Steep, bumpy road ahead for Nigeria’s ‘Industrial Revolution’

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When cars began rolling off the Nissan assembly line in Lagos last year, President Goodluck Jonathan was one of the first to pose proudly behind the steering wheel of a made-in-Nigeria sports utility vehicle.

Nissan was the first major automaker to assemble vehicles in Africa's most populous country, and Mr. Jonathan touted it as a key element in his "Industrial Revolution" policy. His dream was to diversify the oil-rich economy by creating thousands of manufacturing jobs.

But ten months later, the Japanese carmaker is unconvinced that the "revolution" is real. While its Nigerian plant has created 600 jobs by assembling hundreds of cars every month from imported components, it still faces huge obstacles: bad roads, congested ports, customs delays, severe electricity shortages and a competing "parallel" market of illicitly imported vehicles.

Nigeria, the biggest economy in Africa with 170 million people and vast oil resources, is often seen as a likely contender for industrialization. But instead its challenges are growing worse.

With global oil prices in steep decline, Nigeria's currency is slumping and its governments are cutting spending. As a result, Nigerian auto sales have plunged by about 30 per cent since December, according to Jim Dando, general manager of Nissan's Africa regional office.

Tensions and uncertainties over the approaching March 28 national election have compounded the problems caused by the oil-price decline and falling currency. The country now faces a "perfect storm," Mr. Dando said in an interview.

Nissan, he said, was fully aware of Nigeria's chronic structural problems, so it launched its Nigerian operations last year by simply importing "semi knocked down" or dissassembled vehicles and then reassembling them at its Lagos plant. "This is baby steps," he said.

While the carmaker hopes to move into more complex manufacturing in Nigeria eventually, this will take time. Nissan is still forced to rely on expensive diesel generators for much of its electricity in Lagos. And when its knocked-down cars arrive in container ships, it can take as long as three months to get them through the congested ports and heavily bureaucratic customs procedures, Mr. Dando said.

Last year, Nissan persuaded the Nigerian government to impose a heavy 70 per cent duty on imported cars, to protect the fledgling auto plants of Nissan and other newcomers, including Hyundai and Kia. But importers have found loopholes in the rules, creating a "parallel" market of luxury cars, usually from Dubai, which arrive at the port in nearby Benin. The cars are then brought into Nigeria as "used" cars – after having been driven for short distances in Dubai. In other cases, the importers simply bribe the customs officers to get the cars in.

At a Nigeria economic forum in Johannesburg on Wednesday, investors and analysts spoke of Nigeria's enormous potential, but also cited its many vulnerabilities and weaknesses, including the government's heavy reliance on oil revenue and its failure to push ahead with desperately needed infrastructure projects to improve its roads, ports, airports and electricity grid.

Group Five, a South African construction and engineering company that has won many contracts in Nigeria, says it recently built two gas-fired power plants in the country – and then saw them sitting idle for a prolonged period because of a lack of government approval.

"That's just crazy," said Greg Heale, strategic business development director at Group Five. "They've been sitting commissioned for two years now, but the authorities won't allow the gas to flow."

He said his company has been negotiating a deal to build a toll highway in Nigeria for the past three years without winning government approval. Even in Zimbabwe, highway projects are easier to do, he said.

In another major example, the main airport in Lagos badly needs to be replaced, Mr. Heale said. And the national electricity system is only a tiny fraction of what the country needs. "Making it a little more efficient won't help," he said.

Gene Leon, senior representative of the International Monetary Fund in Nigeria, said the sharp decline in the world oil price has helped Nigeria to "wake up" to the need for tax reform to reduce its dependence on oil revenue.

The government's non-oil revenue is "puny, very small," he told the conference. "Tax reform needs to be done, and done quickly."