Nigeria’s vehicle assembling industry, estimated to be worth around N302bn, has tanked to a new low due to increasing production costs and weakened demand for locally assembled automobiles.
According to the recently released Manufacturers CEOs Confidence Index, activities of motor vehicles and miscellaneous assembly deteriorated further below the benchmark (50 points) from 48.6 to 46.7 points.
The report said this was due to unpalliated subsidy removal, reduced sales, and low demand for new vehicles because of the eroded disposable income of the consumers.
The plunge to 46.7 points takes the business condition of the subsector close to pandemic levels when it went as low as 45.25 points.
It is also the lowest point (besides figures recorded during the pandemic) recorded from available data.
An analysis of MAN’s MCCI showed that the sub-sector posted negative readings across all indices used to measure the performance of MAN’s composite sectoral groups, making it the least-performing sector within Nigeria’s manufacturing ecosystem.
For example, in the second quarter of the year, players in the sector saw production and distribution costs soar by 17.3 per cent, while cost of shipments increased by 14.7 per cent. Capacity utilisation in the sector dropped by 5.6 per cent, forcing local assemblers to cut their workforce by 5.7 per cent during the period.
Other indices which posted negative readings were volume of production ( –6.1 per cent), change in investment ( –5.6 per cent) and change in volume of sales ( –6.3 per cent).
According to MarketResearch, the country’s automotive manufacturing industry raked in $400m in 2022 (N302bn).
Major players in the industry include Innoson Motors, Coscharis, Mikano Motors, among others.
Prior to 2014, when a policy for the automobile industry was released, giving license for automobile dealerships in Nigeria, the importation of used cars had threatened to wipe up the gains of partnerships forged by the Nigerian governments with foreign car manufacturers in the 1970s
The Federal Government’s Automotive Policy of 2014 was geared towards providing a framework that would support automobile companies to boost local content and establish a vehicle financing scheme that would provide funds for citizens to buy new cars.
However, despite the policy, the government’s refusal to patronise locally manufactured vehicles, coupled with poor regulations, has constituted an albatross on the neck of the industry. Currently, Nigeria produces less than 10 per cent of the vehicles used in the country.
Despite the challenges plaguing the industry, it has in the last few years managed to record some positive strides.
The MAN’s MCCI report showed that in the first quarter of 2019, business conditions in the sector went as high as 56.6 per cent, which made it the second-best performing sub-sector under manufacturing that year.
Business conditions remained above the 50 points benchmark until headwinds, which were propelled by the outbreak of the Covid-19 pandemic, hit the industry.
By the third quarter of 2021, the subsector’s MCCI points picked up once again, moving just above the 50 points mark, but began to take a downward dive in the fourth quarter of 2022, and decreased to 48.5 by the turn of 2023.
Speaking on the factors responsible for the challenges faced by the industry, MAN, in an emailed response to The PUNCH, blamed poor policies from the government.
It said, “The major challenges are unfriendly policies to support local components manufacturing. At the moment, we have a few local components being manufactured in Nigeria: air filters, oil filters, brake shoes for heavy vehicles, and auto vanishes.”
A source at one of the major local vehicle assembling companies, who pleaded anonymity, blamed the lack of patronage from the government as one of the challenges the sector was having.
The source said, “One of the biggest challenges we are having on the local vehicle assembling is bringing in the knockdown parts and the lack of government patronage. Because in a country like China, one of the advantages they have is that the government patronises them.
“The government will give you all the encouragement that you need. So, if the government is patronising most of the assembly plants that we have in Nigeria, they would not have any challenges.”
In his recommendation, the Deputy President of the Lagos Chamber of Commerce, Gabriel Idahosa, said a reduction of duties charged by the government for importation by the assembling companies would go a long way in cutting down their production costs.
