As part of the high points of the visit of the German Chancellor, Angela Merkel, in August 2018, Volkswagen signed a Memorandum of Understanding (MoU) with the Nigerian government on the return of the current world’s largest auto maker to its former plant in Lagos. The agreement has since stirred reactions from the local auto industry stakeholders.
In this exclusive interview, the Managing Director of Volkswagen Group, South Africa & Head of Volkswagen Sub-Sahara Africa (SSA), Mr. Thomas Schaefer, gives more insight into the agreement expected to prepare the way for full resumption of the assembly of Volkswagen vehicles at the plant – initially from assembly kits but with the long-term view of establishing Nigeria as an automotive hub for the West African sub-region.
Schaefer also commented on the Nigerian Automotive Industry Development Plan (NAIDP) or auto policy; the need to enact a law to support the policy; the possibility of the Volkswagen brand overtaking the competing brands to return to the top of the market; and the continued importation of used vehicles into the country.
“Volkswagen believes that Nigeria has the potential to be the automotive powerhouse in West Africa by just the sheer size of its population. We are also encouraged by the willingness and commitment of the Nigerian government to introduce policies that are conducive to re-establishing Nigeria’s automotive industry. Political will and vision are the keys to success.”
MoU with Federal Government
In the MoU, Volkswagen has undertaken to implement a phased approach in relation to the assembly of vehicles, initially from assembly kits with the long term view of establishing Nigeria as an automotive hub. This will include establishing a training academy in conjunction with the German government, which will train the initial employees. The academy will also provide broader technical training in automotive skills. It is also intended that a comprehensive Volkswagen vehicle and service network is developed in Nigeria subject to commercial viability.
In turn, the Nigerian government has undertaken to accelerate the approval of the Nigerian Automotive Policy, which is currently under consideration. This includes the gradual transition from the importation of used cars to the manufacture and distribution of new passenger vehicles. The government has committed to providing a conducive legislative environment that will encourage the manufacturing of motor vehicles in Nigeria.
Further engagements between Volkswagen and Nigeria’s Minister of Industry, Trade and Investment, Dr. Okey Enelamah, are ongoing to discuss the finer details of the MoU and most importantly, the concrete way forward.
Reasons for returning to Nigeria
Volkswagen believes that Nigeria has the potential to be the automotive powerhouse in West Africa by just the sheer size of its population. We are also encouraged by the willingness and commitment of the Nigerian government to introduce policies that are conducive to re-establishing Nigeria’s automotive industry. Political will and vision are the keys to success.
Challenges in restarting assembly plant in Lagos
The gradual reduction of imported used cars is critical to the success of the Nigerian automotive industry as this will open the market for new cars made in Nigeria. Availability of consumer financing will be another benefit. There will also be fast and competitive logistics; from harbour to trucking, including efficient administrative processes, particularly involving the Customs.
Local content development
Wherever we set up operations, local content development is a key element of the strategy. Ideally, parts need to be manufactured as close to the vehicle plant as possible to save logistics cost and for flexibility. In South Africa, Volkswagen has the highest local content with close to 50 per cent.
Coping with competition
Competition is good. Volkswagen is the number one manufacturer in the world with 13 attractive brands. We were once great in Nigeria and we will be again.
Facility in Nigeria, Ghana
Many countries in Africa aspire to have their own automotive industry. Not all will be able to set it up. Ghana has a clear vision and political determination to play its role. For Nigeria to be a regional hub doesn’t mean that all cars or all elements of the big value chain will need to be in Nigeria. For the start, each country will assemble vehicles for its local market. In Ghana, locally assembled vehicles will also be utilised for the modern mobility concept which is under consideration. I firmly believe in regional integration. It will not be Nigeria vs Ghana. We are looking at a win-win for both countries and their other neighbours.
How do you respond to this statement by a General Manager in the old VWN who was reacting to the plan by Volkswagen to assemble vehicles in Nigeria and Ghana? “The trending tendency in the world today is convergence of motor plants and not duplication. The success story of AutoLatina (Volkswagen in partnership with Ford Motors) in Brazil and Argentina, is an encouraging development that Volkswagen should adopt, rather than having two plants in ECOWAS.”
Whoever believes that a massive and diverse region like ECOWAS could be served from one location only jumps too short. Not all countries in Europe have automotive plants. Not all states in the US either. However, there is always a few and there is always an opportunity for participation in the value chain somehow (suppliers, R&D, manufacturing, etc.).
One must not look back at the economic crisis of the past few years and project the future of Nigeria based on that. Average income is improving. Together with financing options and good plan for the transition to locally manufactured vehicles instead of gray/used vehicles; there will be significant growth.
The Nigerian Automotive Industry Development Plan (NAIDP) is a good tool to move Nigeria into becoming an automotive hub. It is a balanced approach that will be good for the country as well as for investors. Once this is finally signed into law, investors will queue to come to Nigeria.
ECOWAS protocol, ACFTA
Automotive trading in ECOWAS is currently not really functional due to challenges, especially in logistics and cross-border transactions. The African Continental Free Trade Agreement (ACFTA) process will probably take a while especially for automotive. Europe or ASEAN did not come to their current trading overnight either. However, as Nigeria has the potential to be the biggest domestic new car market on the continent, one does not need to hope for export. There is enough that can be done in the domestic market that will bring the progress in investment and jobs as predicted.
Importation of used vehicles
Since there is no locally manufactured alternative currently, obviously, importation of gray or used vehicles is the only option. However, these cars were not made for Nigeria’s roads and fuel situation. After-sales and warranty are not provided properly as in other countries and spare parts are a nightmare to get hold of. They are not homologated and documented properly. If there is a global recall, nobody knows that this car is currently in Nigeria and the problem will not be fixed.
All in all, it becomes the problem of the customer. In comparison, South Africa imports zero used or gray vehicles into the country because there are seven automotive companies building cars in the country. Total employment in the sector is around 900,000 people. Auto industry accounts for more than 7 per cent of the GDP of the country. The cars that are built in the country today are the used cars next year and the year after. It is not about taking the opportunity of a reasonably priced used car away from people who cannot afford a new car.
South Africa has a thriving used car sales network. The question is, do you want to create value, opportunity and jobs in the country by building the cars or do you want to continue to be the dumping ground for hand-me-downs from the US, Middle East or Europe?