The National Automotive Council, Nigeria
The National Automotive Council (NAC) was established in 1993 to implement Nigeria's Auto Policy with the core objectives of ensuring the growth and development of the sector. Now, 17 years on, the automotive industry of Nigeria has evolved drastically and holds tremendous potential in vehicle manufacturing, spare parts and components. This special report offers a comprehensive guide to the role, and vision of the NAC, plus the vast investment opportunities that this burgeoning industry offers.
THE NATIONAL AUTOMOTIVE COUNCIL, NIGERIA (NAC) Published by Henley Media Group Ltd in association with the Commonwealth Secretariat The National Automotive Council Establishment of the National Automotive Council produce a National Automotive Policy. The draft policy received Presidential approval and Transitional Council Introduction endorsement on the 30th of December 1992 and 10th of The Automotive Industry constitutes a very potent force August 1993 respectively and the formal launch took place in the socio-economic development of a country. The on the 23rd August 1993. vital contributions made by this industry led to the rapid The thrust of the National Automotive Policy is to ensure transformation of the leading South East Asian economies the survival, growth and development of the Nigerian (South East Asian Tigers) from primary under-developed automotive industry using local human and material economies to world rated industrial giants, in the second resources. This is with a view to enhancing the industryâ€™s half of twentieth (20th) century. This is widely recognized contribution to the national economy, especially in the and well documented. The industry had earlier made areas of transportation of people and goods. The elements significant contributions to the industrial development of of this objective include: developed economies. In Nigeria the auto industry dates back to the early 1960s when private sector initiatives pioneered the establishment of auto assembly plants. The pioneering efforts included those of UAC, Leventis, SCOA, BEWAC and R.T. Briscoe. In the 1970s, the Federal Government became involved in the auto industry, with the establishment of two cars and four truck assembly plants. Government involvement was based on its desire to fast-track Nigeriaâ€™s industrial development and to control the strategic sectors of the economy (the Federal Government has since made a reversal and privatized the assembly plants). The Nigerian 1. Provision of automotive vehicles for urban and rural areas automotive industry performed well, assembling vehicles 2. Accelerated technological development of the Nigerian economy with increasing local content until 1986, when its fortunes began to slide, a trend that has continued since. The auto 3. Increased employment opportunities for Nigeria industry has continued to be undermined by a number of 4. Conservation of scarce foreign exchange inhibiting factors, which includes â€“ lack of basic industrial 5. Establishment of an integrated automotive industry in Nigeria infrastructure, high cost of industrial services, erratic supply and high cost of utilities, low tariffs on imported fully built 6. Standardisation and rationalization of the Nigerian automotive industry units as well as inconsistency in government policy. 7. The National Automotive Policy Increase private sector The absence of a clear National policy for the sector was 8. Technology acquisition identified as the cause of its inability to adjust for survival 9. in the face of changing economic environments. Given this participation in the establishment of the auto industry Creating conducive operational environment through the introduction of appropriate fiscal and monetary incentives consideration, the Government facilitated a stakeholder meeting through a Standing Technical Committee on The National Automotive Council National Automotive Industry (STC on NAI) in 1992, to The National Automotive Council as a Parastatal of the Federal Ministry of Commerce and Industry was established Governing Board Committees by Act 84, 1993 to implement the National Automotive The Governing Board of the Council has three standing Policy. The functions of the Council include the following: Committees. They are: 1. Policy, Planning and Establishment Committee (i) R egular study and review of the automotive parts/ components development industry in Nigeria; 2. Technical Committee 3. Finance and General Purpose Committee (ii) D eveloping a local content programme specifying which component parts are to be continuously deleted from Structure of National Automotive Council the imported CKDâ€™s The Secretariat of the Council is charged with the day- (iii) R ecommending incentives for ensuring compliance with approved local content programmes to- day administration of the council and is headed by the Director General. It is presently operating with (iv) Approve and recommend new models of vehicles envisaged for the Nigeria market to ensure model rationalization (v) Inspection and other quality assurance activities three departments namely: Administration, Finance and Accounts; Policy and Planning and Industrial Infrastructure which are headed by Directors. in factories, ports and roads in pursuance of other Administration, Finance and Accounts objectives specified above (vi) R egular evaluation of the pricing structure and quality The department is responsible for providing and managing of the products of the Assembly Plants to ensure the human resources, handling all matters relating to international competitiveness appointments, promotions, discipline, training, staff welfare. (vii) Forecast the demand and supply patterns for various Other functions of the department include: management types of automotive vehicles produced in Nigeria and of funds; payment of staff salaries, allowances and other the basic raw materials (such as sheet metal alloy and entitlements. special steel) (viii) R egular review of the penalties to be imposed for Policy and Planning Department non-compliance with the guidelines and programmes The department is responsible for planning, implementation specified by it. and evaluation of the councilâ€™s programmes; UNIDO matters, procurement Vision: To facilitate the production of components and operations, project monitoring, generates statistical data, conduct industrial and sectoral studies. vehicles of international standard at competitive prices by Industrial Infrastructure Department the Nigerian automotive industry. The department is charged with the coordination and Mission: To ensure the survival, growth and integrated implementation of policies to promote the development of development of the Nigerian automotive industry using local components and parts, monitoring of the local content local human and material resources. deletion programme of auto component, identification and classification of components and parts for standardization. Organisational Structure Automotive Council of the National Funding The Council is made up of the Governing Board, its The Act establishing the council provided for the Committees and the Council Secretariat. Membership of establishment of a fund which consists of a 2% levy on the Governing Board is drawn from relevant agencies and the cost, insurance and freight (CIF) value of all imported comprises representatives of the following: fully built units (FBU), auto components, spare parts, i) N igerian Automotive Manufacturers Association (NAMA) completely knocked down (CKD) and raw materials ii) Automobile Local Content Manufacturers Association of imported for the automotive sub-sector. The fund is meant Nigeria (ALCMAN) purely for the administration of the council, staff training, iii) S tandards Organisation of Nigeria (SON) direct intervention in the sector in form of soft loans and iv) R aw Materials Research and Development Council research. Collection of the levy started in November 1994 (RMRDC) and was stopped in May 2007. Total amount in the fund v) M anufacturers Association of Nigeria (MAN) on the 31st December, 2009 is in excess of N15 billion vi)N igerian Society of Engineers (NSE) which is being managed by Bank of Industry (BOI) under vii) T he Federal Ministry of Commerce and Industry. the managed fund agreement whereby NAC continues to meet its budgetary requirement. Programmes and Projects (i) NAC – Automotive Development Fund (NAC-ADF) naira only) and Berekotry Industries Nigeria Ltd. project“ A major factor that inhibited the development of the Production of Auto Lubricating Grease of Various Grades sub-sector was the absence of long-term funds at from Petroleum Oils, Hexose Cassava and Saponification concessionary interest rates. NAC- ADF has substantially Materials” with N 4.00 million addressed this issue with the funding of 27 projects out of 70 applications received to date. Total disbursement as at (iii) Local Content Development Programme 31st July, 2010 stood at N9.9 billion. Automotive manufacturers produce about 30% of nearly 2,000 parts in a typical car, the rest they purchase from small and medium industries. This will result in huge employment opportunities and acquisition of technology. Local manufacturers have the capacity to meet the demand by both local and foreign assemblers. Accordingly the council: (i) H as commissioned the production of project profiles for some bicycle, motorcycle and vehicle parts (ii) D eveloped import deletion programmes for bicycles and motorcycles (iii) Is developing capacity for computer aided design (CAD), engineering (CAE) and manufacture (CAM) (iv) Is providing soft loans for the production of auto parts and components (v) Is providing research and development grant to develop auto parts and components. (iv) Establishment of an Automotive Test Centre NAC want to establish a test centre to achieve the following © Flickr/Ashley Palmero objectives: (ii) Specialised Auto Industry Research Fund • To ensure the safety and health of Nigerians The council supports R&D work aimed at advancing the • To develop local automotive content frontiers of technological development in the sub-sector. • To ensure the good operation and maintenance of Nigerian vehicles A project, “The Developent of Production Tools for the Commercial Production of 3HP Petrol engine” submitted • To obtain capability to conduct homologation tests by Prof. A. O. A. Ibhadode, University of Benin, Benin City has been funded with N3,335,850.00 (three million, three The feasibility study for the establishment of the test centre hundred and thirty five thousand, eight hundred and fifty has been concluded, and preliminary activities for its establishment have started. The council places premium on reliable and timely data (v) Capacity Building in the Repairs and Maintenance of to aid policy initiation, formulation, implementation and to Automobiles inNigeria assist prospective investors in their investment decisions. The council in its efforts at capacity building in the repairs It has therefore developed an internet based platform to and maintenance of new generation vehicles has, in capture data from 18 data sources including that of all collaboration with other stakeholders carried out the vehicles registered in Nigeria, automotive components following: manufacturers, assembly plants, car dealership etc... (i) D eveloped a curriculum and training manual for teaching automotive mechatronics in the informal sector (ii) Acquired mechatronics diagnostic equipment and tools for training Nigerian auto technicians. Conclusions With the anticipated conclusion of the merger of the National Automotive Council (NAC) and the Centre for Automotive Design and Development (CADD) plus the long term plan for the automotive industry in 2010, the Council (vi) Campaign for Patronage of Made in Nigeria Automotive will develop synergy to actualize the implementation of the Products National Automotive Policy. In addition, the establishment The council has intensified the campaign for the patronage of the Automobile Test Centre will be pursued to enable of local automotive products to shore up capacity utilization, complete testing of vehicle parts and promote the local content development and employment generation. production of globally competitive automotive products to sustain domestic demand and take advantage of export (vii) Industrial Environment Surveys and Sector Studies opportunities. The council in its drive to attract Foreign Direct Investment (FDI) into the Nigerian auto industry concluded preliminary The Council will continue to pursue its programmes and work towards undertaking a national survey of consumer projects with a view to realizing the potential gains of the preference profile for automobiles in Nigeria. This has automotive sector to the Nigerian economy. These include: remained an essential request by potential investors in the Nigerian automotive industry for years. Large scale employment generation Acquisition of technological know-how (viii) National Automotive Data Base Effective utilization of local raw materials and resources Manufacturing Policy based Finance as a Strategic Option for funding the Nigerian Automotive Industry A Paper delivered by Luqman Mamudu, the Head of Department of Policy and Planning of the National Automative Council Abuja, Nigeria at the One Day Joint Automotive Forum by the House of Representative Committee on Industry and the National Council held in Abuja on Tuesday the 8th of December 2009. 1. Introduction developing countries such as Nigeria to grow. A close This paper discusses the capability of an automotive study of the development path of emerging economies industry to lead economic development and why and how such as of Malaysia, South Korea, Japan, China, India, some countries have by deliberate policy intervened in Taiwan, Singapore clearly suggest that the automotive their financial markets to allocate funding for the sector to industry represent an opportunity for a developing country realise its full potentials. The background to the discussion to quickly diversify into more sophisticated, technically is set by identifying the state of the Nigerian automotive demanding activities that support higher rates of economic industry and how funding has remained a critical challenge growth. As argued by Dani Rodrick of Harvard University in meeting clearly defined objectives. The paper concludes in his draft submission: Industrial Development - Stylised by suggesting a structure for government intervention. Facts and Policies . 2. The Automotive Industry as an Engine of Growth â€œOne reason that latching on to more sophisticated The automotive industry is widely recognised as an engine of products have productivity frontiers that are further away growth and development because of its potential for forward and therefore present greater room for technological catch- and backward linkages. The automobile is recorded to be up. By starting to produce goods that countries much richer made up of about 10,000 parts and components obtained than them are currently producing, poor countries enlarge from companies in petrochemicals, metallurgy, electronics, the scope of productivity improvements. Convergence textiles and so on. There is sufficient evidence to suggest in productivity levels with rich countries becomes an that the sector led growth and development in the advanced important force for economic growthâ€? nations of the world it represents an opportunity for less 1 National Automotive policy 1 manufactured products to promote growth is that such 3. The Nigerian Automotive Industry of assembly plants. This means that with the tools of It was in recognition of the need to quickly diversify into model rationalisation and standardisation, trade volume is the production of sophisticated and technically demanding provided for the component industry by the local assembly activities for sustained growth that caused the federal plant. Passenger car economics prescribes volume per government of Nigeria to invest heavily in the basic, inter- year of 100,000 units for a profitable assembly plant in a mediate and end-user industries in the 1970s and 1980s. developing economy as Nigeria. Incidentally, the two car 20 years later, however, the growth anticipated was not assembly plants in Nigeria ( Peugeot Automobile Nigeria forthcoming because as argued by Engr. Otis Anyaeji, the and Volkswagen Nigeria) have a combined capacity of pioneer Chairman of the Governing Council of National about 100,000 which means that each on the average Automotive Council (NAC) in his submission to the National suffers an economic inefficiency rate of 50%. Components Assembly on occasion of a public hearing in 2007. of car cost are: â€œTowards the end of the 1980s, it became obvious that the Body and Body parts: 25% ambitious public sector efforts in various industrial sectors Engine transmission: 25% were not making the desired development impact, one Final Drive/Suspension/Steering/breaks: 15% of the main reason for this situation was that within the Others (paint rubber, trim, tyres, glass etc): 20% industrial sector, the automotive industry in Nigeria was not Assembly: 15% fostered to assume the central place it ought to occupy by virtue of its unique potential for forward and backward Depending on models, it means that the impact of linkages. It was then known that in both the developed assembling operations can only represent 15% of total and developing countries that had succeeded with their value added. In the case of PAN and VWON that already industrialisation programmes, the strategic importance of suffers economic inefficiency due to undersizing, only the automotive sector was such that the success of the 7.5% can be achieved. This represents a strain on their overall industrialisation of each of those nations hinged economic viability. As said earlier, assembly plants provide critically on the development of their automotive industry. trade volume for the components parts manufacturers At about the same period, research had shown that through model rationalisation and standardisation but the automotive industry had become characterised by whereas the practise in the industry in most countries that globalisation in terms of trade, investment and corporate have succeeded with automotive development is to have a attitudes expressible by way of sets of standardsâ€? few assemblers and large component manufacturers, the reverse is the case in Nigeria. Records held at the National 3.1. The Structure of the Nigeria Automotive Industry Automotive Council (NAC) put the number of assemblers The structure of the automotive industry is made up of at 15 and component manufacturers at only 50. Please see assembly and component parts production. Components table below: manufacturing is usually driven by the requirements Structure/Characteristic of the Assembly/Component industries in select developing countries (1990s) No of No of Assembly components firms firms Brazil 5 S.Korea OEM/ Component RM split annual 550 50/50 15 20% 15-20 of component turnover 6 1100 80/20 12 25% 10% of component turnover Mexico 5 500 40/60 6 35% 20-25% of component turnover Taiwan 10 250/300 50/50 5 Less than 1% Thailand 8 350 40/60 4 7% 5-10% of component turnover Indonesia 12 200 ? 4 7% 5-10% of component turnover Country Export FBU Export (Components) 20% of component turnover The table clearly shows the abnormality characteristic The attractiveness of this industry in terms of its potential of the assembly/component industry in Nigeria. The for contribution to the GDP can be best illustrated by a trend usually is towards reduction in assembly and comparison with its equivalent in terms of oil revenue. increase in components parts manufacturing through the instrumentality of model rationalisation and parts During this period captured by the table, Nigeria was standardisation. In very early 1900, the United States producing just slightly over one million barrels per day had 2000 firms producing one or more vehicles but this as a mono export economy. It was in realisation of the reduced to 100 by 1920, then to 44 in 1929 and by 1976, tremendous wealth creating capacity of the automotive the Motor Vehicles Manufacturers Association of America industry that the Federal Government resolved to develop had only 11 members - the same trend of consolidation the industry and position it for self sustained growth. was noticed in Japan and Europe. The trend indicates an increase in efficiency and competitiveness of the industry. Equivalent of selected Country’s Automotive Industry Turn Over in Terms of Crude Oil (1990S) Oil Prices was $`10 per Barrel.. Equivalent in Crude Annual turnover Equivalent in Crude Oil (components) US$b (Million Barrels) South Korea 12 1200 >3 5.0 Mexico 6 600 > 1.5 2.0 Brazil 15 1500 >4 0.2 Taiwan 5 500 ≥ 1.4 Thailand 4 400 >1 Indonesia 4 400 >1 Country 3.2 The National Automotive Policy Oil. Million barrels External sales of FBUs (US$b) per Day By 1990, the Automotive industry had virtually collapsed “the survival, growth and development in terms of capacity utilisation and the void left in the of the national automotive industry using market was quickly filled by massive import of pre-owned local human and material resources‘’ FBUs. The few component manufacturers that had set up operations to supply the APs closed as existing capacity levels of surviving APs could no longer sustain meaningful It set a target date of 2017 for a component parts deletion level of production. program that will guarantee 100% components parts incorporation and made provision for the creation of the The reason for this are many and debatable but as analysed National Automotive Council (NAC) as an institutional in paragraph 3.1 above, the economically inefficient framework structure of the industry and the absence of a specific administration it drew membership from practitioners so national automotive industry policy made it vulnerable to that the process of policy intervention will be guided by economic shocks that occasioned the structural adjustment the outcome of continuous interaction between the private program adopted by the government of the day. In order to sector and government. Essentially, the Council was to reverse the trend, government in 1993, launched a national evolve a local content program and recommend incentive automotive policy which had as its main thrust measures to ensure compliance with implementation schedules. for implementation. For effective policy 3.3 Funding Requirement for the Nigerian Automotive Industry Stages At the time of policy launch in 1993, it was estimated that Investment Scale (million US$) (Thousand Units) about $18 billion will be needed to revitalise the industry Assembly 400-500 100-200 with the aim of realising 100% local content development Major components 400-500 500 50-200 500-1000 20-100 200-100 by the year 2017. This figure is derived from a simple estimation based on stages of automotive production characteristic sourced from IFC data; Moderate processed part/ System If as earlier highlighted in paragraph 3, Mexico, Brazil, Argentina and South Korea have between 500 to 1100 Rough processed Parts/Systems Source: IFC Data component manufacturers while Nigeria has 50 and a combined assembly capacity of about 100,000 per annum, it means that for a meaningful level of investment, Nigeria will need to invest as follows: Stages Least investment Total investment Scale (Units) No of Firms 400 500,000 20 8.0 Processed Parts/systems 50 500,000 100 5.0 Rough processed Parts/system 20 200,000 280 5.6 Major components levels (Million US$) Total (Billion US$) 18.6 The present assembly plants fall short of prescribed expected that industry funding will be attracted from local economic levels of installed capacities. Recall that the private sector, foreign direct investment, government, optimum capacity for an assembly plant is 100,000. Yet bilateral, and multilateral agencies. However, in order to PAN and VWON has installed capacities of 63,000 and fund the administration of the National Automotive Council 45,000 respectively. If the estimated cost of a 100,000 and to undertake extensive research to support industry, units car Plant is $400,000, then both plants will require the act establishing it made provision for a levy of 2% on about $250m to scale up. ANAMCCO, Steyr, NTM and CIF value of all automotive import into Nigeria. As said Leyland will need US$600m to scale up while other earlier in this paper, NAC was put in place as a technical small scale assemblers like Burem, GM, FMI, SCOA and body capable of initiating, recommending and supervising Leventis will need support of about US$150m to upgrade policies and programs for locally manufactured vehicles facilities. This brings the total investment requirement to and components. US$20 billion but this was to be spread over a period of 24 years ending in 2017. The assembly plants will require Other statutory source of funding include: $1 billion frontend investment while the component sector ff Such sums as may be provided to it by government will require injection of a third of $18.4 billion in the first 6 yrs another third in the second 6 yrs and the rest in the of the federation for running the affairs of the council; ff Contribution from organised private sector; last 12 yrs. 3.5. Funding of the Nigeria Automotive Industry 3.4 Sources of Finance for the Nigerian Automotive Overall information on funding allocated by the Nigerian Industry Financial market to the automotive industry is not available Government provided the major investment fund for the but given the N60b or US$400m plus applications first six automobile plants in Nigeria but with the dwindling received by NAC for funding under its NAC-Automotive fortune of the automobile industry by 1993 when the Development fund, and the observed reluctance of the national automotive policy was launched, government market to lend to the real sector, the industryâ€™s access to funding is constrained. The total size of NAC fund which of Japanese parts was 60% more than the international was accumulated from the 2% levy in 14 years but scrapped average and the law sought to cut this to 12% by 1960 by act of government in 2007, is just barely N15 billion or while simultaneously bringing the quality to international US$100m. This is definitely inadequate considering the standard. In 5 years the value of production increased from level of funding required to establish a truly integrated ¥8.5 billion to ¥175.8 billion. By the end of the 1965 financial automotive industry estimated to require about US$20 year prices had reduced 29.4% lower than those of 1960. in 24 years. If Nigeria must meet its target of becoming In monetary terms the value of production quadrupled from one of the 20 most industrialised countries in the world by ¥206.9 billion in FY 1961 to ¥833 billion in FY 1968 with a the year 2020, it must urgently seek alternative source of stable currency. Between 1961 to 1963 for instance, the funding for this industry on whose part it must tread. At this JDB and SBFC jointly provided 50% of their financing for point it is perhaps necessary to take a cursory look at how specified equipment used by the auto parts industry. The other nations of the world have engaged this challenge. cost of loans was severally reversed during the period such that by 1965 interest rate were 7.5% for an average loan 4. Strategies Adopted by some Countries to Develop Their Automotive Industries period of 5-6 yrs as directed by the Ministry of Finance. Most students of development economics agree that 4.2. South Korea some form of government intervention in the financial South Korea on account of its small domestic market market is necessary to allocate resources in the form of adopted an export oriented strategy within an industrial loans, guarantees or interest rates subsidies to sectors that and macroeconomic policy framework. Policy oriented they may consider winners and which the market will not loans therefore comprised about half of credit extended ordinarily attend to because of factors bordering on risk by the domestic financial market. The manufacturing return trade-off. There are however those who would prefer sector, especially automotive, received 46% of total bank that credit decisions are best left to properly functioning loans. Unlike in japan were credit policies depended on markets but evidence from developing economies that fiscal funds, the South Koreans depended heavily on have attained admirable heights following policy based central bank credit and deposit mobilised by DMBs. By financing intervention abound. controlling financing the South Korean government was effectively a risk partner with industrialists and motivated 4.1 Japan their risk venture and entrepreneurship. In the same token Post world war Japan established a policy based finance they induced the industrialists to take the longer term system by which funds were channelled to the private business perspective. The risk partnership arising from the sector through Fiscal Investment and Loan Programme South Korean government’s implicit co-insurance scheme (FILP) and the Japanese Industrial Bank. FILP account with banks and industry enabled Korea to establish large was established in tandem with overall general account internationally competitive industrial firms within a short whereby funding is allocated to meet national policy period of time. objective. By 1963. FILP was approximately 8% of GNP Japan rationalised its industry and strengthened the 5. Recommended Policy Based Finance Structure for the Nigeria Automotive Industry capital accumulation necessary for rationalisation through Given the success story of countries that have developed Enterprise Rationalisation Promotion Law (ERPL)-1952. through the varying mix of policy based financing, and 50% of general account. Between 1945 and 1960 it is recommended that government reinforces its A specific policy for fostering an infant automotive commitment to this development strategy. I say reinforce industry was equally put in place. In 1956 there was still because the development history of Nigeria is replete an imbalance between vehicle assembly plants and with several attempts to adopt this policy as evidenced components parts manufacture, therefore it passed the in the establishment of institutions such as NIDB, NBCI, law on Machine Industry Promotion law (MIPL). The law NERFUND, NAC-ADF and some government guarantee specified automotive parts as designated machinery and schemes etc. The reason why they have not led to the gave the Automotive Parts Sub- Committee the powers expected outcome are extensive and debatable but be to select the most important and essential parts to be assured that most have been considered in making the targeted. The law was aimed at lower costs and improving following recommendation: quality by modernising plant and equipment. The price 5.1. NAC-Automative Development Fund Although the market may not consider non financial goals The estimated amount required to fund a truly integrated or social costs in allocating resources, the following factors automotive industry in the next 24 years is $20 billion prevents it from operating properly and they should be or N3 thrillion but only N750 billion may be required as addressed: seed money for the first six years. NACFUND with Bank of Industry can be expanded by this amount with specific a) Difficult legal and judicial environment; instruction to finance the automotive industry at a Federal b) Incomplete regulatory environment; Ministry of Finance determined interest rate. The fund will c) Lack of information as there are no credible credit bureaus; empower local entrepreneurs to meet counterpart funding requirement in forming alliances with foreign component d) Lack of professionalism in financial institutions especially the dearth of experienced risk analysts; manufacturers already active in the global automotive parts supply chain. Proceeds from this fund may eventually be e) Inconsistent government policies; paid back to the fedration account as the industry matures f) Unstable currencies and goes public. 6: References: 5.2. Automotive Industry Credit Guarantee Scheme 2) NAC Decree No 94 of 1993. Policy based credit provided from funds generated 3) The NAC levy as a critical component of the by Central Bank’s skilful use of her discount rate, and policy based finance system for the development of Nigeria funds generated from external borrowing can be used to Automotive Industry by Engr. Otis Anyaeji,2007; guarantee loans directed to the industry as may be advised 4) by specific development program drawn up by government. by Antonio Vives and Kim Staking, Washington, DC 1997; 5) ‘Financial intermediation and policy based lending’ ‘Structural transformation and patterns of 5.3. The Nigerian Financial Market comparative advantage in product space’, Hausman, The Nigerian financial markets still remain a very significant Ricardo and Bailey Klinger. Mimeo, Harvard University stakeholder in the allocation of scarce resources to the real Press, 2006. sector including the automotive industry and it should be encouraged to do so. Aminu Jalal Director-General National Automotive Council Investment Opportunities Within Nigeriaâ€™s Automotive Industry The estimated annual demand for motorcycles and bicycles Introduction is one million units of each. The country has the capacity The automotive industry in Nigeria has tremendous to produce these, but locally produced units average only opportunities in the manufacture of vehicles, spare parts 20 percent in the motorcycle industry and 40 percent in and components. This paper looks at the auto industry in the bicycle industry. The Nigerian Government aims to Nigeria, the potential areas of investment, the incentives encourage the increased local content in motorcycles to available to investors in the sub-sector and the raw 50 percent and in bicycles to 100 percent by the end of materials and manpower situation. 2011. This requires new investment to produce the needed components and spare parts. The Automotive Industry in Nigeria The automotive industry in Nigeria is over three decades Investment Opportunities old and has the capacity to produce 108,000 cars as well as 56,000 commercial vehicles, 6,000 tractors, 1.2 million Investment opportunities in the manufacture of vehicles motorcycles and a million bicycles annually. There are over The high demand for used vehicles translates into a need 50 auto-component manufacturers, some of which are for new investment in the manufacture of low cost vehicles. original equipment manufacturers, with others supplying A low cost utility vehicle would service the needs of the the after-sales market. Capacity utilisation in the sub- majority of Nigerians who live in the rural areas. There are sector, which was 90 percent in 1981, currently stands at facilities already in the country for the assembly of cars only at ten percent in automotive assembly and 40 percent and light commercial vehicles. Most of these facilities are in components manufacture. currently under utilized and could be used by potential entrepreneurs. There are also well established component Demand and Supply of Vehicle and Spares suppliers who will supply many of the auto components required. Motor Vehicles The vehicle demand in Nigeria is about 75,000 for new Investment opportunities in the manufacture of auto and 100,000 for used vehicles. Over five million vehicles components and spares are registered in the country, the majority of which are pre- The owned and would therefore require frequent maintenance. manufacturing and sub-assembly plants that are fed by This translates to a heavy demand for spares and heavy engineering industries. These include casting, components. Other West African countries also provide a forging, presswork, plastic moulding, heat treatment, ready market, which is already exploited by some Nigerian surface treatment and machining. Considering that about component manufacturers. 70 percent of over five million vehicles plying our roads automotive parts industry consists of many were bought as used vehicles, there is a vast scope for Motorcycles and Bicycles the manufacture of servicing and replacement parts. Other areas that need investment are in the establishment of Raw Materials industries for making automotive components, like press The average vehicle has up to 2,000 parts made from shops, forge shops and precision machine shops. steel, cast iron, alloy steel, copper, tin aluminium, wood, glass leather and plastics. The Aladja Steel Company Investment Incentives produces steel billets, rods and angles. The Ajaokuta Steel In addition to the general incentives available to investors, Company, when completed, would produce steel sheets, there are others that are specific for the automotive pig iron and alloy steel. The Eleme Petrochemical Complex industry: produces polypropylene, polyethylene, ethylene and propylene. The Aluminium Smelter Company produces 1. Import duty for ‘Complete Knock Down’ vehicle aluminium ingots. Though some raw materials would still assembly is 5 percent, while that for fully built units is need to be imported, the low labour costs in the country 20 percent enable even factories with 100 percent of imported raw 2. The Nigerian Government has mandated all its materials to be economically viable. ministries, agencies and parastatals to patronise the products of local automotive assembly plants Manpower 3. The National Automotive Council has established There are many technical schools, polytechnics and an Auto Development Fund to provide soft loans for universities in Nigeria that produce craftsmen, technicians, industries that will produce auto parts technologists and engineers of the highest calibre. The 4. The automotive industry has the status of a ‘pioneer various motor assembly plants, foundries, steel plants and industry’, which grants a five year tax holiday anywhere existing auto parts manufacturers have, over the years, in the country and seven year tax holiday in any trained many Nigerian in various aspects of engineering, economically disadvantaged local government area design, manufacture and management. 5. Up to 120 percent of expenses on Research and Development is tax deductible. For ‘R&D’ on local raw Conclusion materials, 140 percent is allowed The Nigerian automotive industry offers significant 6. Industrial establishments that have in-plant training investment opportunities in the manufacture of vehicles, facilities enjoy a two percent tax concession for a motorcycles and bicycles, their components and spares. period of 5 years This is particularly true where the federal Government 7. 20 percent of investment in infrastructure (such as roads, water and electricity) is tax deductible 8. Industries in economically disadvantaged areas would enjoy an additional 5 percent capital depreciation needs to ensure that more components are produced locally. Nigeria also has the vast potential to become the leading vehicle manufacturing centre for the Economic Community of West African States (ECOWAS). allowance, over and above the initial allowance 9. Industries with high labour to capital ratios are entitled to the following concessions: Those employing 1,000 For further information contact: people or more will enjoy a 15 percent tax concession, The Director-General those employing 200 or more will have a 7 percent National Automotive Council tax concession and those employing 100 persons or more have a 6 percent tax concession 10. Engineering industries with high ‘local value added’ will enjoy a 10 percent tax concession for 10 years 23, Parakou Crescent Off Aminu Kano Crescent, Wuse II P.M.B 320, Garki, Abuja. 11. Expenses incurred on expansion, modernisation and/ or diversification will attract allowances Tel: +234 (0) 707 220 6911-3 12. Engineering industries using up to 60 percent local E-mail: a firstname.lastname@example.org raw materials in their manufacturing process would email@example.com attract a 20 percent tax credit for five years firstname.lastname@example.org 13. The Federal Government has recently established a bank for the industry in order to provide long-term loans to industrial projects www.nac.gov.ng CREDITS Editor Sylvia Powell for Henley Media Group Ltd.