The South African automotive industry needs to create 485 new businesses in Tier 2 automotive products by 2035.
Localisation, the process whereby an increased percentage of the parts and costs of a motor vehicle are either assembled or manufactured in South Africa rather than imported, represents a significant opportunity to transform the automotive sector, while facilitating the entry of BEE participants in its supply chain.
This was the topic of discussion at a recent automotive sector webinar held by FirstRand Group companies RMB, FNB and WesBank.
Simon Woodward, Automotive Sector Head at RMB said, “The need for localisation is an essential ingredient in transforming the domestic automotive sector.”
The South African Automotive Master Plan (SAAM) 2021 – 2035 could see the automotive industry growing from 600 000 to 1.4 million vehicles a year in production.
“It is therefore a massive opportunity to support black-owned automotive suppliers in building their businesses in the industry, and then potentially partnering with leading global suppliers. It will help drive transformation and create jobs.”
Encouragingly, the car manufacturers, also known as original equipment manufacturers (OEMs), have committed to funding a Transformation Fund, which will help in part to facilitate the entry of BEE participants in the supply chain.
Khantse Radebe, General Manager for corporate clients at WesBank said, “South Africa currently contributes 0.7% of the global automotive manufacturing industry value. We would like to see this number trending upwards.”
Andrew Kirby, keynote speaker at the event, and President and CEO at Toyota South Africa Motors (Pty) Limited said, “There’s no silver bullet to these aspirations, but there are massive opportunities for growth in future.”
The automotive industry is currently a significant contributor to South African GDP (6.8%), with 110 000 people employed across vehicle and component manufacturers. It also has an estimated indirect impact on 1.5 million people.
South Africa has also made great strides in the automotive industry’s collaboration with the government. The progressive automotive policies in the country are testament to the strength of pro-government/industry collaboration.
However, the automotive industry also faces tough challenges in the form of accelerating localisation and developing a future-proof supply chain.
“Without localisation, we’re going to struggle to remain competitive,” said Kirby.
Part of SAAM’s proposed solution to growing the automotive industry is to increase local content in South African assembled vehicles from around 37% (2015) to 60% by 2035.
“To meet this objective, the South African automotive industry needs to create 485 new businesses in Tier 2 automotive products by 2035. Of that 50% needs to locally owned and black owned.” said Woodward. Tier 2 businesses typically supply parts that end up in cars despite not selling them directly to vehicle manufacturers.
In order to remain competitive however, South African automotive businesses need to recognise that the nature of vehicles is changing dramatically.
CASE refers to new areas of ‘Connected’, ‘Autonomous’, ‘Shared’ and ‘Electric’ cars. Technological advances in these areas are greatly changing the concept of the automobile.
“If we do not work tirelessly to get into this evolution of electric vehicles quicker, this production is under threat,” said Kirby.
The technology needed for CASE transcends hardware and software and the ambition for SA should be to manufacture and localise these high technology cars.
There are other challenges.
Often car manufacturers’ desire to localise is constrained or complicated by corporate sourcing policies meaning sub-components become difficult to “break out” and localise.
There is also a lack of enabling infrastructure for Tier 2 automotive companies, ranging from a broad lack of access to capital, markets, technology and skill.
“A deepening of localisation cannot be realised without a collective, intentional and determined drive from all parties – including the financial sector which has an important role to play in providing an enabling environment,” Woodward concluded.