Carmakers fret about policy deviation
Changes due in 2021 may make production in SA uneconomic
● Fiddle with it at your peril! That’s the chorus from motor companies as the government ponders changes to motor industry policy after the Automotive Production and Development Programme ends in 2020.
Relief that President Cyril Ramaphosa has retained Rob Davies as trade and industry minister in his first cabinet is tempered by concerns that Davies’s department may water down a key APDP incentive that helps keep multinational motor companies in South Africa.
Talks on the next phase of policy, from 2021 to 2035, are continuing between vehicle manufacturers, components suppliers, labour and government.
Davies hopes a draft plan can be presented to the cabinet this year. Industry executives, however, say they are uncomfortable with the direction of some discussions. They worry that a duty rebate package, through which export earnings enable them to pay less (sometimes zero) duty on imported vehicles, may be diluted.
Some government planners want to rein in rebates, which have grown faster than expected. As a result, they say import-duty revenue has been lower than anticipated.
BMW South Africa CEO Tim Abbott said: “We don’t think the broad duty rebate scheme will change but some of the parameters might.”
Davies is giving nothing away, saying simply: “The new programme will have some surprises. Not everyone will like it.”
He has been in his position since 2009. He managed the changeover from the 18-yearold Motor Industry Development Programme to the APDP in 2013 and most in the industry welcome the continuity he brings.
However, Oliver Zipse, global production head at German carmaker BMW, said anything that reduced South Africa’s already limited desirability as a vehicle manufacturing base could have serious consequences.
Most motor companies in South Africa export more than half their production. In the case of Mercedes-Benz and BMW, it’s over 80%. BMW has just completed a R6.2billion investment programme to switch local production from the 3-Series sedan to the X3 SUV.
Volkswagen South Africa recently finished spending a similar amount to introduce new cars. In February, Japanese truckmaker Isuzu launched a South African company — its first wholly owned subsidiary anywhere in the world — after buying the assets of departing General Motors South Africa. Chinese company BAIC, after months
The new programme will have some surprises. Not everyone will like it Rob Davies Trade and industry minister
of procrastination, is finally building an assembly plant at the Coega industrial development zone near Port Elizabeth.
All these projects were made possible by the APDP, whose other incentives include rebates of up to 30% on production-related investments. Without the APDP, executives admit there’d be no motor industry. South Africa’s distance from global markets and the local industry’s small volumes add up to globally uncompetitive production costs.
Zipse, who is also chairman of BMW South Africa, worries about any change to duty rebates — even the “parameters”. He said: “The South African market works for us because we get export credits for cars built there and use them to import others. If you endanger that, there is no reason we should have a plant in South Africa.”
It’s a view shared by VWSA MD Thomas Schäfer, who said recently: “South Africa is not a logical or viable production location, so we need a stable and attractive automotive policy.”
The domestic market alone doesn’t justify investment. New-vehicle sales figures published this week show that for the first quarter of 2018, numbers were down by more than 4% on the same period in 2017. A slight rebound in March was mainly the result of pre-emptive buying before the April 1 increases in VAT, vehicle emissions tax and ad valorem import duties. WesBank CEO Chris de Kock reckons the full-year market will be lucky to grow by 1% from last year’s 547 547. Most of those vehicles were imported.
Automotive policy encourages companies to concentrate on local manufacture of highvolume models, then import the rest. Toyota South Africa, for example, builds the Hilux, Fortuner and Corolla, but imports popular models like the Etios, Yaris and Avanza.
That’s why exports are responsible for a growing share of local vehicle production. Last year, 56% of cars and commercial vehicles built in South Africa were shipped to other countries. Exports in the first quarter of 2018 were down 2.2%, mainly because of lost BMW production during the product changeover, but Abbott said the shortfall would be made up in coming months.
Zipse is also twitchy about possible post2020 policy requiring manufacturers to increase the use of locally sourced components. Davies talks of a 60% local content target, which, even allowing for different ways of measuring, is twice the level achieved by some manufacturers.
Davies wants more black participation in the industry and, having seen global motor companies rebuff his demand that they sell a stake in their South African subsidiaries to black partners, he accepted their counterproposal for a venture capital fund to develop black-owned suppliers and dealers. As it stands, the plan is for companies to pay in R3.5-billion in total, then keep topping it up — expected to cost about R1-billion annually.
Michael Sacke, CEO of Isuzu Motors South Africa, said: “We all recognise we need to develop black suppliers and dealers. All of us have individual programmes to do so but it also makes sense to combine our resources.”
But 60%? At least three of the seven major manufacturers will struggle to get close. Zipse recently said BMW’s expanded annual capacity of 76 000 was as big as it can get. “Local content is about economies of scale. This is a small market. Whatever you do to push manufacturers into localisation will have the opposite effect and force them to leave.”
The good news is that Davies has a history of pragmatism. He’s desperate to achieve his goals, but doesn’t want to endanger an industry which, on his watch, has grown to support more than 800 000 jobs across the economy. “We want to remove obstacles to investment, not impose them. Any target numbers will be set in a way that is achievable. We will not be unrealistic. We will progressively build on what we already have.”