Nigeria Autos Report Q3 2011

Report Summary

Sales in the Nigerian auto sector have still not nearly recovered from the successive y-o-y decreases of over 50% that were registered in 2008 and 2009. BMI’s 26% y-o-y increase in the total sales forecast for 2011 can only be viewed as resulting from the measurement against a very low base figure. The fact also that new vehicle sales are predicted to be just 26,765 units in a market of Nigeria’s size shows the poor state that exists in the auto industry. Although we forecast y-o-y sales growth over the next few years, we do not expect the market to recover to anything like 2007 levels, when vehicles sales were up to almost 85,000.

The government has set an ambitious annual economic growth target of 10% over the next three years, which it hopes will be fuelled by investment of US$212bn but it remains to be seen whether this will significantly improve the prospects for the auto sector. Domestic motor vehicle production is very small with Peugeot Automobile Nigeria (PAN) being the only local producer. BMI forecasts in 2011 just 1,478 vehicles will come off the production line and that even by 2015 annual production will still fall far short of 2,000 vehicles.

The task of increasing Nigerian auto sales is hampered by structural problems and the poor state of the economy in general. It is reported that it can cost 20% less in customs fees and duties if vehicles are unloaded in Cotonou in neighbouring Benin and transferred to Nigeria by road. Some dealers have suggested that it is simply not viable economically to import via Nigerian seaports and that up to 80% of vehicles sold in Nigeria are brought through neighbouring countries. The use of land routes compounds the problem of smuggling and there is a significant ‘grey’ market in unauthorised imports in Nigeria.

Sales are also restricted by the tight controls in credit which make the sourcing of finance for new car purchases difficult. Vehicle sales could also be hit by the ending later this year of fuel subsidies which will result in increased running costs and another disincentive to potential first time car buyers. Nigeria currently ranks in last place in BMI’s Business Environment Ratings in the auto sectors in the Middle East and Africa. The small size of the market is further hampered by the lack of a realistic production capacity. Low potential rewards and a high investment risk ratings place the Nigerian auto sector firmly at the foot of the table.