A lot can change in a century. And indeed, the world was a much different place in 1924 to what it is now.
In the case of Gqeberha, from 1924 these changes changed the role of the port city as just a transit point for goods from the interior (as to some degree it still remains for wool, citrus, manganese and so on) but also into a node for the forging and fabrication of steel, rubber and polymers into components for the nearby assembly of cars.
While the growth in component manufacturing occurred much later, it was the decision of the Ford Motor Company to set roots in that city that would change the city itself. General Motors soon followed, and after World War 2, Volkswagen set up in nearby Uitenhage (now Kariega).
A little less than 10,000km east, in Australia about the same time, the car sector was setting up shop as well. The instruments to develop it were relatively similar, yet the demise over the past three decades of the sector in that country has some lessons for us.
The oft-made comparison between SA and the Australian car sector is an apt one. Assembly began in Australia at about the same time as SA, with similarly “protective” state assistance, guaranteeing in the first instance a favourable local share of new vehicles bought for domestic assemblers. In Australia, deep tariff cuts, an ambiguous model consolidation programme, a disavowal of strategic protection by legislators and unclear performance expectations of companies receiving public offsets and subsidies led to the ultimate demise of the industry Down Under.
It may be worth considering some data shared by local industry body Naamsa at a recent oversight meeting, to provide a picture of the contemporary relevance of the auto-industrial sector to the SA production structure. From 1995, after the introduction of the new auto-industrial incentive schemes, and its successor schemes, some notable changes have occurred in the production and consumption end of the market.
Limited fluctuations
The share of car exports in the broader export basket grew from 4.1% in 1995 to 14.7% in 2023, while employment in supporting component activities grew from 65,500 to 82,560. Registered vehicles grew from 6-million to 13.1-million as vehicle ownership became a characteristic mark of consumption for a new black middle class.
Yet the world has also advanced; our share of global production has declined as new producing and exporting nodes emerged in Asia primarily. And so too in Africa has the share of SA production declined from 85% to 54.1% as new production and assembly centres have emerged in north, west and east Africa.
These changes have been enabled by an auto-industrial strategy that, as in the recently published Industrial Policy and Strategy Review, has limited “fluctuations in regulatory frameworks that can disrupt investment and undermine long-term planning”. These regulatory frameworks resting on investment incentives, customs duty offsets, incentivisation for local material use and deepening of domestic supply chains, have allowed the industry to navigate the at times turbulent shifts in global supply chains.
SA is faced with similar choices to those that confronted Australian legislators. Do you retain at considerable foregone tax revenue, offsets and other forms of support to assembly and component manufacturing activities in an unfolding subsidy race abroad, even during the prospect of the allure of commodity windfalls making your exports uncompetitive? Or allow grey imports?
These are not academic choices, but rather stand counterpoised to the gradual evolution of our auto-industrial policy that has yielded particular export, investment and production outcomes.
While I do not make the case for taxpayer-funded largesse or “corporate welfare”, it is rather towards “sharpening” the design of existing policy instruments to enable growing investment, production, employment and exports in the car and associated sectors that the focus may best be placed towards, rather than, a century later, the options and experiences we would care to avoid.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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