Post by Trade Coach on May 27, 2017 16:22:35 GMT 1
As the Federal Government's automotive policy takes shape, Nigeria is set to become Africa's next automotive hub, a report by PwC Nigeria has revealed.
The report, which painted three possible growth scenarios, projected average gross domestic product (GDP) growth of 6.6 per cent through to 2020, 5.1 per cent to 2030 and 5.4 per cent to 2050.
In the report, growth in new car sales was assumed to run at twice GDP expansion on the basis of other large emerging markets such as Indonesia.
The report predicted a production of 4.16 million locally manufactured vehicles in 2050, 463,000 new vehicle imports and no second-hand imports (tokunbo).
It also predicted a park of 40.4 million cars in 2050 including 18.3 million Nigerian used.
PwC's estimates for 2015 have a park of 14.5 million vehicles, tokunbo imports of 335,000, new vehicle imports of 91,000 including the grey cross-border market and just 30,000 locally manufactured cars.
Additionally, the report identifies required backing in several areas, the first being the cost of vehicle purchases.
It cited a survey showing that 63 per cent of Nigerians could not afford a car without some support.
It also highlighted porous borders, noting that cars are the most smuggled items after rice and other foodstuffs. According to the report, "Quality standards have to be established and enforced if the Nigerian consumer is to be weaned off a preference for imported vehicles.
For the same reason, manufacturers would have to invest heavily in training."
PwC in the report assumed the development of satellite industries to provide parts such as batteries, belts, lights and tyres for vehicle manufacture.
While decrying low government backing for the industry, analysts say that the projected numbers would amount to a transformation of the sector. There is a government plan in place - the national automotive industry development plan - which includes a tariff structure to encourage domestic vehicle production. There are major boosts to employment and skills development, as well as balance-of- payments benefits, from the development of a sizeable auto industry.
Alternative Fuel for Vehicles
The Nigerian economy has borne the huge burden of subsidy payments on petroleum products. Massive importation of light petroleum products (petrol, diesel, and kerosene) continues unabated because the national refineries are working sub-optimally and new ones are yet to be constructed. Recently, the government announced its plan to privatize the old and mismanaged refineries, which was greeted with relief except for oil industry unions who believe that they will bear the brunt of this exercise unless proper negotiations are made to protect their interest.
Pragmatic reasoning still suggests that the refineries should be privatized, and there are various models that could be adopted for this. However, I do not think that the preferred model is an outright sale of the refineries because the exercise is very likely to translate from the public sector (government) monopoly of refineries to private sector monopoly. A private sector monopoly of refineries without an alternative fuel for our vehicles is absolutely dangerous because 170 million Nigerians are locked into the petrol/diesel 'captive' market and will be at the mercy of the Directors of the three refineries. You cannot pack in the garage a jeep you bought with millions of Naira, just because the price of petrol has risen to for instance N300 per liter. There are also far more dangerous political and national security implications.
Now, where does this lead us in our search for solutions towards achieving self-sufficiency in the availability of petroleum products? Addressing this critical challenge would require increasing capacity for production of petroleum products (supply- side solution) and/ or reducing the demand for petroleum products, particularly petrol and diesel (demand- side solution). The supply- side factors, in the case of our indigenous downstream petroleum sector tend to be more critical. The critical supply factors to be considered in the course of deregulation are improvements in the efficiency of domestic supplies; liberalization of product supplies; Brownfield refinery expansion (i.e. expansion of existing refineries); and Greenfield refinery development (i.e. new refineries construction). Loosening up all supply-side constraints can only be achieved when existing refineries are repaired, privatized and expanded; and new refineries constructed (both private and PPP-based refineries); and perhaps with the pipelines privatized also.
Conversely, demand-side factors such as products substitution with biofuels, compressed natural gas (CNG), liquefied natural gas (LNG) etc; improvements in the power sector; and the use of more fuel- efficient vehicles are also important but progress in these directions may not keep pace with the urgency required to attain self-sufficiency in supplies. So most industry analysts think!
Now that government has increased the price of petrol from N86.50 to N145.00, and there is nothing in the horizon to suggest that new mega- refineries are being built or small and medium scale -private refineries are being commissioned, it would seem that introduction of alternative fuels for vehicles (natural gas vehicles, NGVs) is inevitable. The objective should be to integrate fuel substitution with projected refinery supply volumes after the turn-around maintenance of existing refineries have been completed.
According to an industry expert and practitioner, Dr. Emeka Ene of Energia Oil Company, the introduction of compressed natural gas (CNG) fuels for public transportation and government/ company vehicle fleets is a "low hanging fruit" and represents a "quick-win". It is clear that Dr. Ene was right, but first, what is this alternative fuel about, how will it impact Nigerians positively, what are the constraints, which countries have developed the use of NGVs, and how should government and private investors go about its introduction?
Alternative fuels have a role to play in the demand mix for petroleum products, especially in public transportation. According to an IEA-OECD study carried out by Michael Nijboer on "The Global Use of Natural Gas- Driven Vehicles (NGVs)", natural gas has been more competitive when compared to gasoline in regard to transmission and distribution grids, and public transportation. According to the report, there is an opportunity for simultaneous gas market development and boosting of a country's NGV market share.
CNG is produced by compressing natural gas with gas compressors to less than 1% of its volume, and then stored / distributed in hard steel containers (with cylindrical or spherical shapes) at a pressure of 200-248 bar. The cylinders are then fitted into traditional petrol or diesel- run vehicles that have either been modified or manufactured for CNG use. CNG can also be used in conjunction with another fuel, e.g. diesel or petrol (bi-fuel vehicles). NGVs are becoming popular around the world, in response to high fuel prices and environmental concerns.
The report, which painted three possible growth scenarios, projected average gross domestic product (GDP) growth of 6.6 per cent through to 2020, 5.1 per cent to 2030 and 5.4 per cent to 2050.
In the report, growth in new car sales was assumed to run at twice GDP expansion on the basis of other large emerging markets such as Indonesia.
The report predicted a production of 4.16 million locally manufactured vehicles in 2050, 463,000 new vehicle imports and no second-hand imports (tokunbo).
It also predicted a park of 40.4 million cars in 2050 including 18.3 million Nigerian used.
PwC's estimates for 2015 have a park of 14.5 million vehicles, tokunbo imports of 335,000, new vehicle imports of 91,000 including the grey cross-border market and just 30,000 locally manufactured cars.
Additionally, the report identifies required backing in several areas, the first being the cost of vehicle purchases.
It cited a survey showing that 63 per cent of Nigerians could not afford a car without some support.
It also highlighted porous borders, noting that cars are the most smuggled items after rice and other foodstuffs. According to the report, "Quality standards have to be established and enforced if the Nigerian consumer is to be weaned off a preference for imported vehicles.
For the same reason, manufacturers would have to invest heavily in training."
PwC in the report assumed the development of satellite industries to provide parts such as batteries, belts, lights and tyres for vehicle manufacture.
While decrying low government backing for the industry, analysts say that the projected numbers would amount to a transformation of the sector. There is a government plan in place - the national automotive industry development plan - which includes a tariff structure to encourage domestic vehicle production. There are major boosts to employment and skills development, as well as balance-of- payments benefits, from the development of a sizeable auto industry.
Alternative Fuel for Vehicles
The Nigerian economy has borne the huge burden of subsidy payments on petroleum products. Massive importation of light petroleum products (petrol, diesel, and kerosene) continues unabated because the national refineries are working sub-optimally and new ones are yet to be constructed. Recently, the government announced its plan to privatize the old and mismanaged refineries, which was greeted with relief except for oil industry unions who believe that they will bear the brunt of this exercise unless proper negotiations are made to protect their interest.
Pragmatic reasoning still suggests that the refineries should be privatized, and there are various models that could be adopted for this. However, I do not think that the preferred model is an outright sale of the refineries because the exercise is very likely to translate from the public sector (government) monopoly of refineries to private sector monopoly. A private sector monopoly of refineries without an alternative fuel for our vehicles is absolutely dangerous because 170 million Nigerians are locked into the petrol/diesel 'captive' market and will be at the mercy of the Directors of the three refineries. You cannot pack in the garage a jeep you bought with millions of Naira, just because the price of petrol has risen to for instance N300 per liter. There are also far more dangerous political and national security implications.
Now, where does this lead us in our search for solutions towards achieving self-sufficiency in the availability of petroleum products? Addressing this critical challenge would require increasing capacity for production of petroleum products (supply- side solution) and/ or reducing the demand for petroleum products, particularly petrol and diesel (demand- side solution). The supply- side factors, in the case of our indigenous downstream petroleum sector tend to be more critical. The critical supply factors to be considered in the course of deregulation are improvements in the efficiency of domestic supplies; liberalization of product supplies; Brownfield refinery expansion (i.e. expansion of existing refineries); and Greenfield refinery development (i.e. new refineries construction). Loosening up all supply-side constraints can only be achieved when existing refineries are repaired, privatized and expanded; and new refineries constructed (both private and PPP-based refineries); and perhaps with the pipelines privatized also.
Conversely, demand-side factors such as products substitution with biofuels, compressed natural gas (CNG), liquefied natural gas (LNG) etc; improvements in the power sector; and the use of more fuel- efficient vehicles are also important but progress in these directions may not keep pace with the urgency required to attain self-sufficiency in supplies. So most industry analysts think!
Now that government has increased the price of petrol from N86.50 to N145.00, and there is nothing in the horizon to suggest that new mega- refineries are being built or small and medium scale -private refineries are being commissioned, it would seem that introduction of alternative fuels for vehicles (natural gas vehicles, NGVs) is inevitable. The objective should be to integrate fuel substitution with projected refinery supply volumes after the turn-around maintenance of existing refineries have been completed.
According to an industry expert and practitioner, Dr. Emeka Ene of Energia Oil Company, the introduction of compressed natural gas (CNG) fuels for public transportation and government/ company vehicle fleets is a "low hanging fruit" and represents a "quick-win". It is clear that Dr. Ene was right, but first, what is this alternative fuel about, how will it impact Nigerians positively, what are the constraints, which countries have developed the use of NGVs, and how should government and private investors go about its introduction?
Alternative fuels have a role to play in the demand mix for petroleum products, especially in public transportation. According to an IEA-OECD study carried out by Michael Nijboer on "The Global Use of Natural Gas- Driven Vehicles (NGVs)", natural gas has been more competitive when compared to gasoline in regard to transmission and distribution grids, and public transportation. According to the report, there is an opportunity for simultaneous gas market development and boosting of a country's NGV market share.
CNG is produced by compressing natural gas with gas compressors to less than 1% of its volume, and then stored / distributed in hard steel containers (with cylindrical or spherical shapes) at a pressure of 200-248 bar. The cylinders are then fitted into traditional petrol or diesel- run vehicles that have either been modified or manufactured for CNG use. CNG can also be used in conjunction with another fuel, e.g. diesel or petrol (bi-fuel vehicles). NGVs are becoming popular around the world, in response to high fuel prices and environmental concerns.
