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.