A rosy picture for South Africa’s automotive industry

South Africa’s economy is primarily driven by the automotive industry, hence the growth and development thereof is of vital importance. In a report released by the Industrial Development Corporation on its outlook for the manufacturing industry, the South African automotive industry is given reason to remain optimistic for the medium- to long term.

On the other hand, capacity utilisation in the apparel and textiles sub-sectors has declined, despite the recent closure of sizeable operations.

As demand for furniture declined in reaction to recessionary conditions locally and abroad, domestic furniture manufacturers have not been as optimistic as their counterparts in the basic iron and steel industry.

A reduction in production capacity is cause for serious concern, as it may be permanently hamper the speed and extent of an eventual recovery.

All the major vehicle makers are represented in South Africa, as well as eight of the world’s top 10 auto component manufacturers and three of the four largest tyre manufacturers. Many of the major multinational companies use South Africa to source components and assemble vehicles for both the local and overseas markets.

With the Minister of Finance Pravin Gordhan having indicated in his Medium-Term Budget Policy Statement of October 2011 that R226 billion would be spent on the improvement of infrastructure for transport and logistics, the view is very rosy for the industry.

South Africa’s pace of infrastructure development has been deemed very fast compared to other countries in Africa. Being seen as the gateway to the continent has whetted the appetite of many foreign investors – a trend which is expected to grow tremendously.

As a member of the BRICS bloc of nations – along with Brazil, Russia, India and China – South Africa is expected to produce a large number of exports.

The Department of Trade and Industry (the dti) is looking to designate specific vehicles, starting with buses, for procurement by state agencies to raise domestic production and employment, said Minister Rob Davies at the official opening of this year’s Johannesburg International Motor Show in October.

He reiterated that the designation of products is part of a government plan to leverage sales of locally manufactured goods by state agencies. The new preferential procurement regulations were set to come into effect on 7 December 2011.

“The South African automotive, manufacturing and retail industries contribute at least 6% to the country’s GDP [gross domestic product], and the sector’s exports constitute almost 12% of total exports,” Davies indicated.

The dti, together with the Department of Economic Development, are the key departments in the facilitation of foreign investment in the automotive industry. They are responsible for South Africa’s key national plans: the New Growth Path and the Industrial Policy Action Plan 2, which are aimed at stimulating economic growth and, consequently, job creation. Attracting foreign direct investment is crucial to achieving the goals of these plans.

According to Nissan South Africa managing director Mike Whitfield, a number of vehicle manufacturers are in talks – through the National Association of Automobile Manufacturers of South Africa (Naamsa) – about co-operation to save logistics costs as the local industry gears up to grow exports into Africa.

Companies such as Nissan, Ford, General Motors and Toyota are currently exporting pickup trucks into various markets on the continent, where luxury bakkies have become an asset. Pickup exports from South Africa into Africa are expected to grow significantly, as these manufacturers have all targeted the resourceful continent as a growth market.

It currently costs around $4 000 to move one Hardbody from the Rosslyn plant in Pretoria, to a customer in the Democratic Republic of Congo. If put in place, the Naamsa plan will ensure the surplus funds used for logistical purposes will thus be diverted to skills development to make certain that the country has a pool of skills to drive economic activities.

South Africa boasts world-class infrastructure with a network of approximately 764 000 kilometres, which links major cities, towns, villages and rural areas in a way that resembles that of an established first-world country rather than comparative emerging economies.

The national roads link Gauteng – one of the country’s economic hubs – to other provinces, in particular the coastal provinces with their port infrastructure. Vehicles and components manufactured in Gauteng are exported via the ports of Cape Town (2 000km away), Port Elizabeth (1 075km), East London (980km), and Durban and Maputo (600km).

Nissan South Africa has indicated its interest in bringing the Leaf electric vehicle (EV) to the domestic market in 2013. Whitfield indicated, however, that the government would first need to have its EV policy in place before the local arm of the Japanese vehicle manufacturer could bring the zero-emission passenger car to South Africa.

“This very special car is the world’s first mass-market EV, and has already brought affordable, practical and enjoyable zero-emission mobility to thousands of people,” he added.

This policy would need to include details on charging infrastructure and incentives such as possible duty rebates on EVs.

The draft policy document is currently the subject of scrutiny within the dti. Thereafter, it is to be scheduled for presentation to the Cabinet.

Most companies are currently broadening their operations to different economic hubs in the country.

General Motors SA will invest more than R200 million in the construction of new offices at a greenfield site in Port Elizabeth. These offices will include new engineering and training centres to enable skills development in the automotive industry in general. The new project boosts the company’s R1-billion investment in its current three new-vehicle assembly programmes at its Port Elizabeth plant to R1.2bn. The new building will serve as the headquarters for the vehicle manufacturer’s sub-Saharan African operations.

Skills development is vital for the growth of the country’s economy, and different industries require different initiatives to initiate growth and development. The same applies with the transport and logistics industry, which is the main driver of daily economic activities in South Africa, in the form of transporting goods and services from point A to B.

The country’s skills development catastrophe has been exacerbated by the shutting down of long-established training facilities, which has led to a sharp decline in the number of competent apprentices. This, in turn, has produced a large technical skills gap in the country, which impacts the wider logistics and transport industry in terms of sourcing suitable skills and resources.

It is well known that South Africa has one of the highest unemployment rates in the world. The socio-economic ramifications are severe, and therefore job creation is a high priority.

The South African automotive industry does not work in isolation. With the country being rich in mineral and natural resources, the industry has strong linkages with other output industries. The majority of base metals used in vehicle construction, such as aluminium, copper, steel, chrome and nickel, are mined in South Africa. The country is the largest producer of platinum, rhodium and palladium – known as the platinum group of metals. South Africa has a competitive edge due to the abundance of raw materials in the country and the development of the beneficiation industries around it.

The government, on the other hand, has played a vital role in ensuring the automotive industry always has the support in needs via various incentive schemes. It continues to develop policy frameworks aimed at making South Africa an attractive destination for the manufacture and export of motor vehicles to Africa and the rest of the world.

One prime example of such policies is the Motor Industry Development Programme (MIDP) and its successor, the Automotive Production and Development Programme (APDP). The MIDP was introduced in 1995, and much of the growth and success of the automotive industry is attributed to its successful implementation and continuation.

The core principles of these programmes were thus primarily centred on protectionism and focused on achieving high local content. They imposed high import duties on imported cars and components. The positive result of the strategy was that it gave birth to the local vehicle assembly industry and the formation of a local supply base to support it.

The current MIDP programme will end in 2012. Although it has been highly successful, the government is revising certain elements to assist the automotive industry in evolving into its next phase. The APDP will take effect in 2013.

Other incentives directed at stimulating growth include the Export Marketing & Investment Assistance Scheme, which compensates exporters for costs incurred in respect of activities aimed at developing export markets for South African products and services; and the Foreign Investment Grant, aimed at assisting foreign investors who are looking to invest in manufacturing businesses in the country.

Bongani Evans Mtlhavani