The trade and industry ministers of sub-Saharan Africa’s two superpowers are collaborating on the concept of the “Zagerian” car. Nigeria wants to set up its own motor industry — and it wants South Africa’s help.
South Africa has agreed to share insight on its automotive production and development plan. In return, it hopes to export its components to Nigeria for a preferential rate.
But major changes would need to take place before Nigeria’s motor manufacturing landscape in any way resembles that of South Africa’s.
In order to create a truly “Zagerian” manufacturing scene, the Nigerians will need to increase import tariffs significantly, see a massive increase in demand for new cars, and tackle a consumer preference for imported vehicles.
In the first quarter of this year, car sales in South Africa totalled 113 971. Every year, over 400 000 new cars are bought by its population of about 51-million people.
In comparison, Nigeria, with a population of more than 160-million, imports a total of 50 000 new cars every year. This makes up the bulk of the new-car market in the country.
There is only one local manufacturer and it has not made significant inroads into the market.
That means South Africa sells more than eight times the number of new cars Nigeria does, despite Nigeria having more than triple South Africa’s population.
Nigeria rose from being the 13th-biggest buyer of South African automotive exports in 2011 to the ninth-biggest buyer last year. It was South Africa’s second-biggest African customer, beaten only by Zambia.
The total value of South Africa’s automotive exports to Nigeria rose from R1.3-billion in 2011 to R2.14-billion last year, according to the Automotive Export Manual published by the National Association of Automobile Manufacturers of South Africa. Last year, South Africa’s vehicle sales to Nigeria constituted almost 20% of all its automotive exports.
The import factor
The South African government-supported production and development plan replaced the motor industry development plan in January.
It aims to increase local vehicle production by incentivising local investment and hiking up import tariffs to 20% and 25% for imported components and vehicles respectively.
The South African motor vehicle market is made up almost entirely of local sales, but it has come at a cost, with some contesting that the programme has contributed R49-billion to the country’s trade deficit, Business Day reported in April.
Nigeria imports 150 000 used cars every year — three times the number of new cars brought into the country — and spends $360-million dollars bringing them in, according to the National Automotive Council in Nigeria. The country’s “import-friendly” tariff policy has led to cheaper imports.
“The sorry thing for Nigeria is that, while other [developing] countries were increasing their duties, Nigeria actually reduced its import duties on vehicles from 30% to between 10% and 20%, making Nigeria one of the dumping grounds for automobiles,” opined an editorial in the Leadership newspaper of Nigeria.
Unlike in South Africa, where the sale of used imported cars is banned, in Nigeria motor vehicles up to 15 years old can be sold in the country.
In a bid to protect the local industry, a government-mandated committee had been considering decreasing the age of allowable imports, which was originally 10 years.
“But instead they increased it to 15 years,” said Dianna Games, chief executive of the South Africa-Nigeria Chamber of Commerce. “There was a bit of an outcry around that.”
The allowance of older vehicle imports into the country, she said, was to enable more Nigerians to buy cars.
“A five-year-old car in Nigeria is still expensive,” said Games. “The reason [the decision to allow older imports was made] was to make it more affordable. At the time the petrol price was going up, so it was a double whammy for the consumer.”
But according to Leadership, other countries such as South Africa got around this by restricting low tariffs to small vehicles, “to help the middle class”.
Local tastes
But South African manufacturers are also up against the buying preferences of Nigerians — and according to Games, they prefer imported brands to local ones.
Chief Innocent Chukwuma, the chairperson of Nigeria’s Innoson Vehicle Manufacturing — the first automobile manufacturing plant in the country — said the company is suffering from low demand from both the private and the public sectors.
Chukwuma said in January that Nigerians refused to appreciate and patronise locally made vehicles. This was despite the fact that some of the cars were cheaper and of better quality than their imported counterparts.
The Nigerian market is not only open to formal imports. It is bolstered by the existence of informal imports from Dubai, China and other places, said Games. These products “remain popular in Nigeria because they are priced lower, not having had to have duties and tariffs applied to their sale price”.
Nevertheless, Games predicts this will change and Nigerians will seek legally imported or locally made cars as they become wealthier. “As the middle class grows, people will seek better value and proper back-up service,” she said.
Both Toyota and Nissan have shown an interest in setting up operations in Nigeria, should the “Zagerian” plan get the go-ahead. The South African Revenue Service does not track car exports by brands but, according to Games, Toyota and Nissan are the two most popular exports to Nigeria from South Africa.
Any preferential deal will do
Preferential opportunities in Nigeria for the manufacturers will provide a valuable leg-up for entry into a highly competitive market, said Games.
“This would be a great opportunity for South African auto manufacturers as the competition is stiff in the Nigerian market and any preferential deal would be useful.”
The Mail & Guardian conducted a price comparison between five popular retail cars in Nigeria and South Africa. It shows that prices are generally between 4% and 15% higher in Nigeria than in South Africa, although the comparison was a snapshot rather than one that should be considered reflective of the entire market.
Nevertheless, said Games, a local manufacturing capability would not necessarily translate into cheaper prices for the consumer.
“The cost of production in Nigeria is very high,” said Games. “There is nothing to say that it will be cheaper to buy local cars.”
And yet, despite myriad difficulties, the South African industry remains optimistic about its opportunities for involvement in the Nigerian motor market, which is “still in its infancy” but has great potential for growth, said Games. “As incomes grow, the market for goods and services is growing and that will drive demand.”
Pockets of potential
Norman Lamprecht, executive manager of the National Association of Automobile Manufacturers of South Africa, also saw pockets of potential.
“Opportunities of mutual benefit could be pursued, especially on the automotive component side, depending on the specific models to be produced in Nigeria,” he said.
To this end, the South African government is drafting another agreement of co-operation with Nigeria. Department of trade and industry spokesperson Sidwell Medupe says it is too early to disclose the timelines and how exactly this is being done.
“We are assessing the best ways to collaborate,” he said.
The future of the “Zagerian” car industry hangs in the balance while they do.