Local vehicle suppliers to benefit from transformation initiatives
PLANS by vehicle assemblers to establish transformation-linked capital funds would create significant opportunities in the local supply chain, provided they were optimally structured and implemented, according to the National Association of Automotive Component and Allied Manufacturers (Naacam).
Naacam executive director Renai Moothilal, however, stressed the importance of large multinational component manufacturers having the option of using similar structures.
Moothilal’s comments relate plans by South Africa’s major automotive original equipment manufacturers (OEMs) to launch a venture capital fund this year, which would receive R1.75 billion a year from these OEMs, to support black-owned start-up businesses.
He said that while discussion took place between the government and vehicle assemblers, Naacam had in the interim created a facilitation mechanism to match black investors and fund managers with opportunities that arose for transformation-linked business opportunities within the existing supplier base.
He said there was also best practice guidance and recommendations for suppliers looking to embark on transformation activities and potential ownership transactions. This was in addition to the support offered to Naacam members to aid black supplier development through various initiatives, he said.
“Implementing activities linked to transformation needs has seen some Naacam companies increase their spend in this space up to 10 times in response to changes brought about by the amended generic codes of good practice that began in 2015,” he said.
Moothilal said that there was a real opportunity in the automotive sector to use measures that increased localisation rates of domestically assembled vehicles to unlock the business opportunities for domestic component production and black supplier development.
“This in some way will solve many of the practical challenges currently faced by smaller, locally owned manufacturers trying to make headway in a global value chain,” he said.
Moothilal added that transformation ultimately need not be a trade-off or a grudge decision.
“It should be built into a strategy for growth and success for building vehicles and components in South Africa.
“It includes developing a broad-based, empowered, skilled and technologically capacitated domestic cache of manufacturing business, who create much needed employment, he said.
Moothilal said well-structured transformation plans would also ensure the automotive sector did its bit to grow the local economy “an opportunity at a time”.
He stressed that meaningful transformation was far more significant and powerful than an organisation ticking off compliance check boxes to avoid penalties and secure contracts.
Moothilal said transformation was important to ensure longterm stability in the sector and its associated level of support by ensuring the greater South African population had an economic investment in having automotive products manufactured in South Africa.
However, Moothilal admitted the automotive sector faced many challenges in immediately implementing elements of transformation legislation, because the vehicle assemblers and most of their direct suppliers were multinationals.
“Similarly, the high turnover and contract values in the sector make finding the right equity equivalent and preferential procurement partners difficult. Yet these are issues to be solved, through planning and in partnership with our stakeholders,” he said.