Trade and Industry Minister Dr Rob Davies has stressed that South Africa does not have the luxury to stop supporting its automotive sector, as has been the case in Australia, where the industry has disappeared.
 
“The auto industry is key to the future of manufacturing in this country and whatever emerges from 2035 will be based on a significant level of support for [it] going forward. The real learnings that we are building on are not from countries that have decided they can simply abandon support for the automotive industry,” he noted during the National Association of Automobile Component and Allied Manufacturers show, in Durban. 

Davies also called on all stakeholders to see the bigger picture and consider what was good for the sector as a whole rather than seeking sectional benefits for the particular parts of the value chain that they represent.

One of the issues that needs to be confronted is local market optimisation. “We need to address the continued high import penetration and we also need to have a greater alignment between local production and local demand,” he said.

Davies also touched on the dangers of increased protectionism in markets on which the local automotive sector had focused in the past. Stressing that these may not be “quite as available to us as they have been in the past”, he, nevertheless, said that slow but meaningful progress was being made towards the proposed Tripartite Free Trade Area agreement in Africa.

By the end of the year, tariff schedule negotiations will have been concluded with the East African Community bloc, and Egypt was not far behind.

Further, the Minister said localisation levels within the automotive sector are suboptimal and employment levels lacklustre, making increased localisation one of the most imperative aspects of future planning.

Because the automotive sector contributes 7.5% of South Africa’s gross domestic product and employs some 113 000 people directly, it is key to ensuring greater economic growth. The fact that the automotive component segment is the most labour intensive and accounts for 72% of this total makes it a critical part of the value chain.

As a result, the target for localisation is set to increase to 60%, from around 38% at present.

Davies said the intensive consultation and discussion that had taken place over the past 12 months ahead of the creation of a masterplan for the industry had revealed some critical issues.

This master plan would culminate in the development of a support package for the automotive industry that would replace the Automotive Production and Development Programme (APDP) that was introduced in 2013 and expires in 2020. The new support package will run until 2035. 

Davies said analysis had painted a mixed picture but had highlighted some progress.

On the positive side, there had been a 30% volume increase in light vehicle production, a 20% rise in exports of completely built-up (CBU) units, a 7% drop in imports of CBU units and a 34% rise in the value of component imports.

“But, while those are positive, we’ve also seen component imports rising very rapidly and surging to a historically high level of about R50-billion. Local content is at 38%. This is suboptimal,” he said.

Davies pointed out that, while there had been an increase in the rand value of component production from R35.2-billion in 2012 to R52.9-billion in 2015, local content as a proportion of overall sales had declined by 17%.

“We still have a very high import penetration of finished products which have no local input . . . That’s telling us we need to deepen the development of local content and local component manufacture. It’s not just about doing that in the existing original-equipment manufacturers (OEMs) that we have in our market, but also a question of trying to get more OEM investment so we have more production [to replace] imports of finished products,” he continued.

ALL SYSTEMS GO

Davies said none of the stakeholders participating in the masterplan consultation process had objected to setting the localisation target at 60%.

Had this already been achieved, it would have created about 50 000 more jobs, as well as significant opportunities for smaller component companies to enter the industry.

At a press briefing following his presentation, Davies said the chance of creating a South African branded vehicle were remote. However, the barriers to entry for component suppliers at lower tiers of the value chain were far smaller.

This, he said, would contribute to industry transformation, which was “no longer optional” owing to new black economic empowerment legislation. The transformation imperative was a quid pro quo for those benefiting from the APDP and its successor. 

Development of new infrastructure within the industry, as well as technology and the necessary skills development, were also important, said Davies. 

“We need to establish a technology and skills road plan that takes account of the fourth industrial revolution. The introduction of digitisation and the disruption that is occurring in production . . . is predicted to have a much more rapid disruptive effect as we move further forward.

“In the case of the automotive industry, we need to [not only] talk about new technology as used in the production of motor vehicles, but [that the] products themselves will increasingly have radically different  technologies,” he said.