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Unless We Achieve 30% Local Content, We Won’t Have Nigeria-made Vehicles — VON MD

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volkswagen

The Managing Director, Volkswagen of Nigeria Automobile Limited, Mr. Tokunbo Aromolaran, talks about the local auto industry and sundry issues with ANNA OKON

What was it like taking over the administration of Volkswagen Nigeria after nine years of the company’s closure?

When I took over as the managing director, the plant was very empty.  There were only warehouses here because when they shut down Volkswagen in 1989/90, the staff wanted their severance pay. The pay was given to them but they said it was not enough. So they looted the place. They removed every single thing that was removable, leaving only concrete behind.

So when I got here, I did not know where to start.  We first of all spent money repairing the building and I told them to do the ground floor and a simple office for me.  I had to stabilise first before I started doing fancy office.

What has been the effect of the recession on your operations?

Business has been very slow. People are not buying and when they are not buying, we cannot keep producing.

There was hope that with the auto policy, your capacity utilisation would improve. What went wrong?

Foreign exchange is what is used to build the capacity and it is not available. The auto policy does not make cars available. One has to open letters of credit and import parts for the car assembling.

It is because of the auto policy that we started assembling in Nigeria in the first instance and that is the only reason we are able to do the volume we did last year.  But once the forex issue started, the challenge set in. Now a dollar is N470; six months ago, it was about N200. That means the price of my car should have gone up by more than twice.

Don’t you have access to official exchange rate?

No, we don’t; if they tell you that we do, it is a lie. We all have our LCs at the bank and we have been queuing up like every other person.

If it takes one or two months to get $200,000, that does not give me three vehicles. These cars are big value items and not things that you get $10,000 and just go and buy.

To fill up a container with engine blocks will cost about $1m but I keep getting $100,000 every three weeks, how long will it take me to fill a container?

The Senate Committee on Privatisation has instructed you to make small affordable cars for Nigerian low income earners; with this forex challenge, how will you achieve that?

It is possible if the stakeholders commit to the idea. The scheme the Senate is proposing is not new. I was the one that first gave the report of trying to get financing for those who could not get financing.  The finance houses will dictate the terms and length of payment because they are the ones who will put down the money and their terms are different from what the Senate is proposing.

The financial system is proposing about 25 per cent down payment over three or four years, while the Senate is proposing 10 per cent down payment over seven years.  But how many cars last seven years on Nigerian roads? No financier wants to hold your loan for seven years.

Practicality on the side of the buyer is what Senator Ben Bruce-led committee is talking about. Practicality on the part of the bank is that they are going to say no more than three years because they don’t want to finance the car when it becomes useless.  If a buyer is no longer able to pay, the bank will not recover a seven year old car.

The banks too are very jittery, knowing the attitude of some Nigerians. They can take the car and just drive away and you won’t see them again. Abroad, everybody has identity; they just punch the system and they will find you. Here, one can disappear into thin air. There are more risks here than anywhere else.

 The Senate Committee on Customs alleged that 1500 new cars were seen in your plant. What is your reaction to this?

Is it strange to see 1500 cars in an assembly plant? In 2014, Hope Uzodima was here to inspect the factory, he saw the production line. We showed him everything. He was very happy then; no issues with the plant then.

How did they conclude that the cars were imported and not assembled here?

I would not know. We told them that those vehicles were assembled here. This is an assembly plant. We have three assembly points for passenger and commercial vehicles.

Before this economy started getting bad, we produced close to 500 cars every month in 2015. In four months before April, we had done 2,279 vehicles. So it is strange for someone to ask us how come we have 1500 vehicles in our plant.

First of all, they were looking for rice because when they came, rather than go to the assembly plant, they said they wanted to see the warehouse. When they entered the warehouse, they did not see a single grain of rice because the rice policy too is not making it easy for anybody to import rice.

Senator Ben Bruce heads the Senate Committee on Privatisation and he and his team just visited our plant. They had told us that they wanted to come on a Saturday but I told them to come on Monday so that they could see people working in the factory.

But in the case of the Committee on Customs, they did not tell anybody that they were coming. They just showed up here on Friday afternoon with policemen, customs and pressmen and started looking for warehouses. At the end of the day, they saw the vehicles that we parked there and started saying duties were not paid on them.

The cars came in knocked down parts; they included 39 units of Honda and Hyundai vehicles. They were covered by duty papers and we showed them the papers to prove that we paid duty on every single vehicle. They were showed all the various things for the ones that we still have that have not been sent to the dealers or been delivered.

The Customs locked down our place for one week, verifying the duty papers.  They just messed our business up for one week for nothing.

Three weeks after their visit was when the story appeared in the papers. I was in church when my director called me because of the two stories that were embedded in one and everybody that read the story believed that it was from here that everything happened. They painted us as if we helped governors import vehicles for which duty was not paid because of the second story about 15 vehicles that were seized by the Customs.

As a local automaker, can you also import fully assembled vehicles?

Yes. The auto policy allows local automakers to bring in two fully built vehicles for every one vehicle they assemble to ensure that the market is not starved of cars and the prices don’t go up.

Once an assembly plant shows evidence of an assembled vehicle, the government allows you to import two fully built vehicles. So as we assemble vehicles here, we also do import. There is nothing against importing vehicles. All they need to ask for is to see the duty paid on the car.

Before now, at Stallion Group, we were among the biggest importers of cars. We just had the sense to start assembling locally because we knew that importation would stop one day or we would not have the money again. Nothing stops us from importing; it is not an illegal action.

What is the nature of loss you suffered during the one week that your plant was shut by the Customs?

We lost a lot of money. I have not sat down to compute because there were some people that came to take delivery of vehicles who were turned back at the gate. They stationed their vehicles at the gate and no vehicle could move out of the plant and nothing could come in either. At the end of the day, they found that all the duties had been paid.

How many assembly plants did they visit? They said the place looked deserted.  We are not the only assembly plant in the country and it is probably the three of us including PAN and Innoson that are in active production. The rest have folded up. Instead of encouraging us, they are making disparaging remarks.

Talking about volume, how many vehicles do you need to produce to break even in a country of 170 million people?

The annual vehicle sale in South Africa is about one million; ours is only about 27,000. Last year, our total sale of both new and used vehicles was 400,000. Used vehicles made up about 75 per cent of the sale while 25 per cent was made up of new vehicles. Now, because of the economic recession, our own has dropped by almost half to less than 30,000 new vehicles.

Last year, Toyota Camry was around N10m; today, it is N21m.  Last year, our buses sold for N13.5m, now, they are N27m. How many people are buying? These are the issues. We are buying forex at N470 to $1. Last year, forex was N197, N198, now it is officially N395 but in reality, it is N450 or N470.

People are not able to buy and when they are not able to buy, we just keep the vehicles in the parking lots to gather dust.

These are the problems that we face. People should be looking at how to help manufacturing industries solve problems not paint them in bad light.

But you should also export to other African countries; why are you not doing that?

What are we going to export? You only export what you originate.  Most of the things we make here, the components are all still imported. It is only when we start making our own components that we can say we are making things to export.

What stops you from making your own components?

We need local component suppliers in Nigeria.  There are more than 2,500 components in a car and each of them is being made by somebody abroad; they can be here. I don’t have to wait till I go abroad to buy components. That is why government is making efforts to bring them here.

What government is trying to do is build industrial parks with full facilities, one in the South-East, one in the North and the other in the South-West. Government will provide the infrastructure so that small manufacturers can just come in, install their plants and start making spark plugs, head lamps bulbs, exhaust pipes, car seats, wipers and others.

Car industry is dependent heavily on logistics, which is the ability to control these 2,000 parts and bring them together in a coordinated way so that they can get to us.  A car is not complete unless all those things are there and they are being supplied from all over the place.

That maze of supplying them is bad if you don’t have a proper logistics network. In that kind of industrial estate, you can get at least 15 or 20 components in one go. You order, they package it for you; you don’t have to come 20 or 30 times, it comes at once.

South Africa has that logistics base. If we don’t have 30 per cent local content, we cannot say that it is our own product.

Do you think the government made a mistake with the auto policy for failing to start with the component producers?

They were not mistaken. Every industry has a growth process. All the car industries in the world started with assembly. If you don’t have an assembly plant that will use the components, a man will not go and invest in doing headlamps, because if he starts an headlamp producing company, nobody  is going to buy.

Our industry starts from assembly because we are able to import and we can survive while importing and waiting for them to do it here.

If I want a component from outside Nigeria, it takes me three months to get it and if they set up a factory here, it will take two hours. We import some components, when they get to the port, the windscreen gets broken.  I have to call again and wait for another three months for the fresh order to come in.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Brent Crude Oil Crosses $75 Per Barrel as Global Demand Recovers

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Crude oil - Investors King

Crude oil prices sustained bullish runs amid rising demand for global oil and likely delay in Iranian crude supply to global oil market.

Brent crude oil, global benchmark for Nigerian oil, rose above $75 a barrel for the first time since 2019 on Tuesday as global investors remained bullish across the board.

Brent crude rose 26 cents or 0.4 percent to $75.16 a barrel as of 7 am Nigerian time on Tuesday.

The rebound has pushed up spot premiums for crude in Asia and Europe to multi-month highs.

“The market sentiment stays strong with improved outlook for global demand,” said Satoru Yoshida, a commodity analyst with Rakuten Securities, adding that a rally in Asian stock markets is also helping boost risk appetite among investors.

Global shares extended their recovery on Tuesday, with Asian markets bouncing from four-weeks lows as investor focus on economic growth partly offset worries about the U.S. Federal Reserve raising rates sooner than expected.

BofA Global Research raised its Brent crude price forecasts for this year and next, saying that tighter oil supply and recovering demand could push oil briefly to $100 per barrel in 2022.

Investors are looking to weekly U.S. inventory data as crude oil stockpiles have fallen for four weeks, said Toshitaka Tazawa, analyst at commodities broker Fujitomi Co.

U.S. crude stocks were expected to drop for the fifth consecutive week, while distillate and gasoline were seen rising last week, a preliminary Reuters poll showed on Monday.

“The oil prices are expected to hold a firm tone amid expectations that fuel demand will pick up quickly along with economic recovery in Europe and the United States,” Tazawa said.

The price gap between the world’s two most actively traded oil contracts narrowed to its lowest in more than seven months, demonstrating that U.S. oil output is still in the COVID-19 doldrums with the market likely to remain undersupplied.

Negotiations to revive the Iran nuclear deal took a pause on Sunday after hardline judge Ebrahim Raisi won the country’s presidential election.

Raisi on Monday backed talks between Iran and six world powers to revive a 2015 nuclear deal but flatly rejected meeting U.S. President Joe Biden, even if Washington removed all sanctions.

“The lower probability of Iranian crude oil returning to the market due to the new hardline president is also supporting the market,” Fujitomi’s Tazawa said.

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Energy

Majority of New Renewables Undercut Cheapest Fossil Fuel on Cost

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Solar energy - Investors King

The share of renewable energy that achieved lower costs than the most competitive fossil fuel option doubled in 2020, a new report by the International Renewable Energy Agency (IRENA) shows. 162 gigawatts (GW) or 62 per cent of total renewable power generation added last year had lower costs than the cheapest new fossil fuel option.

Renewable Power Generation Costs in 2020 shows that costs for renewable technologies continued to fall significantly year-on-year. Concentrating solar power (CSP) fell by 16 per cent, onshore wind by 13 per cent, offshore wind by 9 per cent and solar PV by 7 per cent. With costs at low levels, renewables increasingly undercut existing coal’s operational costs too. Low-cost renewables give developed and developing countries a strong business case to power past coal in pursuit of a net-zero economy. Just 2020’s new renewable project additions will save emerging economies up to USD 156 billion over their lifespan.

“Today, renewables are the cheapest source of power,” said IRENA’s Director-General Francesco La Camera. “Renewables present countries tied to coal with an economically attractive phase-out agenda that ensures they meet growing energy demand, while saving costs, adding jobs, boosting growth and meeting climate ambition. I am encouraged that more and more countries opt to power their economies with renewables and follow IRENA’s pathway to reach net-zero emissions by 2050.”

“We are far beyond the tipping point of coal,” La Camera continued. “Following the latest commitment by G7 to net-zero and stop global coal funding abroad, it is now for G20 and emerging economies to match these measures. We cannot allow having a dual-track for energy transition where some countries rapidly turn green and others remain trapped in the fossil-based system of the past. Global solidarity will be crucial, from technology diffusion to financial strategies and investment support. We must make sure everybody benefits from the energy transition.”

The renewable projects added last year will reduce costs in the electricity sector by at least USD 6 billion per year in emerging countries, relative to adding the same amount of fossil fuel-fired generation. Two-thirds of these savings will come from onshore wind, followed by hydropower and solar PV. Cost savings come in addition to economic benefits and reduced carbon emissions. The 534 GW of renewable capacity added in emerging countries since 2010 at lower costs than the cheapest coal option are reducing electricity costs by around USD 32 billion every year.    

2010-2020 saw a dramatic improvement in the competitiveness of solar and wind technologies with CSP, offshore wind and solar PV all joining onshore wind in the range of costs for new fossil fuels capacity, and increasingly outcompeting them. Within ten years, the cost of electricity from utility-scale solar PV fell by 85 per cent, that of CSP by 68 per cent, onshore wind by 56 per cent and 48 per cent for offshore wind. With record low auction prices of USD 1.1 to 3 cents per kWh today, solar PV and onshore wind continuously undercut even the cheapest new coal option without any financial support

IRENA’s report also shows that new renewables beat existing coal plants on operating costs too, stranding coal power as increasingly uneconomic. In the United States for example, 149 GW or 61 per cent of the total coal capacity costs more than new renewable capacity. Retiring and replacing these plants with renewables would cut expenses by USD 5.6 billion per year and save 332 million tonnes of CO2, reducing emissions from coal in the United States by one-third. In India, 141 GW of installed coal is more expensive than new renewable capacity. In Germany, no existing coal plant has lower operating costs than new solar PV or onshore wind capacity.

Globally, over 800 GW of existing coal power costs more than new solar PV or onshore wind projects commissioned in 2021. Retiring these plants would reduce power generation costs by up to USD 32.3 billion annually and avoid around 3 giga tonnes of CO2 per year, corresponding to 9 per cent of global energy-related CO2 emissions in 2020 or 20 per cent of the emissions reduction needed by 2030 for a 1.5°C climate pathway outlined in IRENA’s World Energy Transitions Outlook.

The outlook till 2022 sees global renewable power costs falling further, with onshore wind becoming 20-27 per cent lower than the cheapest new coal-fired generation option. 74 per cent of all new solar PV projects commissioned over the next two years that have been competitively procured through auctions and tenders will have an award price lower than new coal power. The trend confirms that low-cost renewables are not only the backbone of the electricity system, but that they will also enable electrification in end-uses like transport, buildings and industry and unlock competitive indirect electrification with renewable hydrogen.

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Commodities

Increased Demand Paves The Way for Expansion of Africa’s Sugar Industry

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Sugar - Investors King

Africa, June 2021:  A new focus report produced by the Oxford Business Group (OBG), in partnership with the International Sugar Organization (ISO), explores the potential that Africa’s sugar industry holds for growth on the back of an anticipated rise in regional demand. The report was presented to ISO members during the MECAS meeting at the Organization’s 58th Council Session, on June 17th 2021.

Titled “Sugar in Africa”, the report highlights the opportunities for investors to contribute to the industry’s development by helping to bridge infrastructure gaps in segments such as farming and refining and port facilities.

The report considers the benefits that the African Continental Free Trade Area (AfCFTA) could deliver by supporting fair intra-African sugar trade efforts and bringing regulatory frameworks under a common umbrella, which will be key to improving competitiveness.

The increased international focus on ESG standards is another topical issue examined. Here, the report charts the initiatives already under way in Africa supported by green-focused investment with sustainability at their core, which will help to instil confidence in new investors keen to adhere to ESG principles in their decision-making.

In addition, subscribers will find coverage of the impact that Covid-19 had on the industry, with detailed analysis provided of the decrease in both worldwide sugar production and prices, as movement restrictions and social-distancing measures took their toll on operations.

The report shines a spotlight on sugar production in key markets across the continent, noting regional differences in terms of output and assessing individual countries’ roles as net exporters and importers.

It also includes an interview with José Orive, Executive Director, International Sugar Organisation, in which he maps out the particularities of the African sugar industry, while sharing his thoughts on what needs to be done to promote continental trade and sustainable development.

“The region is well advanced in terms of sugar production overall, but several challenges still hinder its full potential,” he said. “It is not enough to just produce sugar; producers must be able to move it to buyers efficiently. When all negotiations related to the AfCFTA have concluded, we expect greater investment across the continent and a clearer regulatory framework.”

Karine Loehman, OBG’s Managing Director for Africa, said that while the challenges faced by Africa’s sugar producers shouldn’t be underestimated, the new report produced with the ISO pointed to an industry primed for growth on the back of anticipated increased consumption across the continent and higher levels of output in sub-Saharan Africa.

“Regional demand for sugar is expected to rise in the coming years, driven up by Africa’s population growth and drawing a line under declines triggered by the Covid-19 pandemic,” she said. “With sub-Saharan Africa’s per capita sugar consumption currently standing at around half of the global average, the opportunities to help meet increasing domestic need by boosting production are considerable.”

The study on Africa’s sugar industry forms part of a series of tailored reports that OBG is currently producing with its partners, alongside other highly relevant, go-to research tools, including a range of country-specific Growth and Recovery Outlook articles and interviews.

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