Worsening foreign exchange (forex) scarcity in the country, coupled with an unfavourable operating environment, weakened purchasing power and low demand for locally-assembled vehicles, have inflicted a toll on the automobile sub-sector, as Nigeria has expended over N4.12 trillion on the importation of used vehicles in the past 10 years.
The downturn has caused the profit of the industry’s listed equities to remain stagnated at nominal value over the years, following negative sentiments that have stunted demand for the stocks.
Stakeholders have raised concerns about the negative effects on new vehicle producers, many of which have either become moribund or producing far below capacity.
Due to the depreciating value of the Naira and cost of the product, only fewer people are able to buy new vehicles, while fairly used vehicles have to a large extent, remained unaffordable to the average Nigerians, as the lull in sales records reflects the nation’s economic situation and government’s policy inertia.
The development has become a source of worry to investors who are currently counting and lamenting their losses. They urge the Federal Government to support the industry with credit facilities, stressing that unless a single-digit interest rate was introduced, driving volume and attracting investors, especially spare parts manufacturers, would remain elusive.
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the growth of the automobile sector has been subdued largely by factors bordering on policy inconsistencies and macroeconomic shocks.
He stated that the way forward is to ensure the provision of fiscal incentives for investors in the automobile sector. He bemoaned the current situation where auto companies are unable to source forex, which has led to a sharp drop in activities in the industry.
According to him, with forex scarcity and recession in the economy inhibiting progress in the sector, the government should introduce a package of incentives to encourage investors to remain in business.
Aside from the provision of incentives, Yusuf said patronage of made-in-Nigeria automobiles and accelerated backward integration programmes by operators in the sector are needed to reduce vulnerability to the exchange rate shocks.
He insisted that the importation of cheap, fairly used cars and the non-patronage of homemade automobiles remain a critical threat to the growth of the local industry.
According to reports, prices of new vehicles have increased exponentially, leaving many people unable to afford them, an economy version of new vehicles that sold a few years back for between N2 million and N3 million are now between N15 million and N20 million.
Figures obtained from the National Bureau of Statistics (NBS) showed that Nigeria spent N1.05 trillion and N1.2 trillion in importation of used vehicles in 2012 and 2013.
In 2014, the figures dropped to N36.7 billion and subsequently rose to N157.8 billion in 2015. The figure dropped to N105 billion in 2016 and one year after, it slumped further to N87 billion.
By 2018, vehicle importation skyrocketed to N161 billion. It declined to N148 afterwards. In 2020, it rose to N523.5 billion and N532 billion last year.
With rising importation figures, small and medium sector operators have also been squeezed by the poor economy, as they now go for fairly used vehicles that are seemingly less expensive, causing Nigeria’s auto industry, unlike its counterparts in other countries, to face challenges that retard its growth potentials.
Organisations such as RT Briscoe, AG Leventis, UAC, SCOA and others that pioneered the development of the automotive sector in the country in the 60s through the establishment of automobile assembly plants using completely knocked down (CKD) or semi-knocked down (SKD) parts have almost stopped production.
A look at the stock price showed that as at 2011, AG Leventis was N2.66 kobo. But at the close of trading on February 19, 2018, it dropped to 60 kobo per share before the delisting from the exchange in 2019. For Scoa Plc, the stock rose to N8.50 kobo but depreciated to N2.38 kobo as of March 30, 2022. On Thursday, June 16, it further depreciated to N1.94 kobo and recorded zero trade. Also, within the same period, RT Briscoe rose to N3.03 kobo but declined to 60 kobo as of March 2022 and further declined to 56 kobo as of last Thursday.
