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The case for EVs in Nigeria 16 Dec 2024

In 1980, the fare for a one-way flight from Lagos to Port Harcourt was N28. But as of the time of writing this column, the flight ticket for that same journey is as high as N200,000. This steep rise in transport cost exemplifies the broader challenge of inflation in Nigeria's economy, where the once-strong naira has fallen precipitously against the dollar. The skyrocketing cost of domestic air travel in Nigeria has driven by the devaluation of the naira, inflation, and escalating aviation fuel prices.

According to data by the National Bureau of Statistics (NBS), in the seven years between September 2017 and September 2024, inter-state bus fares rose by 403.5%, airfares by 280.7%, and water transport fares by 148.8%. For low-income earners and small businesses, the implications are dire. Many can no longer afford to transport products to markets, curtailing trade and stifling economic growth.



Apart from its negative economic impact, this contraction of domestic travel undermines social cohesion and national integration. Movement across state lines facilitates cultural exchange, education, and a shared sense of identity. The unaffordability of travel could reinforce regional divides, contributing to unintended social isolation.

But the economic repercussions of immobility are dire. They include the stifling of the country’s economic diversification efforts and modernisation of the suburban and evil rural economies. The transportation sector, crucial for enabling industries like tourism, agriculture, and manufacturing, requires affordable, efficient, and integrated intermodal transport systems. Without them, economic growth is hampered.

Stifling subsidies

Nigeria’s transport inflation is inseparable from its currency’s collapse. In 1985, N1 was worth $1.05 at the official foreign exchange rate market. Today, the exchange rate in the more accessible parallel market exceeds N1,650 per dollar. With fuel and spare parts largely imported, the transportation sector is acutely vulnerable to exchange rate fluctuations.

Decades of subsidies and an overvalued naira created a distorted market that discouraged innovation and efficiency in transportation. Subsidised pricing kept fares low but disincentivised investment in infrastructure and operational improvements. When subsidies became unsustainable, fares soared, leaving an uncompetitive and underdeveloped sector ill-equipped to absorb the shocks of a free market.

If Nigeria’s air and rail sectors had undergone market-driven evolution, the country might now have a cohesive, integrated transportation system. Regional airports could have developed into economic hubs, airlines might have achieved economies of scale, and infrastructure investments could have been self-sustaining. Instead, most states lack functional airports or rail connections, with only three airports – Lagos, Abuja, and Port Harcourt – profitable.

Dollarised sector

Nigeria’s transportation sector remains heavily exposed to the dollar. Airlines pay for fuel, spare parts, and leases in dollars, while rail projects rely on dollar-denominated loans and imported equipment. This dependency inflates costs as the naira depreciates. Servicing these loans leaves little funding for essential maintenance or expansion projects, perpetuating underdevelopment.

More recently, Nigeria has faced a much steeper capital investment hurdle compared to countries that have gradually built their transport networks over the past 40 years. The scale of this challenge is immense, and even the most straightforward policy changes require overcoming formidable financial barriers. Acknowledging this reality is just the first step; the real challenge lies in securing the capital necessary to bridge the funding gap.

However, the high cost of importing necessary goods and services, combined with a devalued naira, makes it nearly impossible for Nigeria to invest in its transport infrastructure at the required scale. With dollar-denominated costs continuing to rise, even basic improvements in air and rail transportation seem out of reach for a country already struggling with inflation and economic instability.

Reducing the dollar reliance is essential for Nigeria to avoid chronic inflation in the transport sector. Increasing local production of transport inputs, like fuel, is a step in this right direction. The Dangote and BUA refineries could help in this regard, but deeper structural solutions are needed.

Electric vehicles as a solution

Investing in an electric vehicle (EV) ecosystem is among the most viable solutions to Nigeria's transport cost inflation. Transitioning from internal combustion engine (ICE) vehicles to EVs could decouple transportation costs from volatile global oil prices and exchange rate shocks.

However, the upfront capital expenditure (CAPEX) for adopting EVs is significant. It involves the cost of importing vehicles, establishing charging infrastructure, and upgrading the national grid, but this initial investment aligns with Nigeria’s broader energy goals and industrial aspirations.

Investments in EV infrastructure would also enhance national electrification efforts. An improved grid for EVs would benefit households and industries, creating synergies between transportation and energy development. Moreover, strategic partnerships with countries like China or India could reduce the CAPEX. Technology transfer agreements could help Nigeria establish local production of EV components, such as batteries and charging stations, cutting import dependence. These partnerships would position Nigeria as a regional hub for EV manufacturing, creating jobs and boosting technical expertise.

The operational expenditure (OPEX) for EVs is significantly lower than that of ICE vehicles. EVs have fewer moving parts, which means reduced maintenance costs. They rely on electricity, which can be generated domestically through natural gas, solar, or other renewables, eliminating the need for dollar-denominated fuel imports.

For example, EV users would no longer be burdened by the fluctuating cost of petrol or diesel, which is tied to global oil prices and exchange rate instability. Over time, these savings would lower transportation costs, benefiting businesses and consumers.

Furthermore, a robust EV ecosystem could stabilise fares and freight costs, providing much-needed relief to the economy. Lower OPEX also makes EVs more financially sustainable for operators in the long run, reducing the cost of transportation services. The benefits of EV adoption can be maximised across economic resilience, positive environmental impact, job creation, industrial growth, and energy security.

Overcoming EV adoption barriers

Despite its promise, transitioning to an EV ecosystem in Nigeria faces challenges, including acute infrastructure gaps (such as lack of a national charging station network), inadequate access to electricity supply, and high vehicle costs. To unlock the full potential of EVs, Nigeria needs a cohesive strategy that combines public and private sector efforts. The government must create policies that incentivise EV adoption while fostering an enabling investment environment.

Some recommendations to facilitate the adoption of EVs in Nigeria include policy incentives, including tax breaks for EV buyers, import duty waivers for components, and subsidies for charging infrastructure. Public-private partnerships to fund and develop charging networks and encourage investment in local EV manufacturing plants are necessary. And research and development to drive innovation and reduce reliance on imported technology would have broader impact, while public awareness campaigns to drive consumer interest and educate Nigerians about the benefits of EVs, including cost savings and environmental advantages, should be launch without delays.

Investing in EVs is a solution to transportation inflation and a pathway to a more secure and prosperous future. Nigeria can transform its transportation sector into a model of resilience, sustainability, and affordability, ensuring that travel – whether by road, rail, or air – is not an unimaginable luxury but an accessible reality for all Nigerians.

Cheta Nwanze is Lead Partner at SBM Intelligence.