Automotive manufacturers must drive home importance of AGOA to the economy

19th October 2023

Automotive manufacturers must drive home importance of AGOA to the economy

Amith Singh – National Manager for Manufacturing at Nedbank Commercial Banking

Despite a weaker currency, pessimism over rising fuel costs and ongoing economic challenges, South Africa (SA)’s automotive manufacturing sector is primed for more growth under the African Growth and Opportunity Act (AGOA).

This could spell good news for manufacturers in the country, meaning that there is not only an opportunity for job certainty in this sector, but also handsome business export opportunities, which will benefit the country.

Optimism is fuelled by the fact that SA was the continent’s largest beneficiary of AGOA in 2022, exporting a wide range of products, including vehicles manufactured in the country, to the US.

AGOA is a preferential trade programme that the US offers to 49 sub-Saharan African countries, but questions remain around its future. Few would disagree that the trade-friendly legislation signed into law in 2000 by former president Bill Clinton has been mutually beneficial to SA and the US.

Last year South African exports to the US amounted to R178 billion and, showing that it is not a one-way street, US exports to SA amounted to R134 billion in 2022.

Apart from ensuring a pipeline for American products, AGOA has mutual benefits for the export sector and gives a strong nod to investment in Africa: A new research report on AGOA by the Automotive Industry Export Council and the Automotive Business Council (naamsa) found that investment expenditure by original equipment manufacturers rose from R1,56 billion in 2000 to R2,08 billion in 2001 when AGOA was implemented.

The report also says that SA has accounted for more than 99% of the African automotive sector’s exports to the US since AGOA's inception. Among the many reasons, this is in part due to the commitment – and solidity – of players in the local manufacturing industry, no doubt buoyed by the fact that SA enjoys access to this key automotive export market: Last year total automotive exports to the US amounted to R24,1 billion, while automotive imports from that country amounted to R18,3 billion.

Unsurprisingly, manufacturers in the country have been urged to boost efficiencies of output and operations to ensure that, despite the topsy-turvy nature of the currency, maximum benefits are extracted from such growth opportunities.

The National Association of Automotive Component and Allied Manufacturers (NAACAM), recognised as the voice of the South African automotive sector, notes in its 2023 outlook that the same challenges that confronted the economy and the automotive industry in 2022 have carried over into 2023. Businesses are faced with numerous challenges, including supply chain bottlenecks, a global economic slowdown, a worsening energy crisis, and protracted geopolitical turmoil.

In addition, according to NAACAM, the United Kingdom and the European Union ban on the sale of new fuel-propelled vehicles from 2030 and 2035 respectively, as well as imposing carbon border taxes on imports with significant associated compliance costs, will have global ramifications.

The manufacturing sector undoubtedly remains a positive window of opportunity to unlock new opportunities – notably the emergence of the energy-efficient electric car.

However, given the current interest rate cycle and not forgetting the heavy fuel increase that will hurt consumers and ultimately the economy, Nedbank Commercial Banking is mindful of the manufacturing sector's pain points.

Expert solutions coupled with adequate support to enable clients to better navigate the current difficulties facing South Africa are a given. Some may disagree with an optimistic approach but, with the automotive trade surplus flush at R19,6 billion in 2022, the manufacturing sector is crucial to the well-being of the country.

Therefore, the future sustainability of AGOA, which will end on 30 September 2025, is a must for the automotive manufacturing sector.

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Singh is Nedbank Commercial Banking’s national manager for the manufacturing sector. He holds a degree in business management from the University of Cape Town, a postgraduate degree in sales management, and is a qualified Neethling Brain Institute practitioner. He has been in banking for 20 years.