Last year Cabinet approved the South African Automotive Masterplan (SAAM) 2035 alongside amendments to the Automotive Production and Development Programme (APDP), which is expected to take effect in 2021. The changes emphasise localisation, intentionally shifting focus from imported to local content. The SAAM provides a vision for the industry and aims to increase the use of locally manufactured components in domestic vehicle production from 39% to an ambitious 60%.
Of all the initiatives that Government has talked about the SAAM and APDP are two that are contributing to our economy. Government has recognised that the automotive industry has been fundamental to South Africa’s economy. In 2018, the sector directly employed around 110 000 people and contributed a total of 6.8% (4.3% manufacturing and 2.5% retail) to gross domestic product.
While local demand for new vehicles has slowed, numbers of vehicles manufactured in South Africa has increased because of exporting. According to a recent report released by Deloitte Africa, South Africa still remains the number one OEM manufacturer on the African continent (54.3%) with many of the major OEMs operating in South Africa. Morocco, the second largest African producer, has increased production significantly, and produces more passenger cars than South Africa.
The report looks at ways of strengthening the local automotive industry and highlights how tier 2 suppliers in South Africa do not have the same clout as in other countries. Globally, tier 2 suppliers dominate the automotive supply chain and are responsible for 50% of value addition. These suppliers often drive localisation and are important to deepen skills, employment and value chains in the host country. The structure of South Africa’s automotive industry is dominated by OEMs and tier 1 suppliers, with few tier 2 suppliers. In comparison the tier 2 suppliers typically contribute 50% value addition to the automotive industry globally relative to South Africa’s 20%.
Included in the report is Thailand’s successful automotive industry and how it deepened the supply chain with clear objectives on incentives and investments. Notably, it says, Thailand also concentrated on developing local skills, including for lower tier suppliers, often by entering into strategic partnerships and sharing the responsibility of transferring the needed skills to domestic suppliers and employees. The government also introduced industrial policy which linked to the abovementioned objectives. These policies translated into practical benefits for multinationals, including exemptions on corporate income tax and import duties on machinery and raw materials, immigration permits for experts, land ownership options and supercluster automotive zone benefits.
I have recently written how it has been reported that Mercedes C-Class US production could be heading to South Africa. There is apparently no room at the Mercedes US plant to manufacture the C-Class because of SUV demand – the vehicles Americans want most – and the 40 000 vehicle US production might move to Mercedes’ East London plant. I don’t think this is a dream as ZF Lemförder SA has opened a new plant in East London. Only nine months after the proposal, the new plant commenced production of front and rear axles.
Now I have seen reports that the production of Minis could move to South Africa from the current manufacturing plant in the UK because of the Brexit debacle. Mini is one of the most productive manufacturers in the UK, with the Mini the second-most produced car in the country. Last year the Oxford plant produced 175 000 of three and five-door hatch, convertible, roadster and coupe versions.
Just do the numbers between these two rumours. They make up about one-third of South Africa’s current yearly production. In this era where the South African automotive industry is intentionally being shifted from imported to local content, and if the two rumours come to fruition, it could be an industry shifting experience for local suppliers and the people of our country. The questions that need to be asked are: Is the local manufacturing industry ready, and do the investors have the appetite?