In 2017, the economy witnessed gradual recovery from economic recession posting a 0.8 percent rise in GDP that enabled Nigeria transit from negative growth territory to a high performing path that has lately underpinned the expansion of both the country’s manufacturing and non-manufacturing sectors.
The slow but needed recovery of the global oil prices and resumption of crude production is expected to bolster Nigeria’s economic growth and provide necessary financial backing for President Muhammad Buhari’s government-driven structural reforms that include sector-specific initiatives such as the National Automotive Industry Development Plan for attracting Foreign Direct Investment in Nigeria’s automotive sub-sector to support local production and reduce the high rate of importation of used vehicles.
Nigeria, with a population of more than 190 million people, has an estimated registered vehicle population of 12 million with an annual importation of at least 400,000. Nearly 74 percent of these imported vehicles are used vehicles that require more automotive refinish coatings products compared to new ones.
According to Nigeria’s National Automotive Council, Nigeria’s vehicle importation business is estimated at $3.45 billion while the West Africa country has potential to manufacture one million vehicles annually compared to less than 60,000 currently produced locally.
With the high rate of used vehicles’ importation, business at Nigeria’s automotive body shops and repair centers for refinishing vehicles is likely to grow, hence providing an opportunity for the more than 68 coatings companies in the country to increase their sales and production levels.
Apart from the increasing number of vehicles, Nigeria is also experiencing growth of its middle class that is key in driving up demand for both new and used vehicles.
Government statistics estimate 11 percent to 18 percent of the urban households, or nearly two million households, have an income of more than $10,000. With a further expansion of the emerging middle class from the current 20 percent to 27 percent in 2020, demand for vehicles in Nigeria is likely to continue growing in the medium term.
As the vehicle population increases, so does the vehicle collisions and road accidents in general, which again fuels demand for high quality automotive refinish coatings in Nigeria.
For example, in 2017, there were 10,026 road accidents in Nigeria involving commercial, private and government vehicles. In the first and second quarter of 2018, there were about 5,090 road crashes on the Nigerian roads. These road accidents are expected to trigger a surge in demand for automotive refinish coatings from manufacturers, suppliers and importers.
Some of the leading coatings and paints companies in Nigeria that are competing for a share of Nigeria’s coatings market include Chemical and Allied Products plc, Berger Paints Nigeria plc, Paints & Coatings Manufacturing Nigeria Plc, Portland Paints Nigeria Plc and Dn Meyer plc
Locally incorporated firms that are in the race to expand their stake in the coatings industry are Apex paints, Cap plc, Eagles paints, Finecoat paints, IPWA plc, Megasea Paints, PCMN plc, Premier paints plc, President paints and Prestige paints.
On the other hand, Nigeria’s coatings and paints market enjoys a supply of an assorted range of imported brands such as Dulux, Sikkens, Crown paints, Nippon Paints International and Hempel.
However, players in Nigeria’s paint and coatings industry still grapple with a wide range of challenges in growing their share of the country’s estimated $307 million market. The market was valued at $218 million in 2013 and is assumed to have been growing at a rate of 9.01 percent, a pace expected to remain for the medium term.
Top on the list of industry challenges has been foreign currency shortages and associated high foreign exchange rate of the local naira against the U.S. dollar.
“The paint and coatings industry did not experience any meaningful growth during the period under consideration (2017) leading to mixed results even by top industry players,” said Chief Ogooluwa Bankole, chairman and managing director of Premier Paints Plc.
He told shareholders in his message contained in the company’s 2017 full year report “the macroeconomic indices were unfavorable, there was [a] high interest rate, unemployment and underemployment were on the increase and the foreign currency exchange rate was high and unfavorable to paint manufacturers whose inputs were largely imported.”
Nigerian consumer’s purchasing power was reduced because of the “double-digit inflation and their savings was very low and non-existent as earnings from crude oil dwindled thereby affecting the Federal Government efforts in the provision of social and economic infrastructure.”
Competing on high price-performance among top paints and coatings, companies in Nigeria faces the challenge of having costly end products sold alongside slightly less expensive imports especially from China and India.
Bankole says the cost of paints and coatings raw materials increased substantially especially in 2017 “impacting on the cost of finishing products and cost of production.”
“Micro-economic factors such as market size did not grow, demand and distribution were not favorable as competition from international paint brands increased in general decorative paints as well as the marine market segment.”
But it is not all doom and gloom especially for Nigeria’s automotive refinish coatings manufacturers and suppliers if the newly introduced automotive industry incentives by the Federal Government are implemented to the full.
The wide range of tax incentives targets Original Equipment Manufacturers (OEMs) eyeing Nigeria’s under-developed domestic vehicle manufacturing sector.
Some of these specific incentives targeting the automotive industry include fixing the import duty for Completely Knocked Down (CKD) for vehicle assembly in Nigeria at 2.5 percent and that of fully built up units at 30 percent.
Furthermore, the National Automotive Council has launched an auto development fund to finance, through soft loans, companies investing in the local production of auto parts.
Nigeria has also designated the country’s automotive industry as a ‘pioneer industry,’ a term applying to sectors and products that “are not being carried out in Nigeria on a scale suitable to the economic requirements of the country or at all, or there are favorable prospects of further development in Nigeria.”
After the automotive industry qualified to be in the ‘pioneer industry’ list approved by Nigeria’s Federal Executive Council, companies investing in the sector will have a five-year corporate tax break if they invest anywhere in the country or a seven-year tax holiday if the investment is an area that Nigeria considers economically disadvantaged.
Elsewhere, the automotive industry local research and development (R&D) expenses are now up 120 percent tax deductible while up to 140 percent is allowed for R&D on local raw materials.
But in addition, taking advantage of these automotive sector incentives, global business consulting firm, Frost & Sullivan proposes to Nigeria paints and coatings industry players to “consider affiliating with well-established international brands in order to maintain high quality, while respecting the relevant health standards, as well as obtain environmental compliance accreditation.”
“These affiliations will also assist in making customers completely aware of the grades of paints and coatings so that they can use the right product for the right application,” the consultancy said in a previous report.