The security of South Africa’s electricity supply, energy costs and labour issues emerged as key questions from a delegation of Indian component manufacturers as they on Monday engaged government and the National Association of Automotive Component and Allied Manufacturers (Naacam) on investment opportunities in South Africa.

Answering questions from the floor following a conference, held in Tshwane, Automotive Industry Development Centre (AIDC) CEO Barlow Manilal admitted that South Africa had “had issues” in terms of energy costs and capacity, especially over the last five years.

However, he added that the South African government was working hard to put in place new electricity capacity over the next five years, in order to stabilise supply.

Manilal also noted that electricity costs had increased significantly from the country’s former position as offering the world’s cheapest power.

The High Commissioner of India to South Africa Virendra Gupta, however, told the Indian delegation “not to worry about infrastructure in South Africa. It is first-class”.

He said power availability was not an issue and that the South African government seemed alert to the growing demand for energy in the country. He said government was working to put on-line a range of new generation projects.

Answering questions on labour issues, Naacam executive director Roger Pitot said that the lowest hourly rate payable to South African workers in component manufacturing plants were $3.50 an hour.

He noted that the industry, on average, saw strikes every three years, as it normally puts three-year wage agreements in place in the vehicle assembly and component manufacturing sectors. However, he added that strikes in other related sectors often also affected the automotive industry.

Asked by Automotive Component Manufacturers Association of India president Surinder Kanwar why his members should invest in South Africa, Pitot answered that South Africa was not the cheapest investment destination, as that was probably China. However, the country could offer a stable environment, average global costs, incentives for value-addition, while also acting as a gateway to the lucrative African market, as well as to Europe and the US, through its trade agreements.

Manilal also regarded South Africa as “formidable” as a country from which to export into the rest of the world.

Following the conference, Kanwar told Engineering News Online that while labour and energy issues were indeed of concern to his members, a large domestic market was also of importance.

“In any business, you need a large domestic market. You need to sell between 30% and 40% of your goods locally before you can think of exports.”

Investment Opportunities Available

Pitot offered potential Indian investors several business options when looking to invest in South Africa.

He said Indian companies could sell subcomponents to tier-one suppliers at lower prices than South Africa’s largely European and Japanese tier-one base was currently sourcing them from their own home countries.

They could also invest through mergers and acquisitions, or form new joint ventures that would give their products access to Europe through South Africa’s free trade agreement with the continent.