Agoa a boon for South African vehicle exports

27th September 2013

By: Creamer Media Reporter

  

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By: Evans Chinembiri and Tinashe Kapuya

The African Growth and Opportunities Act (Agoa) has significantly increased motor vehicle exports from South Africa to the US, and failure to renew the legislation would undermine the domestic automotive industry.

This is according to an in-depth report on Agoa commissioned by the Department of Trade and Industry (DTI). The report is intended to inform the South African government’s position ahead of an overhaul of the US legislation, planned by US President Barack Obama. Agoa is due to expire in September 2015. The report was prepared by TIPS, a Pretoria-based independent, not-for-profit research institute.

The TIPS report says that South Africa’s export growth would be capped if Agoa is not renewed beyond 2015. If Agoa had, hypothetically, been removed in 2011, South African motor vehicle exports would have plunged 92% in 2012.

The removal of Agoa would reduce South Africa’s exports to pre-2001, or pre-Agoa, levels, the report says, underlining the importance of the US market for South Africa’s ambitions to double vehicle production to 1.2-million units by 2010 under government’s Automotive Production and Development Programme (APDP).

South Africa is Africa’s biggest and the world’s twenty-sixth-biggest vehicle manufacturer. Even though its geographical location places it at a competitive disadvantage, compared with other lower-cost production bases, vehicle exports from South Africa accounted for 11.8% ($7.1-billion) of total exports and 6.8% of the country’s gross domestic product in 2011.

The TIPS report attributes South Africa’s growth in automotive exports to a combination of South African government policies to attract automotive investment, preferential market access to the US and the European Union and a weakening rand.

South Africa’s aggregate automotive exports rose 51% between 2006 and 2011. Exports to the US grew particularly after Agoa was implemented, owing to its incentive structure.

The US first granted South Africa duty-free access to a range of goods, including vehicles and automotive components, in 1976 under the Generalised System of Preference. This was extended through Agoa in 2001, giving South Africa’s automotive sector substantial discounts relative to other competitors in the US market. This preference margin amounts to 2.5% on cars, 1.2% on parts and motor vehicle accessories, 2.2% on bodies of motor vehicles and a massive 21% on trucks and goods transport vehicles.

Nevertheless, the TIPS report notes that Agoa’s trade benefits have not fully reached all vehicle categories for a variety of reasons, such as a low competitive advantage and distance from market. For example, the US legislation has failed to encourage South African exports of trucks and goods transport vehicles, despite the 21% discount, compared with tariffs payable by other countries. Significantly, this category of vehicles did not receive benefits under South Africa’s Motor Industry Development Programme (MIDP).

The incentives offered by Agoa and the South African-European Union Trade, Development and Cooperation Agreement have made the US and EU the top destinations for South African automotive exports. The growth in South African vehicle exports to the US outpaced the growth of its world vehicle exports, with the greatest increase coinciding with the last phase of the MIDP between 2005 and 2012. Motor vehicle exports to the US grew 21.4% in value between 2010 and 2011.

Nevertheless, South Africa’s share of the US market is relatively insignificant, with exports comprising only about 1.3% of the US market for cars and 0.2% for components. The TIPS report says there is “high potential” for even more car exports to the US, as well as trucks and components. However, high transport costs may deter exports of public-transport-type vehicles to the US. The US market for this category is in decline.

The MIDP, adopted in 1995, led to a rapid expansion of vehicle exports by what had previously been an inward-looking industry. The two largest US vehicle assemblers, Ford and General Motors, had earlier disinvested owing to sanctions during the apartheid era, and South Africa came to be dominated by mainly locally owned original-equipment manufacturers (OEMs). The MIDP reorientated and streamlined OEMs in South Africa with their parent-company operations.

The MIDP’s successor is the APDP, effective from January 2013. Because of the limited size of the South African market, the APDP is export focused and targets export markets, such as Germany, Japan, the UK and the US – the countries of origin of South African OEMs.

South Africa’s automotive sector directly employs 36 000 people and supports another 274 500 intermediate jobs. It is described by the TIPS report as occupying a strategic position to contribute to economic growth and employment. The industry comprises 304 vehicle component manufacturers, 2 907 parts dealers, 220 frame vehicle and equipment suppliers, 192 vehicle body builders, 483 engine reconditioners, 1 374 new-car dealerships with franchises and 1 898 specialist repairers.

 

Chinembiri is an economist at TIPS, specialising in data analysis, resource management and agriculture. Kapuya was previously a researcher at the same organisation, specialising in agriculture, commodity markets and value-chain analysis.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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