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Recession: Local Automakers’ Production Capacity Drops by 97%

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  • Local Automakers’ Production Capacity Drops by 97%

Activities at vehicle assembly plants across the country have nosedived as the automakers continue to experience a decline in the patronage of their products, no thanks to the biting economic recession.

A new report put together by Prof. Okey Iheduru of the Arizona State University showed that the annual capacity utilisation of the auto plants in Nigeria had dropped by 97 per cent, from 500,000 vehicles to just 15,000 vehicles.

The Chief Economist at PricewaterhouseCoopers Limited, Dr. Andrew Navin, who noted that the auto industry was still dominated by used cars imports more than two years after the introduction of a new auto policy, also said local production accounted for only one per cent of the market.

Iheduru and Navin spoke in Lagos at a symposium organised by the Lagos Chamber of Commerce and Industry, which had as its theme: ‘The Nigerian auto policy: Reality checks on the economy and the future’.

Iheduru, who gave the installed capacity for the over 40 existing auto assembly plants in the country as 500,000 cars annually, said the firms could only utilise less than three per cent of that capacity.

Although the don noted that some progress had been made following the implementation of the National Automotive Industry Development Plan in 2014, he stressed that “the substance of the policy has failed.”

“The delay in imposing the second phase of the 35 per cent tariff on imported used vehicles is adversely affecting investment in the auto assembly plants and the growth of the industry,” he stated.

Navin, in his presentation, also said the NAIDP, which was introduced to reduce the nation’s dependence on automobile imports and stimulate investment in local manufacturing, had not been able to do well as continued depreciation in the value of naira and foreign exchange crisis had led to increases in the prices of new vehicles.

“Despite increased activity in the auto industry, vehicle ownership is low (in Nigeria) compared to other African countries,” he said.

According to him, vehicle production figures for the last year showed that South Africa did 615,658 vehicles; Morocco, 288,329; Egypt, 36,000; Algeria, 20,000; and Nigeria, 3,500.

Both speakers urged the government to lead in the patronage of locally-made vehicles as enunciated in Gazette No. 24 of 1994, which compelled all tiers of government to source their vehicles locally.

“Unless the auto financing market develops, new vehicles will continue to be beyond the reach of most Nigerian who will settle for Tokunbos (used vehicles),” Iheduru said.

Navin said for Nigeria to become Africa’s automotive hub, it must address certain gaps in the industry such as improving the chances of owning a car; tighten the borders; protecting the consumers through safety and quality standards; setting up ancillary industries; and developing auxiliary industries.

The President, LCCI, Dr. Nike Akande, in her address at the event, said the sales recorded for new cars were too low for the local assembly plants to thrive and for foreign car manufacturers to be attracted to the Nigerian auto market.

She urged the government “to put plans and strategies in place to boost the demand for new cars in Nigeria through special automobile financing facilities for the middle-income earners to acquire new cars.

“There is also the need to provide the necessary infrastructure to support the steel and plastics sub-sectors, which are expected to produce various parts of vehicles. This will create jobs and tremendous multiplier effects for the economy.”

Other speakers at the forum were the Chief Commercial Officer, Dana Motors, Mr. Sandeep Malhotra; Managing Director, ABC Transport, Mr. Frank Neji; Director, Policy and Planning, NADDC. Dr. Luqman Mamudu; and Comptroller-General, Nigeria Customs Service, Col. Hameed Ali (retd).

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 long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

Investment

Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies

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Barclays Bank

Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies

Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.

According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.

The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.

It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.

“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”

Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.

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Economy

Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension

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  • Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension

Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.

OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.

In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.

Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.

Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.

While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.

Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.

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Economy

Gold Dips by 2 Percent on Better Than Expected Job Report

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  • Gold Dips by 2 Percent on Better Than Expected Job Report

Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.

The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.

The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.

“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.

Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.

Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.

The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.

Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.

Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.

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