National Automotive Council Nigeria

THE NATIONAL AUTOMOTIVE COUNCIL NIGERIA (NAC)

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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 the

transformation of the leading South East Asian economies

survival, growth and development of the Nigerian automotive

(South East Asian Tigers) from primary under-developed

industry using local human and material resources. This is

economies to world rated industrial giants, in the second

with a view to enhancing the industry’s contribution to the

half of twentieth (20th) century. This is widely recognized

national economy, especially in the areas of transportation

and well documented. The industry had earlier made

of people and goods. The elements of this objective include:

significant contributions to the industrial development of 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 Nigeria’s industrial development and to control the strategic sectors of the economy (the Federal Government has since made a

1.

reversal and privatized the assembly plants). The Nigerian automotive industry performed well, assembling vehicles

Provision of automotive vehicles for urban and rural areas

2.

with increasing local content until 1986, when its fortunes

Accelerated technological development of the Nigerian economy

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 – lack of basic industrial

5.

Establishment of an integrated automotive industry in

infrastructure, high cost of industrial services, erratic supply and high cost of utilities, low tariffs on imported fully built

Nigeria 6.

units as well as inconsistency in government policy.

Standardisation and rationalization of the Nigerian automotive industry

7.

The National Automotive Policy

Increase

private

sector

participation

in

the

establishment of the auto industry

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.

Creating conducive operational environment

through

in the face of changing economic environments. Given this

the introduction of appropriate fiscal and monetary

consideration, the Government facilitated a stakeholder

incentives

meeting through a Standing Technical Committee on National Automotive Industry (STC on NAI) in 1992, to

The National Automotive Council

The National Automotive Council as a Parastatal of the

vii) The Federal Ministry of Commerce and Industry.

Federal Ministry of Commerce and Industry was established

by Act 84, 1993 to implement the National Automotive

Governing Board Committees

Policy. The functions of the Council include the following:

The Governing Board of the Council has three standing Committees. They are:

(i) Regular study and review of the automotive parts/ components development industry in Nigeria;

1. Policy, Planning and Establishment Committee 2. Technical Committee

(ii) D eveloping a local content programme specifying which

3. Finance and General Purpose Committee

component parts are to be continuously deleted from the

Structure of National Automotive Council

imported CKD’s (iii) R ecommending incentives for ensuring compliance with approved local content programmes

The Secretariat of the Council is charged with the day-to- day administration of the council and is headed by the Director

(iv) Approve and recommend new models of vehicles

General. It is presently operating with three departments

envisaged for the Nigeria market to ensure model

namely: Administration, Finance and Accounts; Policy and

rationalization

Planning and Industrial Infrastructure which are headed by

(v) Inspection

and

other

quality

assurance

activities

Directors.

in factories, ports and roads in pursuance of other objectives specified above

Administration, Finance and Accounts

(vi) Regular evaluation of the pricing structure and quality

The department is responsible for providing and managing the

of the products of the Assembly Plants to ensure

human resources, handling all matters relating to appointments,

international competitiveness

promotions, discipline, training, staff welfare. Other functions

(vii) Forecast the demand and supply patterns for various types of automotive vehicles produced in Nigeria and

of the department include: management of funds; payment of staff salaries, allowances and other entitlements.

the basic raw materials (such as sheet metal alloy and special steel)

Policy and Planning Department

(viii) Regular review of the penalties to be imposed for

The department is responsible for planning, implementation

non-compliance with the guidelines and programmes

and evaluation of the council’s programmes; UNIDO matters,

specified by it.

procurement operations, project monitoring, generates statistical data, conduct industrial and sectoral studies.

Vision: To facilitate the production of components and vehicles of international standard at competitive prices by

Industrial Infrastructure Department

the Nigerian automotive industry.

The department is charged with the coordination and implementation of policies to promote the development of

Mission: To ensure the survival, growth and integrated

local components and parts, monitoring of the local content

development of the Nigerian automotive industry using local

deletion programme of auto component, identification and

human and material resources.

classification of components and parts for standardization.

Organisational Structure Automotive Council

of

the

National

Funding The Act establishing the council provided for the

The Council is made up of the Governing Board, its

establishment of a fund which consists of a 2% levy on the

Committees and the Council Secretariat. Membership of

cost, insurance and freight (CIF) value of all imported fully

the Governing Board is drawn from relevant agencies and

built units (FBU), auto components, spare parts, completely

comprises representatives of the following:

knocked down (CKD) and raw materials imported for the

i) Nigerian Automotive Manufacturers Association (NAMA)

automotive sub-sector. The fund is meant purely for the

ii) Automobile Local Content Manufacturers Association of

administration of the council, staff training, direct intervention

Nigeria (ALCMAN)

in the sector in form of soft loans and research. Collection

iii) S tandards Organisation of Nigeria (SON)

of the levy started in November 1994 and was stopped in

iv) Raw Materials Research and Development Council

May 2007. Total amount in the fund on the 31st December,

(RMRDC)

2009 is in excess of N15 billion which is being managed by

v) Manufacturers Association of Nigeria (MAN)

Bank of Industry (BOI) under the managed fund agreement

vi) Nigerian Society of Engineers (NSE)

whereby NAC continues to meet its budgetary requirement.

Programmes and Projects (i) NAC – Automotive Development Fund (NAC-ADF)

Production of Auto Lubricating Grease of Various Grades

A major factor that inhibited the development of the

from Petroleum Oils, Hexose Cassava and Saponification

sub-sector was the absence of long-term funds at

Materials” with N 4.00 million

concessionary interest rates. NAC- ADF has substantially addressed this issue with the funding of 27 projects out

(iii) Local Content Development Programme

of 70 applications received to date. Total disbursement

Automotive manufacturers produce about 30% of nearly

as at 31st July, 2010 stood at N9.9 billion.

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 objectives:

© Flickr/Ashley Palmero

•

To ensure the safety and health of Nigerians

(ii) Specialised Auto Industry Research Fund

•

To develop local automotive content

The council supports R&D work aimed at advancing the

•

To ensure the good operation and maintenance of

frontiers of technological development in the sub-sector.

A project, “The Developent of Production Tools for the

Nigerian vehicles •

To obtain capability to conduct homologation tests

Commercial Production of 3HP Petrol engine” submitted

by Prof. A. O. A. Ibhadode, University of Benin, Benin City

The feasibility study for the establishment of the test

has been funded with N3,335,850.00 (three million, three

centre has been concluded, and preliminary activities for

hundred and thirty five thousand, eight hundred and fifty

its establishment have started.

naira only) and Berekotry Industries Nigeria Ltd. project“

(v) Capacity Building in the Repairs and Maintenance of

Automobiles inNigeria

to aid policy initiation, formulation, implementation and to

The council in its efforts at capacity building in the

assist prospective investors in their investment decisions.

repairs and maintenance of new generation vehicles has,

It has therefore developed an internet based platform to

in collaboration with other stakeholders carried out the

capture data from 18 data sources including that of all

following:

vehicles registered in Nigeria, automotive components

manufacturers, assembly plants, car dealership etc...

(i) D eveloped a curriculum and training manual for teaching automotive mechatronics in the informal

Conclusions

sector

With the anticipated conclusion of the merger of the

(ii) Acquired mechatronics diagnostic equipment and tools for training Nigerian auto technicians.

National Automotive Council (NAC) and the Centre for

Automotive

Design

and

Development

(CADD)

plus the long term plan for the automotive industry in (vi) Campaign for Patronage of Made in Nigeria Automotive

2010, the Council will develop synergy to actualize the

Products

implementation of the National Automotive Policy. In

The council has intensified the campaign for the

addition, the establishment of the Automobile Test Centre

patronage of local automotive products to shore up

will be pursued to enable complete testing of vehicle

capacity utilization, local content development and

parts and promote the production of globally competitive

employment generation.

automotive products to sustain domestic demand and take advantage of export opportunities.

(vii) Industrial Environment Surveys and Sector Studies The council in its drive to attract Foreign Direct Investment

The Council will continue to pursue its programmes and

(FDI) into the Nigerian auto industry concluded preliminary

projects with a view to realizing the potential gains of

work towards undertaking a national survey of consumer

the automotive sector to the Nigerian economy. These

preference profile for automobiles in Nigeria. This has

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

The council places premium on reliable and timely data

Foreign exchange savings and earnings

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

“One 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 growth�

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:

“Towards 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 standards�

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 industry’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 Nigeria’s Automotive Industry bicycles is one million units of each. The country has

Introduction

the capacity to produce these, but locally produced

The automotive industry in Nigeria has tremendous

units average only 20 percent in the motorcycle industry

opportunities in the manufacture of vehicles, spare parts

and 40 percent in the bicycle industry. The Nigerian

and components. This paper looks at the auto industry in

Government aims to encourage the increased local

Nigeria, the potential areas of investment, the incentives

content in motorcycles to 50 percent and in bicycles

available to investors in the sub-sector and the raw

to 100 percent by the end of 2011. This requires new

materials and manpower situation.

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

Investment opportunities in the manufacture of vehicles

million motorcycles and a million bicycles annually. There

The high demand for used vehicles translates into a

are over 50 auto-component manufacturers, some of

need for new investment in the manufacture of low cost

which are original equipment manufacturers, with others

vehicles. A low cost utility vehicle would service the

supplying the after-sales market. Capacity utilisation in

needs of the majority of Nigerians who live in the rural

the sub-sector, which was 90 percent in 1981, currently

areas. There are facilities already in the country for the

stands at only at ten percent in automotive assembly and

assembly of cars and light commercial vehicles. Most

40 percent in components manufacture.

of these facilities are currently under utilized and could be used by potential entrepreneurs. There are also well

Demand and Supply of Vehicle and Spares

established component 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

The

are pre-owned and would therefore require frequent

manufacturing and sub-assembly plants that are fed

maintenance. This translates to a heavy demand for

by heavy engineering industries. These include casting,

spares and components. Other West African countries

forging, presswork, plastic moulding, heat treatment,

also provide a ready market, which is already exploited

surface treatment and machining. Considering that about

by some Nigerian 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 the Motorcycles and Bicycles

manufacture of servicing and replacement parts. Other

The estimated annual demand for motorcycles and

areas that need investment are in the establishment of

industries for making automotive components, like press

Raw Materials

shops, forge shops and precision machine shops.

The average vehicle has up to 2,000 parts made from

Investment Incentives

steel, cast iron, alloy steel, copper, tin aluminium, wood,

In addition to the general incentives available to investors,

glass leather and plastics. The Aladja Steel Company

there are others that are specific for the automotive

produces steel billets, rods and angles. The Ajaokuta

industry:

Steel Company, when completed, would produce steel sheets, pig iron and alloy steel. The Eleme Petrochemical

1. Import duty for ‘Complete Knock Down’ vehicle

Complex produces polypropylene, polyethylene, ethylene

assembly is 5 percent, while that for fully built units

and propylene. The Aluminium Smelter Company

is 20 percent

produces aluminium ingots. Though some raw materials

2. The Nigerian Government has mandated all its

would still need to be imported, the low labour costs in

ministries, agencies and parastatals to patronise the

the country enable even factories with 100 percent of

products of local automotive assembly plants

imported raw materials to be economically viable.

3. The National Automotive Council has established an Auto Development Fund to provide soft loans for

Manpower

industries that will produce auto parts

There

are

many

technical

schools,

polytechnics

4. The automotive industry has the status of a ‘pioneer

and universities in Nigeria that produce craftsmen,

industry’, which grants a five year tax holiday

technicians, technologists and engineers of the highest

anywhere in the country and seven year tax holiday

calibre. The various motor assembly plants, foundries,

in any economically disadvantaged local government

steel plants and existing auto parts manufacturers have,

area

over the years, trained many Nigerian in various aspects

5. Up to 120 percent of expenses on Research and

of engineering, design, manufacture and management.

Development is tax deductible. For ‘R&D’ on local

Conclusion

raw materials, 140 percent is allowed 6. Industrial establishments that have in-plant training

The Nigerian automotive industry offers significant

facilities enjoy a two percent tax concession for a

investment opportunities in the manufacture of vehicles,

period of 5 years

motorcycles and bicycles, their components and spares.

7. 20 percent of investment in infrastructure (such as roads, water and electricity) is tax deductible

needs to ensure that more components are produced

8. Industries in economically disadvantaged areas would

enjoy

an

additional

5

percent

This is particularly true where the federal Government

capital

depreciation allowance, over and above the initial

locally. Nigeria also has the vast potential to become the leading vehicle manufacturing centre for the Economic Community of West African States (ECOWAS).

allowance 9. Industries with high labour to capital ratios are entitled

to

the

following

concessions:

Those

For further information contact:

employing 1,000 people or more will enjoy a 15

The Director-General

percent tax concession, those employing 200 or

National Automotive Council

more will have a 7 percent tax concession and those employing 100 persons or more have a 6 percent tax

23, Parakou Crescent

concession

Off Aminu Kano Crescent, Wuse II

10. Engineering industries with high ‘local value added’

P.M.B 320, Garki, Abuja.

will enjoy a 10 percent tax concession for 10 years 11. Expenses incurred on expansion, modernisation and/or diversification will attract allowances 12. Engineering industries using up to 60 percent local raw materials in their manufacturing process would

Tel: +234 (0) 707 220 6911-3 E-mail: a minujalal@yahoo.com aminujalal@nac.gov.ng luqmanmamudu@yahoo.co.uk

attract a 20 percent tax credit for five years 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.