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.
The automotive industry is celebrated across the world as one of the most important sectors in terms of job creation and multiplier effects on related sectors.
It has been estimated that each direct automotive job supports at least another five indirect jobs in the community, resulting in more than 50 million jobs traceable to the industry. This is because activities in the sector are also elixirs for related sectors such as steel, iron, aluminium, glass, plastics, glass, carpeting, textiles, computer chips and rubber.
In Nigeria, the scarcity of forex has slowed down and, in some cases, completely halted the production of vehicles in the existing facilities in the country.
An independent investor has asked the government to introduce tax relief for operators in the industry to stimulate recovery.
According to him, this would go a long way in reversing the precarious situation auto firms currently operate in, as other countries facing recession have applied tax incentives successfully.
Industry monitors revealed that sales of brand new vehicles dropped significantly from about 50,000 units in 2013 to below 10,000 units in 2017 as well as in 2018, largely due to the prohibitive costs of imported fully built new vehicles, which attract 70 per cent import duties.
RT Briscoe Plc began the financial year 2019 with a loss after tax of N214,270 million for the first quarter ended March 30, 2019, from a loss of N994,013 million in 2018.
The company continued to be subdued by rising costs during the half-year ended June 30, 2019, as its cost of sales grew by 39.84 per cent to close at N2.397 billion in 2019 from N1.714 billion recorded in 2018. Loss after tax stood at N424,331 million from N1.710 billion reported in 2018.
Consequently, the company ended the year in the red with a loss after tax of N1.287 billion for the financial year ended December 31, 2019, as against a loss of N2.209 billion in 2018.
For the 2020 financial year, R.T Briscoe reported a loss after tax of N618,900 million in its half-year operations from loss of N336,531 million in 2019. Its revenue within the period also dropped by 21 per cent from N3.070 billion in 2019 to N2.420 billion in 2020.
The company closed the 2020 financial year with a loss of N1.096 billion for the year ended December 31, 2020, as against N1.276 billion in 2019.
The company began the 2021 financial year in the red, sinking further to a loss of N498,476 million for the quarter ended March 31, 2021, as against N248,913 million reported in 2020.
Also, for the nine months ended September 2021, R.T Briscoe reported a loss after tax of N1.642 billion as against N876,421 million posted in 2020.
For A.G. Leventis (Nigeria), it continued to battle lower sales and declining bottom line, posting a loss position in 2016, closed 2017 in the same trend and continued 2018 unimpressively, until its delisting on the daily official rate of the exchange in 2019.
Specifically, the company began 2017 with a loss after tax of N139,098 million for the first quarter ended March 31, 2017, as against a loss after tax of N114,897 million reported in 2016.
According to a report from the Nigerian Stock Exchange (NSE), the company also reported a pre-tax loss of N204,556 million during the period under review as against a pre-tax loss of N165,965 million recorded in 2016. The company’s revenue stood at N3.350 billion in 2017 as against N3.581 billion reported in 2016, accounting for a drop of 6.45 per cent.
AG Leventis finished the half-year of 2017 in the red as the trend of loss position was sustained. The company posted a loss after tax of N590,416 million for the half-year ended June 30, 2017, as against a loss after tax of N335,930 million reported in 2016.
Professor of Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke, said the way forward for the industry is to ensure the provision of fiscal incentives for investors, and patronage of made-in-Nigeria automobiles and accelerated backward integration programmes by investors to reduce vulnerability to exchange rate shocks.
He said this is because the industry is capital intensive and relies heavily on forex to thrive. He decried the development where no auto part is manufactured in Nigeria as most of the operators were affected by forex challenges aside from weak infrastructure and overall cost of business.
However, he stated that if these operators could easily access forex with a lower cost of production, they would make a bounce back to profit ways in Nigeria.
“People rely more on importation because importation is cheaper, the locally-made cars are not competitive because the price of imported cars are cheaper than locally assembled ones.
“If the high cost of doing business makes the price of cars assembling here in Nigeria very high, then there is no need for assembling. The operators can’t be producing at a cost higher than importing vehicles and remain in business,” he said.(The Guardian)