now subject to at least 35% import duties. It will be interesting to see if Innoson expands their operations to assemble smaller Chinese vehicles but the key global players must surely be considering their budget offerings which have proven themselves in other emerging markets such as the Toyota Etios, the Dacia Duster, Logan and Sandero as well as Skoda’s range of models. As for PSA, aside from the 301, 308 and 508 models, surely the 2008 small SUV would be a worthy addition (aside from being suited to Nigerian roads, it shares its underpinnings with the 301) and given its attractive price/size positioning and rugged appeal, the recently launched Citroen C4 Cactus must also be a contender. The upshot is that the NAIDP has been implemented to stimulate Nigeria’s automotive industry and it is now up to the carmakers to unlock the market’s substantial potential.