The Nigerian government introduced the Nigerian Automotive Industry Development Plan (NAIDP) in 2013 to revitalisethe auto industry. Last year, the policy came into full effect. PwC developed scenarios to capture the potential effects of the policy and identified Nigeria as a future automotive hub driven by its large economy, population and government's intent to revive the industry. With the policy in active existence for over a year, we discuss the current situation in the industry.

The Economy

The current economic climate has been challenging for businesses as the decline in global oil prices (to $40 -$50/bbl.) and significant production shortages (from 2.2 mbpdin Q2 2015 to 1.4 mbpdin Q2 2016) has put immense pressure on government revenues and foreign reserves. Nigeria is officially in a recession following negative growth of -0.4% in Q1'2016 and -2.1% in Q2'2016. Consequently, the general and automotive manufacturing industry were worst hit with growth at -7% in Q1' 2016.

Vehicle Sales

The new tariff regime coupled with the depreciation of the Naira has led to prices doubling between 2014 and 2016 resulting in over a 60% decrease in vehicles sales. The industry relies heavily on imports for direct sales and assembly. Although cars and related components are not on CBN's forex 41 ban list, the difficulty of obtaining foreign exchange has led to increased prices and reduced consumer demand. Corporates, the largest buyers of new vehicles have reduced or postponed purchases thereby extending the replacement cycle of their fleet from 4 years to 7 years. Individuals, in the face of fixed earnings and increasing inflation have seen a fall in disposal incomes reducing their demand of new and used cars.

Vehicle Assembly

With the introduction of the NAIDP, there has been increased activity in local vehicle assembly. The National Automotive Design and Development Council (NADDC) granted thirty five companies licenses to assemble/produce vehicles. Several OEM representatives have begun plans to set up assembly operations to take advantage of the policy.

Despite the increased number of local vehicle assemblers, production has dropped by half due to the current economic climate. Assemblers are forced to source foreign exchange from the parallel market to pay for Semi-knocked down (SKD) kits. Limited players in the auxiliary industry keep local component content in production low and restricted to consumables. Reduced vehicle demand has assemblers operating below capacity (10% -20%).

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