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Nigeria’s Innoson: making cars or selling a feeling?
A Nigerian carmaker with Chinese technical partners, working out of a less-than-ideal semi-rural location in Umudim, Nnewi, plans to not only out-compete Toyota and Honda in annual new car sales, but also to eventually displace used car imports.
It intends to do this while charging $19,000 for its cheapest base model in an extremely poor market with zero export potential, while eschewing automation to employ as many people as possible.
Innocent Chukwuma is not the typical Nigerian multimillionaire.
Since founding Innoson Group in 1981 as a motorcycle spare parts importer, Chukwuma has amassed wealth by figuring out how to stay one step ahead of Nigeria’s famously volatile regulatory environment.
It is his most recent venture that best illustrates this entrepreneurial talent and provides key insights into the extreme sport of running a consumer business in Nigeria.
Innoson Vehicle Manufacturing (IVM), which is the Innoson Group’s latest addition, potentially upends all existing conventional wisdom about how Nigerian consumer businesses must relate to the market and the authorities.
On paper, IVM is producing poorly-marketed $19,000 vehicles with near-zero export potential for an impoverished Nigerian market that did not ask for them and cannot hope to afford them.
It looks like a zombie business that should not exist.
Nigeria registered just over 10,000 brand new car sales in 2018, with the country’s auto sales market dominated by used vehicles imported from Europe and North America. According to US government data, the miniscule market for brand new vehicles in Nigeria is currently dominated by Japanese brands like Toyota and Honda.
Innoson has a technical partnership with several Chinese automakers, enabling it to manufacture models like the BAIC BJ80 under its own brand name. It has a goal of eradicating “tokunbo” (the local Nigerian term for “imported used car”) from the Nigerian market, but exactly how it intends to do this remains unclear.
The pricing strategy is a head-scratcher. Per head GDP figures for Nigeria and surrounding countries show that there is statistically no market for products that require significant discretionary income. Nigeria’s 2018 per head GDP, for example, was just $2,028. Nearby Ghana, Cameroon and Benin were about the same or worse.
The cheapest vehicle in IVM’s product range – a four-speed, 1.5 litre automatic B-segment sedan called the ‘Fox’ – starts from about $19,000.
According to the company, the Umudim facility currently has a production capacity of about 10,000 vehicles a year, with plans to expand this to 60,000.
Chukwuma has also said that IVM would rather employ human labour over automation wherever possible, because he believes that business should contribute to society, rather than simply seeking profitability.
Nigeria’s Civil War
To understand IVM and its apparently impossible strategy, it is important to situate it in the context of the rise of Nnewi as an industrial hub in south-eastern Nigeria. The story began in the immediate aftermath of the 1967-1970 civil war.
The war saw a nationwide series of property seizures targeting people from the Igbo ethnic group, regardless of whether they were part of the Biafran war effort.
After the war, a large number of such expropriated properties and businesses were not returned, which created a new phenomenon within the typically enterprising and travel-focused Igbo culture.
Driven by the bitter memory of these losses, a drive to “invest at home” was born, leading to the now-common spectacle of palatial countryside homes that lie empty all year round until their owners return from Lagos, Abuja and Port Harcourt for Christmas.
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A giant with feet of clay
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Another outcome of the post-civil war Igbo movement was that certain previously unheralded areas were earmarked for development of industrial clusters.
Nnewi was one such area, going in the 1970s from an unspectacular rural area into an international vehicle spare parts business nexus, and then into a manufacturing hub. Those who made this decision did so in spite of factors like the ease of doing business, infrastructure and access to power.
Innocent Chukwuma was one of the spare parts importers who decided to locate their business in a challenging location. Over the next three decades, this group of entrepreneurs became extremely skilled at being the proverbial ‘water’, improvising niftily and finding their way around Nigeria’s market and regulatory minefield.
During the Structural Adjustment Policy era of the 1980s and the accompanying austerity, Chukwuma famously turned the reduced general disposable income into a business opportunity by disrupting the motorcycle import market with Nigeria’s first motorcycle assembly facility in Nnewi.
IVM is following a similar template. The prevailing idea of a carmaker has been entirely coloured by Ford Motor Company and the democratisation of the personal automobile, which is why factors like affordability and marketing are so important.
In reality, prior to the Ford revolution, cars were generally built to order for rich people and government bodies – and the industry worked just fine.
IVM has now realised that it is possible to have their cake and eat it – they can bill themselves as Nigeria’s answer to Henry Ford while actually running a business whose bread and butter is government supply contracts and made-to-order cars for rich clients.
Since 2013, Nigeria has pursued an automotive policy that seeks to help local assembly by discouraging imports through tariffs of as much as 70%. President Muhammadu Buhari’s administration has doubled down on this and other import substitution efforts, effectively leaving Innoson (the only Nigerian carmaker working under a local brand name) as the “star pupil” in its class.
Despite having held a position in Goodluck Jonathan’s re-election campaign organisation, Chukwuma has avoided the typical consequences of such political exposure by positioning IVM as a key part of the answer to Buhari’s economic rallying cry.
Just like under the previous administration, he has successfully leveraged IVM’s perception as the first “true” Nigerian carmaker to seal several supply and maintenance contracts with Nigerian state and federal government bodies, as well as the army and airforce.
While IVM pays only the barest minimum attention to its consumer-facing branding and marketing efforts, the company has a sleek and extremely savvy lobbying and networking reach that brings the bacon home through government contracts and made-to-order luxury vehicles.
Since formally commencing operations in 2010, the Umudim production line has remained busy. The company is notoriously secretive about its annual sales figures, but a visit to the factory always shows dozens of pickup trucks, buses and SUVs emblazoned in the colours of different government agencies.
As with so many other instances of doing business in Africa, there is a lot more going on than meets the eye.
Clearly, Innoson Vehicle Manufacturing will never have the production capacity and market dominance of Toyota. It will also never have the technical excellence and global marketability of Tesla – but the point is that it does not need to.
This small automaker is demonstrating that indigenous African market strategies for delivering expensive products to poor markets can indeed work. The secret lies in knowing how to work the angle and ‘be water’.
Apparently, nobody in Nigeria knows how to do this better than Innocent Chukwuma.