Weakened demand threatens Nigeria’s N302 billion vehicle industry

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Weakened demand threatens Nigeria's N302 billion vehicle industry
Weakened demand threatens Nigeria's N302 billion vehicle industry

Nigeria’s vehicle assembly industry, with an estimated value of approximately N302 billion, is facing a severe downturn characterized by escalating production costs and a dwindling demand for locally assembled vehicles.

The recently published Manufacturers CEOs Confidence Index reveals that the activities within the motor vehicles and miscellaneous assembly sector have deteriorated further, dropping from 48.6 to 46.7 points, which is below the benchmark of 50 points.

This decline is attributed to factors such as the removal of subsidies, decreased sales, and reduced demand for new vehicles due to the erosion of consumers’ disposable income.

Local vehicle sector faces pandemic like conditions

The plunge to 46.7 points indicates that the business conditions in this subsector are approaching pandemic levels, reminiscent of when it hit a low of 45.25 points during the pandemic, and it represents the lowest point recorded (excluding pandemic figures) from available data.

An analysis of the Manufacturers Association of Nigeria’s (MAN) MCCI highlights negative readings across all indices used to gauge the performance of MAN’s composite sectoral groups, making it the poorest-performing sector in Nigeria’s manufacturing landscape.

Key negative indicators include a 17.3 percent surge in production and distribution costs, a 14.7 percent increase in shipping costs, and a 5.6 percent drop in capacity utilization, leading to a 5.7 percent reduction in the workforce for local assemblers during the period.

Despite the challenges faced by the industry, it has managed to achieve some positive developments in recent years.

However, the sector’s persistent struggles are largely attributed to unfriendly government policies, poor regulations, and a lack of government patronage.

To address these challenges, Gabriel Idahosa, Deputy President of the Lagos Chamber of Commerce, suggests that a reduction in the duties imposed by the government on importing components for assembly could significantly lower production costs and alleviate some of the industry’s burdens.