Up to R60-billion could be invested into the South African auto industry in the next five years, despite the precarious economy, ongoing graft, greed and corruption and the failure of state owned entities in an ongoing attempt to unlock the potential of the country as a manufacturing and exporting powerhouse.
The recent National Assocation of Automobile Manufacturers of South Africa (NAAMSA) conference produced a wealth of words from key speakers with notable bottom-line requirements being further industrialisation and the empowerment of the people.
Andrew Kirby, President of NAAMSA and President and CEO of Toyota SA Motors said the R60-billion could be made up by R40-billion in direct investments by the seven vehicle manufacturers with an additional R20-billion going into component making.
The Department of Trade, Industry and Competition, headed up by Minister Ebrahim Patel, has identified six focus areas to drive the South African automotive industry forward.
He said the government fully realised the importance of a healthy and growing motor industry, in terms of being a large scale employer, the largest manufacturing operation in the country and a very successful exporter.
“The government is re-imagining its industrialisation strategy, seeking ways to unleash private investment with re-energised government strategies, ensuring policy predictability and the efficient use of resources,” said Patel.
“We have already had many meetings with companies and organisations involved in my ambit of the economy since the State of the Nation Address, two months ago, and planning is going well.
“The Motor Industry Masterplan, which was announced last November, is an integral part of our planning with these latest initiatives. To do so effectively we will use six focus areas to support the policy’s 2035 targets, which include growing production to 1% of global output, doubling employment, increasing local content to 60%, improving global competitiveness and achieving transformation across the value chain.”
Kirby said that the local motor industry was not only leading the drive to increase industrialisation in the country but was also a major employer with 407 000 people employed directly in various aspects of the industry. He added that this number can be multiplied by a factor of three to make 1,4-million people involved either directly or indirectly in the overall automotive industry.
He added the industry was currently in a healthy position in terms of having a positive balance of trade account with the number of exported built-up vehicles and components growing steadily. However, he stressed the importance of being globally competitive in terms of cost, quality, and reliability of supply as several other countries were eying South Africa’s automotive export markets.
According to Patel, the first area of focus is expanding existing markets and seeking new markets. Last year the motor industry exported products valued at R180-billion, which equated to 14% of the export basket, with R32-billion worth of these products going into Africa, which Patel said could grow significantly when the African Continental Free Trade Agreement comes into operation next year.
The second focus area is supporting improved industry performance by adapting new technologies, including those emanating from the global trends of electric vehicles and autonomous driving. The Minister said he believed SA could be a supply base for these advanced vehicles as a manufacturer and exporter without building a local infrastructure for these types of vehicle.
The third focus is to attract investment into the industry, with the aim of increasing localisation substantially.
The seven OEMs have invested more than R35-million in the past five years and now the objective is to attract even more investment going forward, particularly in the component manufacturing segment.
The fourth focus area is transformation and the building of an inclusive economy with a non-racial society.
Minister Patel stressed that the pace of transformation in all aspects of the local motor industry is far too slow.
“It is a critical imperative to the success and sustainability of the industry,” he says. “To this end the national Automotive Transformation Fund of more than R4-billion – funded by the seven OEMs – will be activated to assist the establishment of black-owned companies and the training of their staff.”
The fifth focus area is the availabilty of equitable spatial zones which can be developed into supplier parks and the like. Already a special economic zone (SEZ) is being planned for Tshwane which will have an area similar to 200 football fields. This aspect of support is to assist in improving the competitiveness in terms of cost and quality for locally made vehicles.
The sixth focus area is to improve the capability of State Owned Enterprises (SOEs), such as Eskom, through better cooperation between role-players to enhance the performances of SOEs using partnerships with private enterprises to develop best practices.
“In fact, through the entire value chain we need to develop partnerships and technology enhancements between government and private enterprise, industry and suppliers and industry and labour. We want a large and successful automotive industry infrastructure with the state providing an enabling environment,” he says.
Kirby said major developments were required in the three sectors of the value chain, with vehicle manufacturers embracing advanced manufacturing technologies to boost productivity and quality, while the component sector needed to urgently develop Tier 2 and 3 suppliers and the dealers and retail sector needed to transform and uplift the informal sector.
“Growing production volumes, increasing localisation significantly and using the latest technologies in all aspects of the business are vital to transform the South African automotive industry and to this end the aim was increase output from the 610 000 vehicles made in 2018 to 800 000 in 2023,” he says.
“We expect local procurement to grow by R12,6-billion in the next five years together with a 14% increase in direct employment, which equates to creating another 16 000 jobs, mainly in the component manufacturing sector as local content grows from 39% to at least 42%.”
Kirby stressed the importance of collaboration between the various vehicle and component manufacturers to enable cost-effective localisation. Already 10 joint projects have been identified for this process.
He added raw material beneficiation such as making automotive grade steel in SA was another priority and he was pleased to hear the local steel industry was currently investigating these potentially valuable developments.
He added the industry is also committed to establishing 500 Tier 2 and 3 suppliers with 130 of them black owned. Here he referred to the importance of the Automotive Transformation Fund as a key enabler.
The global vehicle manufacturing and related industries are facing enormous disruptors at present and it is a case of the sustainability and viability of these businesses relying on “an ability to manage a future not yet defined” says Douglas Comrie, Managing Driector of B&M Analysts, a local company with international strategic partners that ‘enables sustainable growth through innovative solutions in various industrial sectors’.
“The focus of companies involved in the automotive sector is changing drastically and rapidly, with a reported 42% of global OEM investment currently going into new mobility technologies and services and no longer only into new vehicle research and development,” says Comrie.
“The changes are also leading to many alliances in the global automotive industry, many of them unexpected liaisons. For instance, BMW now has alliances with 11 other companies and Toyota 10 of these partnerships. They not only involve different types of vehicles, such as battery electric and autonomous driving, but also a host of mobility services.
“In addition, these industries have to deal with the decoupling of several major world economies, such as the import duties spat between the United States and China and the impending Brexit deal in Europe.
“Many of these massive global changes currently taking place are not in anyone’s control. However, in the case of the South Africa’s new Automotive Masterplan this vision is in the country’s collective control, which will be arguably sufficient to define success or failure.”
On top of all of that, the demands by consumers are not only changing these days but they are also becoming more challenging in the way they expect to be treated says Ghana Msibi, the Executive Head of the Motor Division of WesBank, the country’s leading vehicle and asset finance house.
He said despite many changes in the way companies did business some consumers still think they are lagging behind in meeting their needs.
“I believe the key words we must consider today are personalisation, simplification, consistency, relevance – customised around the right product at the right time and right price – and choice, in the realm of being available anywhere and at any time.
“A seismic shift in attitude is needed. We must move beyond convenience to provide real value, being very aware of the type and level of service they enjoy from companies such as Amazon, Airbnb, Uber and Google.”
The WesBank senior executive said the theme of this year’s NAAMSA Conference, ‘Re-imagining The Future Together’, was apt as what is needed is a true partnership between manufacturers or importers, dealers and the banks.
“We are all totally inter-dependent,” he added. “The next step is to be proactive when the time comes that loans are settled, by being ready with suggestions as to what level of finance will be available when buying the next car and even what type of car might be most suitable. We must be ahead of the game.”