The motor industry’s R6bn empowerment fund could be used not just to develop black components suppliers, as originally envisaged, but companies throughout the automotive chain, says BMW SA CEO Tim Abbott.
These could include dealerships, panel beaters, vehicle transporters and even security firms.
The fund, approved by the government earlier in November, is a trade-off by multinational motor companies for not ceding part-ownership of their SA subsidiaries to black local partners. BMW, Ford, Isuzu, Mercedes-Benz, Nissan, Toyota and Volkswagen refused to consider the idea. At least one threatened to disinvest if the government tried to force the issue.
Instead, they offered to fund the development of a black-owned components supply industry. Now the idea has been formally approved, it will allow the companies to achieve the broad-based BEE level-four target set by the government. Not long ago, some were sitting at the bottom at level eight.
The R6bn guaranteed so far could swell. Multinational components companies with SA subsidiaries want to retain ownership by joining the fund. Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (Naacam), says it has begun discussions with the department of trade & industry.
Historic imbalance
Foreign-held truck assemblers may follow suit. Abbott, who is also the deputy president of Naacam, said vehicle importers could also join.
The fund is meant to correct a historic imbalance in the motor industry. Motor companies are all foreign-owned, as are nearly all of their direct components suppliers — those that deliver completed parts to vehicle assembly lines. They are known as tier-one suppliers.
Below them are tiers two, three and four — the providers of sub-components and support services. Many are local companies, but almost all are white-owned. The government wants 25% of these companies to be black-owned by 2035.
Why that date? Because that’s when the next phase of the government-administered Automotive Production and Development Programme (APDP) will end. The first phase, launched in 2013, has just more than 13 months left to run. While it has done much to attract foreign investment and make the local motor industry competitive, its effect on black empowerment has been negligible.
In some ways, creating the fund is the easy part. The biggest challenge could be spending the money
— Tim Abbott, BMW SA CEO
Trade & industry minister Ebrahim Patel said racial transformation in the industry is “unbearably slow”.
The 2021-2035 version of the APDP is meant to change that. The government hopes its vision of doubling vehicle production and industry employment and increasing local content by 50% over the period will grow the supply sector and create conditions for a black industrial class to emerge.
Alloy wheels, axles, exterior mirrors, steering wheels, sun visors and safety-belt systems are among products that could be localised if production numbers justify. Break those down into sub-components and there are hundreds of business opportunities for would-be black industrialists.
Turning them into reality is something else. As Abbott says: “In some ways, creating the fund is the easy part. The biggest challenge could be spending the money.”
Past government attempts to fund new black participants have failed. Even motor companies, through their own black supplier development programmes, have struggled to find candidates. Once identified, they need to be trained not just in production but often also in management, finance and business planning.
Organisations that have run these programmes believe it takes up to five years to bring companies up to scratch. There are no shortcuts. Supply contracts are distributed by motor companies’ global parents based on guaranteed quality, supply reliability and global cost competitiveness.
Toyota SA president Andrew Kirby said the empowerment fund initiative is different to previous, fragmented efforts because it is a concerted industry effort to match demand with supply.
Minority on board
Abbott agrees: “As motor companies, we are the demand and we are intent on creating the supply.”
This doesn’t mean vehicle manufacturers will be able to impose their will on the fund, which will be run by a black-owned fund manager. Their representatives are likely to be in a minority on the board, which will also represent labour, government, independent advisers and, eventually, components, truck and import companies.
Abbott hopes the fund will be operational in the second quarter of 2020. The search for a CEO is beginning.
He says the R10bn is intended to cover needs for 10 years. Five of the seven big motor companies will stump up an initial R38m each. Nissan and Isuzu will pay R19m, because their annual production is below 30,000. Once they breach that level, future payments will match those of other companies.
BAIC, the Chinese vehicle manufacturer setting up a new assembly plant near Port Elizabeth, will be expected to contribute once production is under way.
Abbott says while the fund’s original idea was to create black suppliers, the remit has already expanded to vehicle retail. There are too few black franchised dealerships, so some of the money will be spent on identifying and training participants in this area.
And then there are the other links in the automotive production chain.
“Longer term, we need to look at black-owned body-repair shops, transport companies whose trucks carry vehicles, logistics companies supplying the motor industry, even security companies that provide services to the industry,” Abbott says.
“There are so many avenues to explore. We want to be an inclusive industry at all levels.”
Correction: November 20 2019
In an earlier version of this story, we referred to National Association of Automotive Component and Allied Manufacturers as Naamsa, it should have been Naacam.
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