The political economy of automobile development in Nigeria

SUMMARY

This briefing examines the major developments in Nigeria’s automobile industry since 1960. It argues that inconsistent implementation of automobile policies reinforces the capacity of non-indigenous automobile manufacturers to dominate the sector, and concludes that consistent auto-policy implementation that promotes the interests of indigenous manufacturers is relevant for increased local production and sustainable job creation in the sector.

Main article text

Introduction

The role of the automobile industry in the development of a country cannot be over-emphasised. In most developed and developing countries, the automobile industry plays a catalytic role in economic development (Eric 2012; Schrank 2016; Scotiabank 2017). Despite the importance of vehicle manufacturing to economic development, Africa seems to lag behind in global automobile production. Africa remains the second fastest growing market for used vehicles imported from outside the continent (Xcom Africa 2015). Apart from South Africa, Morocco, Algeria and Egypt, which have relatively well-established automobile manufacturing hubs (Alfaro et al. 2012; Maturana et al. 2015; Carmody 2017), other countries in the continent, including Nigeria, largely serve as sales outlets for new and used vehicles, popularly known as tokunbo ¹ (International Organisation of Motor Vehicle Manufacturers 2016). Meanwhile, with a middle-class population currently estimated at 38 million people, Nigeria has the potential to become one of the leading automobile-manufacturing nations in Africa (National Automotive Council [NAC] 2014). Despite the efforts of the Nigerian government to encourage the development of the automobile industry, 300,000 used and 100,000 new vehicles were imported in 2012 alone (PricewaterhouseCoopers [PWC] 2016).

Research has linked the underdevelopment of the automobile industry in Nigeria to lack of policy (Agbo 2011) and inadequate capitalisation of the industry (NAC 2014, 2015). Carmody (2017) argued that the intensely competitive and highly uneven nature of the global economy makes the establishment of manufacturing firms in Africa vital to study, particularly as there may be important policy implications for governments and industries. That said, the political economy of the automobile sector development in the country has been understudied. This briefing therefore addresses the lacuna. The empirical focus of this study is the 35 automobile-manufacturing companies in Nigeria. The study utilised the mixed-method approach comprising key informant interviews (KIIs) and group interviews with key stakeholders in April 2016, August 2017 and February 2019. It also included field observation, policy appraisal and reference to secondary literature. The remaining parts of this article are divided into four sections: trends in automobile development; exploration of state capture theory; analyses of the impact of state policies on the development of the automobile industry; and conclusion.

Trends in automobile development

The automobile industry in Nigeria has been in existence for over five decades. The industry was kick-started by private non-indigenous operators in the early 1960s (Agbo 2011). The first private operator to establish an assembly plant in Nigeria was the United African Company Ltd. This company was involved in assembling Peugeot pickup vans. Other private operators that joined the industry in the 1960s include the Federated Motors Industries and Smart Car of America Motors.

During the oil boom in the 1970s with increased government revenue,² state-owned car assembly plants, including Volkswagen of Nigeria (VON) in Lagos, Peugeot Automobile Nigeria in Kaduna, Anambra Motor Manufacturing Company (ANAMMCO) in Enugu; Leyland Nigeria in Ibadan; National Trucks Manufacturing in Kano; and Styr Nigeria in Bauchi were established (Ibid.; NAC 2014). In 1970s, the Nigerian automobile industry had the capacity to assemble 108,000 cars, 56,000 commercial vehicles and 6000 trucks per annum (NAC 2015).

The crisis that followed the oil boom led to the introduction of the Structural Adjustment Programme (SAP) in 1986. This resulted in liberalisation of importation of different products including new and used vehicles from Europe, North America and Asia (Munkirs et al. 1993), notable among these being Volkswagen, Toyota, Hyundai, Honda, Nissan and Ford Motor Company (International Trade Administration 2018). Local industries including automobile manufacturers were suffocated. For instance, the capacity utilisation in the automobile industry dropped from 90% to 10% between 1986 and 1990 (Proshare 2013).

In order to revive the automobile industry in the post-SAP era, the Nigerian government drafted the National Automotive Policy (NAP) in 1993. The policy has the objective to increase private sector participation in the automobile industry. Despite this lofty objective, the military governments of Generals Sani Abacha (1993–1998) and Abdulsalami Abubakar (1998–99) as well as the democratically elected government of Olusegun Obasanjo (1999–2007) failed to implement the policy. In 2007, President Musa Yar’Adua privatised the six state-owned car assembly plants in Nigeria and opened the economic space for private sector participation. Table 1 shows the lists of automobile industries at different levels of development.

Table 1.

List of automobile companies in Nigeria.

S/N	Stages of development of automobile industries	Company names	Number of companies
1	Government-owned automotive assembly plants that were later privatised	ANAMMCO, Enugu; Leyland Busan motors, Ibadan; PAN Nigeria Ltd, Kaduna; Steyr Nigeria Ltd, Bauchi; VON Automobile, Lagos; and National Truck Manufacturers, Kano	6
2	Private automobile investors already manufacturing	Innoson Vehicle Manufacturing Company Ltd, Nnewi, Anambra State; Iron Products Industries Ltd, Lagos; Proforce Ltd, Lagos; SCAO Nigeria Ltd, Lagos; Stallion Nissan Motors Nigeria Ltd, Lagos; Stallion Motors Ltd, Lagos; Lafbart Innovations & Consulting Ltd, Akure; Transit Support Services Ltd, Lagos; Zahav Automotive Company Nigeria Ltd, Lagos; Dana Motors Ltd, Lagos; Nigeria Sino Trucks Ltd, Lagos; and Hyundai Motors Nig. Ltd, Lagos	12
3	Licensed automobile manufacturers at various stages of development	Perfection Motors Co. Ltd, Lagos; Richbon Nigeria Ltd, Lagos; General Appliances West Africa Ltd, Enugu; Nigeria-China Manufacturing Company Ltd; Transguinea Ltd/Leventis Motors (a division of A.G. Leventis Nig. Plc, Ibadan); Honda Manufacturing Nigeria Ltd, Ota Idiroko, Sango, Ogun State; Tilad Nigeria Ltd, Oshogbo; R. T. Briscoe Nigeria Ltd, Lagos; Aston Motors, Lagos; Globe Motors Nigeria Ltd, Lagos; Toyota Nigeria Ltd, Lagos; Coscharis Motors Ltd, Lagos; Bascon Nigeria Ltd, Ibadan; Lanreshittu Motors Nigeria Ltd, Lagos; CFAO Motors Nigeria Ltd, Lagos; Kewairams Chawrai Nig Ltd, Lagos; and Koncept Autocentre Nig Ltd, Lagos	17

Source: compiled by the authors from NAC (2015b), Nigerian automotive assembly plants capacities, dealers, CEO/contact details.

Despite the enhanced private sector participation, Nigeria continues to depend on importations of new and tokunbo vehicles to satisfy the increasing local demands of about 500,000 units of vehicles per annum (NAC 2014). Following President Yar’Adua’s pro-private sector participation policy in the automobile industry, Innoson Vehicles Manufacturing (IVM) Company (the first and only functional indigenous automobile manufacturer in Nigeria) emerged in 2010. In 2013, Nigeria transited from the NAP to the New Automotive Industry Development Plan (NAIDP) to strengthen local automobile manufacturing. The NAIDP introduced new tariff regimes in the auto industry. While Completely Knocked Down (CKD) kits attract 0% duty and levy, Semi-Knocked Down (SKD) kits 1 attract 5% duty and 0% levy. SKD kits 2, which include those vehicle materials that have been welded, painted, glazed and partially assembled, attract 10% duty and 0% levy. Nonetheless, Fully Built Vehicles (FBVs) 1 or Completely Built Vehicles (CBVs) 1 are those that were imported before the commencement of the new policy. These attracted 35% duty and 0% levy. FBV 2 is a category involving those imported after the policy had become operational. These attract 70% tariff (35% duty and 35% levy). Although the implementation of NAIDP increased the number of automobile manufacturing and assembly plants in Nigeria from 6 to 35, the output remains marginal.

Theoretical debates on industrial development in Africa

This study was anchored on state capture theory. State capture refers to the ‘capacity of firms to shape and affect the formation of the rules of the game (laws, policies, regulations and decrees) for their private gains’ (Hellman, Jones, and Kaufmann 2003, 751). Powerful firms hijack the state and its actors for their own advantage (Bush et al. 2018; Smith and Lee 2018). Essentially, state capture develops where political and economic powers are highly concentrated (Bush et al. 2018). Hence, state capture is often associated with corruption (Innes 2014; Hassan 2018), especially in the global South (Lawrence and Zeilig 2018). The application of the state capture theory in this study is unique in three related ways. First, it notes that state policies reflect private interests in the automobile sector. Second, state capture is inevitable because the state captors are members of the most dominant and formidable social networks. Third, the theory explains how the state relates with dominant international automobile manufacturers and the impact of such relationships on economic development. In Nigeria, two dominant groups, namely the nationalists and the reformists, have been struggling to capture and recapture the state (Onuoha 2009; Ezeibe 2016). While the nationalists, including key officials of the Nigerian Labour Congress and radical intellectuals, subordinate economic activities to the goal of the state, the reformists, including the representatives of the international financial institutions, multinational corporations and liberal intellectuals, argue for state withdrawal in management of the economy (Ezeibe 2009). Predictably, this struggle between the reformist and the nationalists is unequal. In Nigeria for instance, the state often sacrifices domestic production in exchange for rents accruing from international capital (Ake 1985; Omeje 2004; Ikpe 2014; Albert 2018). State officials use their positions to assist foreign capital and their local surrogates to confine indigenous companies to small-scale operations (Seddon and Zeilig 2005). This unholy interaction among foreign businesses, local intermediaries and state officials³ tends to generate tension which undermines the development of coherent indigenous programmes (Williams 2004). For instance, Osigwe (2017) observes that there is a grand conspiracy by international automobile manufacturers, the Guarantee Trust Bank and the Economic and Financial Crimes Commission to pull down IVM at all costs because of the struggle between indigenous and foreign automobile firms.

State policies and development of the automobile industry

The impact of the implementation of automobile policies has been mixed. A KII with the executive secretary of AMAN in Lagos on 4 August 2017 revealed that:

Automobile industry has become the third most politicised sector in Nigeria after petroleum and cement industries. There are many interest groups within the automobile industry and these groups have the capacity to influence government policies. While some of these groups favour importation of either CKD or SKD, others favour importation of CBV.

Although field observation and other supporting documents show that the new policy has attracted a number of top-brand vehicle manufacturers, employment generated in the sector, the output of the automobile manufacturers and the contribution of the sector to the gross domestic product (GDP) of manufacturing remain marginal. Despite the huge potential of the automobile industry in Nigeria, the sector contributed only 0.87% to GDP in the third quarter of 2018 (National Bureau of Statistics 2018), unlike South Africa, where the industry alone contributes 7% to GDP (Liadi 2015; Jalal 2016).

Consequently, the automobile market is yet to experience a significant boom capable of generating competitive industrial development. The automotive industry in Nigeria employs only 2600 workers (PWC 2016), unlike in South Africa, where the sector is the second largest employer of labour, and Egypt, where it employs about 600,000 people (Jalal 2016). In Nigeria, 65% of assembly operations are manual and 70% of employees are casual staff (Jeremiah 2017).

The low level of employment in Nigeria’s automobile industry is related to the high level of the skills gap in the sector. General Electric estimates that there are 8 million technical skills gaps in critical sectors of the Nigerian economy, including the automobile sector (Alli 2017). Table 2 shows the major skills and their levels of development in Nigeria’s automobile industries. The skills gaps in Nigeria’s automobile industry arise from the constant complex modernisation of production facilities and migration of labour to other countries for higher wages.

Table 2.

The major skills and their level of development in Nigeria’s automobile industries.

		Level of skill development (%)
S/N	Skills	Low	Moderate	High
1	Mechanical engineers	73	24	3
2	Electronic engineers	65	30	5
3	Electrical engineers	60	29	11
4	Mechatronic engineers	81	17	2
5	Metallurgical engineers	73	24	3
6	Industrial engineers	71	20	9
7	Research and development experts	84	12	4
8	Precision machinists or tool and die makers	88	12	0
9	Punch press operators	84	25	1
10	Pattern makers	74	22	4
11	Core makers	71	27	2
12	Hammermen	76	20	4
13	Floor inspectors	20	69	11
14	Finishers (sprayers, polishers, sanders, painters, trimmers, cutters and sewing machine operators)	75	21	4
15	Assemblers	79	16	5
16	Machine maintenance workers	72	25	2
17	Tool programmers	69	28	3
18	Material handlers	0	29	71
19	Business machine operators (administrators)	2	10	88
20	Patrolmen, janitors, gatemen and porters	0	6	94

Source: authors’ fieldwork, 2019.

Despite the increase in the number of unemployed Nigerians from 11.92 million in the first quarter to 15.99 million in the third quarter of 2018, there are 925 specialised skill areas where foreigners are employed because Nigerians are said to lack the requisite skills to operate. About 11.4% of these unavailable skills are in the automobile industry (Bere 2019). A KII with the operations manager of a leading automobile industry in February 2019 reiterates that ‘although unwillingness to transfer technology and manufacture locally are implicated as some of the reasons for employment of foreigners in the automobile industry, inadequate skilled labour remains a major driver.’ The World Bank (2018) observes that inadequate skilled labour hampers the commitment of foreign direct investment in the automobile sector to assemble locally. Hence, it lowers productivity. For instance, the combined annual production output of the 35 existing automobile companies in Nigeria only amounts to 143,395 vehicles. This does not satisfy the increasing local demands, thus making the industry thrive on importation. Apart from IVM, which is involved in assembling CKDs, other foreign-owned automobile manufacturers in Nigeria import SKDs and CBVs from their parent countries.

Nonetheless, most stakeholders doubt the accuracy of the production outputs quoted by the automobile manufacturers in Nigeria. For instance, a KII with the chairman of AMAN in Lagos on 4 August 2017 shows that:

The auto manufacturers sometimes exaggerate their production output and the number of people they employ in order to benefit from the various government policies, especially the NAIDP. Most of the manufacturers claim to be meeting local demand of vehicles in order to motivate government to completely ban importation of new and second hand vehicles. They also claim to employ more than 1000 people to receive 15% tax concession.

Furthermore, the institutions of the state such as the Customs Service and the Nigerian Ports Authority have also highlighted the huge revenue loss as a result of the implementation of NAIDP in Nigeria and the increased vehicle smuggling which the policy engendered (Jimoh 2019).

Arguably, the factors that undermine the performance of the automobile manufacturing sector in Nigeria include decline in personal income, high foreign exchange (forex) and interest rates, unreliable credit purchase scheme and poor patronage of new vehicle manufacturers (Falade and Folorunso 2015). To be sure, the average monthly income of the Nigerian middle class is between 75,000 and 100,000 naira (Robertson, Ndebele, and Mhango 2011). At a fluctuating exchange rate, this is equivalent to US$463 and US$617 in 2013, and US$204 and US$272 in 2019. Similarly, the unstable forex market as a result of naira fluctuations threatens sustainable automobile development in Nigeria. For instance, in 2013 when NAIDP was launched the interest rate was 12% and the exchange rate was N162 per US$1, while in March 2019 the interest rate was 14% and the exchange rate was N367 per US$1. This increases the cost of doing business in Nigeria. Notably, Nigeria, Kenya and South Africa rank 170, 136 and 43, respectively, out of 189 economies in the World Bank’s Doing Business report (Japan International Cooperation Agency [JICA] 2015).

Although NAIDP provided for a credit purchase scheme to promote sales of new made-in-Nigeria vehicles, the policy is rarely implemented. This is because those who drive the policy, such as Choice International Group Motors Ltd and Cheki Nigeria, are also the surrogates of multinational companies whose business interests are threatened by the continual implementation of NAIDP. Whereas the government has an initiative to improve the capacity of low- and middle-income earners to buy new vehicles, the sale of new vehicles remains low (KII with the marketing manager of IVM, 28 August 2017). Irrespective of Nigeria’s huge population, its new vehicle sales lag behind most less populated countries in Africa such as Algeria, Egypt, Morocco and South Africa (Deloitte 2016). While new vehicles sales in Nigeria dropped from 52,000 in 2013 to 6999 units in 2017, sales were 555,716 in South Africa, 181,001 in Egypt, 168,913 in Morocco and 94,408 in Algeria for 2017 (Adebowale 2019). In Nigeria, the ratio of patronage of new vehicles by government/corporate organisations and private individuals remains 70:30. That said, individuals purchase between 80% and 90% of all used cars in Nigeria (PWC 2016). Table 3 shows the impact of state policies on the development of the automobile industry and the limitations of the industry in Nigeria.

Table 3.

Summary of group interviews on the impact of government policies on automobile industries and limitations of automobile manufacturing in Nigeria.

Category	Remarks (R)	Frequency of (R) in %
The impact of government policies on automobile industries	Provides incentives for new automobile industries	62
	Increase in installed capacity of automobile industries	80
	Increase in local vehicle production	81
	Domestic industry is protected from external competition	59
	Local automobile industries meet local demand	97
	Increased export of completely built vehicles	19
	Increase in sale of locally made vehicles	30
	Market capitalisation of automobile industries has increased	33
	Created more employments directly and indirectly	76
	Most labourers are obtained locally	68
	Increased transfer of technology in automobile industry	78
	Governments patronise local automobile industries	18
	Waivers and tax exceptions increased profits	31
	Research and Development fund is established	86
	Standard of made-in-Nigeria vehicles improved	69
	Created opportunity for international technical collaboration	84
	Intensified training and retraining of mechanics	90
Limitations of automobile manufacturing	Dominance of high carbon-emitting manufacturing technology	99
	Dearth of automobile supporting industries	99
	Unreliable electricity infrastructure	97
	Inconsistent government policies	92
	Multiple taxation is rife	87
	Unit cost of production is high	95
	Cost of doing business is high	97
	Automobile products do not have comparative advantage	89
	High cost of production makes export unattractive	81
	Exchange rate pushes up the unit costs of products	98
	Importation of tokumbo vehicles remains intensive	99
	Low patronage of locally made vehicles	97
	Low income level is a major threat to sale of new vehicles	88
	Non implementation of New Vehicle Credit Purchase Scheme	80

Source: authors’ fieldwork, 2018.

The foregoing analysis suggests that the automobile market in Nigeria thrives on used vehicles. Hence, tokunbo vehicles dominate Nigerian roads. The reason for this is not unconnected to the challenges confronting automobile development, including economic, human and infrastructural factors. The major factor that undermines the development of the automobile industry in Nigeria is poor perception of locally made vehicles. Most commercial transport operators in Nigeria believe that locally manufactured vehicles are not robust enough for Nigerian roads. A KII with the operations manager of ABC Transport Company of Nigeria on 28 August 2017 reveals that ‘they always purchase rugged vehicles mostly imported from Japan, Germany, and the United States.’ Field observation shows that other transport operators such as Peace Mass Transit, Young Shall Grow Motors, GUO Transport Company, God is Good Motors and Auto Star Transport Company rarely purchase made-in-Nigeria vehicles. The most notable infrastructure-related problems that undermine the development of the automobile industry in Nigeria are poor condition of roads, the moribund steel industry and the unstable power supply. Specifically, the abandonment of Ajeokuta Steel Industry constitutes a serious defect in the sustainable development of the automobile industry. The dearth of supporting industries such as rubber, iron and steel hampers the integration of local content in the automobile industry.

The problems of automobile development are reinforced by the inherent contradictions in policy process as a result of the struggles between the reformists and the nationalists, as well as corruption and economic sabotage facilitated by smugglers and investors in collaboration with government agencies. While the nationalists (represented by IVM in this context) support NAIDP’s tariff regime, the reformists (represented by international automobile manufacturers and their local surrogates such as the roll-on/roll-off operators,⁴ clearing agents, and new and used car importers) campaign for a review of the tariff regime that discourages importation of CBVs. This campaign explains the delays and inconsistencies in the implementation of NAIDP (JICA 2015). Moreover, corruption on the part of the Nigeria Customs Service poses a serious threat to the implementation of the Plan. This results in continual smuggling of tokunbo vehicles into Nigeria. Notably, 99% of tokunbo vehicles are smuggled through the land borders, especially through Cotonou in Benin. Black and McLennan (2016) observe that over 85% of used vehicles imported into Benin end up in the Nigerian market. Hence, Nigeria is largely a used car market with a ratio of new to used cars of about 1:134 (PWC 2016).

Conclusion

This briefing concludes that inconsistent implementation of automobile policies reinforces the capacity of non-indigenous automobile manufacturers to dominate the sector. This inconsistency reflects the dynamics of power structures in industrial development. The briefing argues that consistent implementation of an automobile policy that also promotes the interests of indigenous manufacturers is relevant for increased local production and sustainable job creation in the sector.

Notes

1

Tokunbo is street parlance for used cars in Nigeria.

2

Government revenue from oil increased from N66 million in 1970 to over N10 billion in 1980 (N 0.55 = USD1 as of 1970s and early 1980s).

3

The alliances between Dangote Group, Kaduna State government and Groupe PSA to assemble the Peugeot brand in Kaduna (Desert Herald 2019), and between the Coscharis partnership with Lagos State government and Ford Motors to assemble Ranger Rover in Lagos, are illustrative. In these alliances, the state protects foreign capital, and Nigerian entrepreneurs play the role of intermediaries (Turner 1982).

4

These are operators of cargo ships and vessels that carry goods, including imported vehicles, into Nigeria.

Acknowledgements

The authors are grateful to the leaders of the Automobile Manufacturers Association of Nigeria that participated in this study. We also acknowledge the contributions of the anonymous peer reviewers and the editorial team of ROAPE.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Michael I. Ugwueze PhD is a lecturer in the Department of Political Science, University of Nigeria, Nsukka. Ugwueze has published in Africa Insight. His research interests are in areas of conflict, security, governance, separatist movements and development studies.

Christian C. Ezeibe PhD is a senior lecturer in the Department of Political Science, University of Nigeria, Nsukka. He is the author of ABC of political economy (University of Nigeria Press, 2016). His research focuses on political economy and sustainable development.

Jonah I. Onuoha PhD is a professor of Political Science, and Director of the Center for American Studies, University of Nigeria, Nsukka. He is an American Fulbright scholar. Onuoha's research interests are in the areas of diplomacy, foreign policy, development studies and lobbying techniques.

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