The story of emerging markets in the world will be incomplete without South Africa. Goldman Sachs, a financial consultancy, estimates that the country’s GDP would grow by 2.3 percent in 2018, and the domestic economists think that the growth will be one to two percent, more than the one percent in 2017 and 0.3 percent in 2016. In line with the economic development, the automotive industry in the biggest African market is also expanding.
The National Association of Automotive Component and Allied Manufacturers (NAACAM) was established in 1980 to represent the interests of the automotive component manufacturers and is nationally and internationally recognised as the voice of the South African component industry.
The National Association of Automobile Manufacturers of South Africa (NAAMSA) expects improvement in domestic new vehicle sales to 2.6 percent in 2018 against 1.8 percent in 2017. Passenger vehicle sales are expected to rise 1.9 percent and the commercial vehicle sales forecast is for 3.9 percent growth. New vehicle exports in 2018 are likely to grow by 11 percent supported by the expected growth in the global economy.
The industry in South Africa is trying to grow its base continuously and strengthen the foundations of the automotive component manufacturing in the country. In 2017, the country produced 321,358 passenger cars and 242,300 commercial vehicles. About 68.8 percent in the PV segment and 43.7 percent in the CV segment were shipped out of the country.
“The SA Automotive Master Pan 2035 envisages localisation as a core pillar and wants it to rise to 60 percent from the present 38 percent,“ Renai Moothilal, Executive Director, NAACAM, told Pramod Thomas of AutoParts Asia, on the sidelines of Automechanika Frankfurt in September 2018. “Local market optimisation, regional market development, localisation, infrastructure development, industry change and technology and associated skills development are the key ingredients to implement the Master Plan,” Moothilal said in an exclusive interview.
Q: What is the South African Automotive Production and Development Programme?
A: The Automotive Production and Development Programme (APDP) replaced the Motor Industry Development Programme (MIDP) on January 1, 2013, with minor changes implemented in 2016. The APDP consists of four pillars: import duty, vehicle assembly allowance, production incentive and automotive investment scheme. Import duties on vehicles and components have been frozen at 2012 levels (25 percent on light vehicles and 20 percent on components) till 2020. A preferential agreement results in imported vehicles for the EU paying only 18 percent duty.
Under the volume assembly allowance, duty-free import credits are issued to vehicle assemblers. From 2016, the allowance is calculated on a sliding scale based on total company production, commencing from 10 percent for 10,000 units to 18 percent for 50,000 units annually. The automotive investment scheme is a cash grant for qualifying capital investment, starting at 25 percent for component manufacturers and 20 percent for OEMs. Applicants can get it increased by five or 10 percent depending on adherence to certain economic benefit criteria. There is also a separate investment scheme available for manufacturers of people carriers.
Production incentives for components produced for light vehicles and heavy commercial vehicles are also provided by the government. However, for the commercial vehicles the incentives cannot be passed on to vehicle assemblers.
Q: What does the Automotive Master Plan 2035 mean to the industry?
A: During 2016, the Department of Trade and Industry announced the commencement of a process to conduct a detailed study of the automotive industry under the present APDP and make recommendations for the post-2020 period through the development of a 2035 Master Plan. The project aimed to provide a long-term vision for the sector in South Africa. Further it needed to develop policy recommendations as well as a broader industry development framework to support the sector’s growth domestically and optimise its contribution to the national economy.
The project review work has been led by specialist South African industrial development consultancy BM Analysts. NAACAM has fully supported the process through its involvement and provided significant input and made proposals on the way forward.
The vision of the Master Plan is a globally competitive auto industry that actively contributes to the sustainable development of South Africa’s productive economy, creating prosperity for industry stakeholders and the broader society. The objectives are one percent global vehicle production, 60 percent local content, 100 percent employment growth, competitiveness to leading competitor standards, industry transformation and increased value addition. Local market optimisation, regional market development, localisation, infrastructure development, industry change and technology and associated skills development are the key ingredients to implement the Master Plan.
Q: What is the present state of the automotive industry in South Africa?
A: The industry in South Africa has a very long history of manufacturing. We have assembly plants of seven automotive manufacturers: ISUZU, Nissan, Toyota, Ford, BMW Group, Volkswagen and Mercedes Benz. These OE plants are supported by over 300 component manufacturers. Most of them supply directly to the vehicle assemblers. We have also got a fair number of companies who produce for the aftermarket and for the independent component exports. Out of the total 300, around 180 will be Tier-1 direct suppliers to the OEMs, and they are supported by the Tier-2 and Tier-3 base. The Tier-2 base is not as big as you would find in India and Thailand. It is part of the Government policy to grow that base. A lot of incentives are available from the Government to develop component manufacturing.
The vehicle assemblers employ directly about 30,000 people. In the component space, direct Tier-1 employment will be around 80,000. We typically work on a multiple of 3:1. This means, one job in vehicle assembly equals to three jobs in the component sector.
The components sub-sector is globally recognised for its ability to generate significant levels of value addition, employment, skills development and other cross-cutting economic benefits. NAACAM aims to work towards a vision that maximises the localisation opportunities associated with automotive manufacturing for its members while promoting and implementing activities to support the government’s push to increase broad-based Black participation in the country’s industrial landscape.
Q: How do you foresee the growth for South African automotive industry?
A: For us, the focus is on leveraging the OEM assembly space as much as possible. In the aftermarket segment, from a volume perspective, it may be difficult to compete with some of the larger manufacturing companies. Our market is not of the size that you would find in the Asian countries. As the African market tends to grow, supplying to those markets gives some sort of advantage to the South African component manufacturers. I think we probably see greater potential in aftermarket production.
The local value addition in parts supplied to local OEMs in 2017 increased by 8.4 billion Rand in nominal terms between 2014 and 2017. This represents a nominal compounded annual growth of 12.5 percent. While the share of local content in parts supplied to OEMs in 2017 at 60.9 percent is lower than the 2014 level of 62.8 percent, a healthy improvement is evident when compared with the local content level of 57.9 percent in 2016.
Q: How do you evaluate the advent of electric and autonomous mobility? How will it impact the South African industry?
A: South Africa, by and large, reflects the global production requirements. Automotive production in South Africa is not exclusively for the domestic market. Most of the vehicle assemblers also export to different countries as well. As long as there is need for internal combustion (IC) engines, South Africa will continue to produce them and have the kind of component suppliers to support that. But obviously, as the need increases for autonomous vehicles and electric mobility and the vehicle assemblers see South Africa as a quality assembly destination, the level of component production in that space will increase. At the moment we have got several companies involved in alternative energy vehicles. I wouldn’t say it is a major focus now, but they will respond to the market as it develops.
The wider African continent has a big market for IC engines. As of now, electric and autonomous vehicles are not suitable for that market. So, we will continue to be strong in terms of the IC engines, or those kinds of traditionally-driven vehicles. When the market requires the alternative energy vehicles our component producers will be able to supply them, as the South African component base is dominated by multi-national companies.
Q: How does the South African Government support the industry?
A: In South Africa we have got a very strong working relationship between the Government and the private sector. Since we have a sector-specific incentive programme, the component manufacturers, the vehicle assemblers association and the Government integrate very closely in framing and issuing a policy.
There is a sector-specific programme called Automotive Production and Development Programme (APDP). It is the biggest manufacturing incentive programme for any sector in South Africa. The auto sector always had strong monetary incentives from the Government. The Government also supports market development initiatives. A lot of funding goes to the Competitiveness Improvement programme, Shop Floor Engineering and Process Development etc. The Government spends a lot in supporting the sector in that way.
The South African pavilion at Automechanika Frankfurt 2018 was sponsored by the Department of Trade and Industry in South Africa. Obviously, the idea is to increase exports of components from South Africa. Germany has traditionally been our largest trading partner. Automechanika Frankfurt has a very international audience and buying community. So, the idea is to link with as many international opportunities as our component manufacturers can access.