The road to hell, it’s said, is paved with good intentions. Can trade and industry minister Ebrahim Patel reverse years of well-meaning but empty government promises and enable the SA motor industry to escape the “hell” that is the country’s transport infrastructure?
Volkswagen SA (VWSA) MD Thomas Schaefer highlighted the challenge again late in October when bemoaning a labour go-slow at Port Elizabeth harbour. The dispute starved the company’s Uitenhage vehicle assembly plant of critical imported components and halted production. VWSA temporarily eased the problem by unloading containers in Cape Town and transporting them 750km by road to Uitenhage.
In this instance, it was a labour dispute that could happen anywhere. But, as Schaefer pointed out, even when the harbour is working “normally”, it’s only half as efficient as similar overseas harbours.
Durban harbour, the motor industry’s main import-export gateway, is expensive, inefficient and often clogged. Gauteng motor companies have used Maputo, in Mozambique, as an occasional alternative and even considered Walvis Bay, in Namibia. Earlier in 2019, Tshwane-based Ford started shipping some bakkie exports through PE to lessen its reliance on Durban.
SA’s rail freight system is also creaking and unreliable. Many vehicles are transported on SA’s overworked roads, which are themselves showing strain.
And as for Eskom’s inability to guarantee industrial power, where does one begin?
When there is action on these infrastructural pillars, it is usually to fix problems, not create long-term development strategy.
This won’t wash any longer. The government-driven SA Automotive Masterplan, starting in 14 months, expects the motor industry to more than double annual vehicle production between now and 2035, from 610,000 to nearly 1.4-million.
The industry exports most of what it builds. The 351,154 exports in 2018 represented 58% of total production of 610,854. Imported vehicles totalled just under 300,000. If railways and ports struggle with those numbers, what hope do they have with twice as many?
Billions of rands in components also move in and out of the country. As Schaefer observed last week, all the investment incentives in the world won’t help if products can’t reach customers.
Patel admits government can do more. “Competitiveness is not just a function of what happens on the factory floor,” he told an automotive conference.
Industry executives say Patel, the former economic development minister who moved into his new position in 2019, is fully behind the masterplan, which was shaped by his predecessor, Rob Davies. Andrew Kirby, president of the National Association of Automobile Manufacturers of SA, says: “I think he is anxious to get things moving quickly.”
At the heart of the masterplan is the Automotive Production and Development Programme (APDP), which was launched in 2013 and will be extended from 2021 in a modified form. By 2035, in addition to increasing vehicle production to 1.4-million, manufacturers and their components suppliers will be expected to double employment from 120,000 to 240,000, grow vehicle local content by 50% and create a generation of black automotive industrialists.
Black participation
Government attempts to encourage black participation have mostly failed, so now the industry will try. A R4bn “kitty”, funded by motor companies, will be used to identify, train and nurture black suppliers.
The intention is that by 2035, at least 25% of sub-suppliers – companies providing sub-components and services to multinational subsidiaries supplying completed components direct to vehicle assembly lines – should be black-owned. The share is currently almost negligible.
Multinational vehicle and components companies have shown an appetite for the APDP. Having invested more than R50bn since 2013, they expect to spend another R60bn in the five years from 2019 to 2023.
But the policy goals cannot be achieved without government support. It’s not just about infrastructure. Exports alone won’t drive the 1.4-million production target. There must also be a big rise in local sales. But that’s not going to happen, say industry executives, as long as taxes and levies account for 42% of the purchase price of a new car. Until that share shrinks, affordability will remain unattainable for most South Africans.
The government is doing its bit to create market opportunities outside SA. APDP incentives and international trade pacts have enabled multinationals to service 150 export markets around the world from SA.
One gap in the pact jigsaw – Africa – is being addressed. The continent is an important market for SA car and bakkie companies but growth is hampered by widespread protectionism. SA is leading the drive to create a pan-African free-trade zone and sub-Saharan motor industry with SA at its heart.
There’s one other question for the government to answer: how forward-looking does it want the motor industry to be?
Patel recently suggested SA should become a global manufacturing centre for electric vehicles (EVs). Davies proposed the same a few years ago, but the idea was quietly shelved. Multinationals expect buyer demand in markets where they build vehicles and South Africans have shown almost zero interest in EVs. The situation is not helped by the fact that they attract higher duties than vehicles with traditional engines.
The reality is, however, that EVs and other alternative power sources are the future, so SA will have to follow suit.
That will require new technologies, new materials and no more empty government promises about encouraging local beneficiation of new-generation automotive minerals such as vanadium, platinum and copper, which are exported raw then reimported at huge cost as processed goods.
Patel clearly recognises that however successful the SA motor industry has been until now, “same-old” replication won’t work in a rapidly changing global environment. Now all he has to do is persuade his government colleagues that the same applies to them.
SA can’t afford its motor industry – which accounts for 30% of manufacturing output, 14.5% of exports and nearly 7% of GDP – to become a victim of inactivity.
• Furlonger, editor at large of the Financial Mail, has been covering the auto industry for nearly four decades.
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