6% – further weakened consumer demand for local and imported vehicles. In near parallel with the production decrease between 2014 and 2016, vehicle imports fell over the same period by 57. 6%, courtesy of data from the National Bureau of Statistics (NBS). In addition to coping with the weakness of the naira, the industry has been subject to the high rates of interest on car loans, which range on average from 25% to 27%. Together, these factors catalysed a contraction in the sector, with the US International Trade Administration (ITA) estimating that its GDP fell from $2. 5bn to $1. 7bn between 2015 and 2016. Potential Resurgence NBS data asserts that the economy returned to growth in the spring of 2017 and has retained that trend since, reaching a 10-quarter high of 2. 1% in the final quarter of 2017, before declining to 1. 5% expansion to close the second quarter of 2018. The gains have come amid the climbing price of oil, a surge in domestic production and a reduction in the CBN's forex holdings.
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The investors intend to import parts to assemble the Peugeot 301 sedan and sell these products chiefly in northern Nigeria, beginning with 3500 units in the first year of production and scaling up to 10, 000 vehicles annually as the project matures. Lastly, Volkswagen announced in August 2018 that it had signed a memorandum of understanding with the federal government. The document expressed the firm's interest in helping to develop the country as an automotive hub in West Africa over the long term, in part through the establishment of a vocational skills academy to be run in conjunction with the German state. The administration, for its part, committed to implementing a legal framework more fit to facilitate scalable, viable business by fast tracking the approval of policies that will further reduce imports and encourage foreign investment in local production and distribution.
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Automobile manufacturing is poised for accelerating growth over the medium term, as major carmakers like Nissan, PSA Group and Volkswagen move to revive, expand or build new manufacturing and assembly bases in-country. These firms and their domestic partners should reap the potential dividends of Nigeria's large and growing automotive market, as well as recent protectionist initiatives that have effectively curbed expensive vehicle imports. Although the industry has struggled with supply-side parts procurement since the oil crash of 2014, reduced consumer purchasing power and some vehicle smuggling, the existence of manufacturing facilities, strategic commitment by public policymakers, and the expansionary views of the above automakers and their competitors could catalyse the segment's growth in 2019. Boom & Bust The discovery of oil in 1958 and the boom of the early 1970s drew European manufacturers Peugeot, Volkswagen, Daimler, Steyr, Fiat and Leyland to enter into partnerships with the Nigerian government.
Their joint ventures established six assembly plants – two for cars and four for trucks and light commercial vehicles – over the course of the 1970s, and their initial successes enticed the Japanese companies Mitsubishi, Nissan, Isuzu and Mazda to conclude agreements for similar arrangements in 1982. However, this latter set of proposals remained non-operational, and the volatility of export receipts and tax revenues earned from petroleum quickly undercut the new market. The combination of rising local tariffs and a shortage of foreign currency exerted downward pressure on the plants' capacities to import necessary intermediary parts, and following steep drops in output, all six facilities had been privatised by 2007 and fully shuttered by 2012. Growth Potential Even considering this history, the automotive segment retains promise for growth, predicated on an existing industrial base, rising domestic demand and the administration's interest in becoming a regional exporter of manufactured goods.
Recent activity suggests that this recovery has penetrated the automotive segment. While vehicle assembly had contracted in every NBS report since the first quarter of 2015, the segment reversed that trend at the end of 2017 and grew by 2. 3% in the first quarter of 2018. In March 2018 Nissan announced that it had reached a preliminary agreement with the NADDC to further invest in its 380 ha facility in Lagos, with the automaker's regional executive vice president affirming the company's support of "NADDC's drive to make Nigeria the automotive design and development hub of Africa. " PSA Group followed in June 2018 by declaring its intention to restart its assembly operations in Kaduna state in the first quarter of 2019. According to a report in Reuters in June 2018, Aliko Dangote, Nigeria and Africa's wealthiest man, will be the majority owner, while the French auto firm will retain a 10% stake in the venture, which, per an advisor to the Kaduna governor that spoke to Reuters, will launch with $10m of equity and $5m of working capital.
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