South Africa’s ongoing focus on attracting and maintaining investment from foreign automotive original -quipment manufacturers (OEMs) into South Africa is paying off, says logistics company DHL.

“South Africa saw a future in the automotive industry many years ago and created appealing tax and tariff structures to entice global brands to produce locally and use South Africa as a springboard into the rest of Africa,” says DHL Supply Chain Automotive & Transport director for Africa and South Africa Rob Williams.

However, issues around reliability and stability of production, both of which are imperative for growth, are hindering the expansion of South Africa’s automotive industry. “The major OEM brands in South Africa, such as Toyota, Mercedes-Benz, Ford and Volkswagen, have all demonstrated that they can build a product of equal quality to, if not better than, products of their international counterparts,” he says, adding that OEMs’ commitment to build vehicles must be upheld at a competitive price.

Williams believes OEMs not yet invested in South Africa can learn a lot from those with plants in the country. He says that these locally based OEMs have developed a relationship with “a young and energetic labour pool” and have good working relationships with rail and port haulage providers and suppliers.

Further, locally based OEMs have also developed successful relationships with their workforces and have formulated a “correct” mix of local and imported parts.

Moreover, Williams states that the success of locally based OEMs is largely linked to their insistence on quality. “The quality of locally produced vehicles is as good as [the quality of those of] their international counterparts. This is a non-negotiable aspect required for South Africa to play on the global stage.”

Meanwhile, Williams highlights that South Africa has several benefits for OEMs wanting to establish plants in-country, including the availability of raw materials, a young and dynamic labour pool, an easier climate to manufacture in and a cost-competitive workforce.

He adds that labour plays a significant role in the growth of the automotive industry. “Labour unrest, in almost every sector, has an impact on the automotive industry,” he says, further mentioning that Africa has significant potential, but that “additional investment will require reliability and stability in production and supply”.

To ensure that the growth of South Africa’s automotive industry continues on an upward trend, Williams says steps need to be taken to improve productivity; reduce input costs, such as electricity; and develop a more reliable labour force, in terms of fewer strikes. “This would go a long way towards ensuring that local OEMs are more competitive than rival production facilities across the continent.”

He remarks, however, that the supply chain – considering the distance to the markets – will always be a challenge, adding that reducing the supply chain cost will subsequently improve lead times and reliability.

“Africa has the capability to meet the global demands of the automotive industry and to supply a quality product at a similar or better delivered price than that of imports of its mature Western counterparts,” notes Williams. However, he believes that this will require a fair amount of investment and willpower, with exchange rates and labour stability also playing a significant role.

In terms of assisting other African countries in establishing OEM plants, Williams notes that international OEMs have learnt a lot by operating in South Africa. “There is a wealth of management experience in the country and in understanding the issues that an African production site presents. “This experience would need to be deployed at a new country’s operations and, over time, a hand- over of skills and knowledge will be needed,” he says.

Assisting Industry
Williams believes that, by creating visibility across the total supply chain, clients often approach logistics service providers, such as DHL Supply Chain Automotive & Transport, to supply a service to a portion of their supply chain.

“Various service providers could be appointed across the entire OEM supply chain, each operating within a silo to best provide an efficient and cost-effective solution,” he says.

However, if the OEM’s total logistics platform is visible to the OEM, then far more synergies can be exploited, adds Williams. “Companies risk critical damage to their business if they do not address and respond to the increasing unpredictability and vulnerability of their supply chains,” he says, adding that, to overcome this, “a lead logistics provider is required to conduct the supply chain orchestra”.

Further, Williams believes that government and labour need to work together to build the competitiveness of local OEMs, and says that the country’s regular strikes create uncertainty among foreign investors.

“When manufacturing plants in two different countries produce a similar-quality and -cost product, factors such as labour and currency could easily sway a production requirement,” he concludes.