Car sector outshines others
AS South Africa’s economy languishes near a recession there is one major success story: the car industry. While mining companies such as Anglo American Platinum and Lonmin are among businesses cutting jobs and output in Africa’s most-industrialised economy, two of the world’s biggest automobile makers have announced investment of more than R10.5 billion in the past four months.
Companies including BMW, Volkswagen and Ford Motor are taking advantage of the automotive development programme, which gives benefits and incentives to manufacturers.
South Africa’s seven biggest vehicle producers have invested at least R24bn in their plants in the past five years, helping to boost domestic output by about 30 percent, even after two consecutive years of strike-related stoppages and as local sales of new vehicles decline. Exports have climbed 44 percent in the same period.
The automotive industry “is one of the few examples we have of how industrial policy can really be an advantage to the country,” Citigroup economist Gina Schoeman said.
While the incentive programme ends in 2020, the government said this month it might extend the support and would lower the qualifying production threshold.
The continuation of the programme would be vital to the industry’s growth, Nissan Motor local managing director Mike Whitfield said.
“If we didn’t have an automotive policy it’s highly unlikely we’d build cars here,” he said. “The numbers won’t work.”
Further investment
As a result of the government programme, German carmaker BMW has chosen its South African plant as the first outside the US to produce the X3 luxury sports utility vehicle and will spend more than R6bn to switch from the 3-Series.
That follows Volkswagen’s announcement that it would invest more than R4.5bn to build new vehicle models, increase capacity and improve how it gets components and other materials to its factories. Nissan is also planning to build a new model from 2018 and double output from its plant at Rosslyn, near Pretoria.
The government’s decision to ease the qualification criteria for incentives will probably lead to further investment, according to National Association of Automobile Manufacturers of SA (Naamsa) director Nico Vermeulen.
“A number of companies are evaluating strategic opportunities and looking at setting up plant and capacity,” he said on Tuesday.
“It will enable smaller manufacturers to consider investing and becoming producers in South Africa.”
Challenges facing the auto makers include a potential repeat of plant stoppages in both 2013 and last year. The first was as a result of strikes at their own operations, and then at component suppliers the next year. The next round of wage negotiations is scheduled to start next year. Meanwhile, the broader economy shrank in the three months through June because of power shortages and a fall in commodity prices. New vehicle sales fell 8.6 percent last month from a year earlier.
Export growth
Even so, domestic automotive production is forecast to increase almost 10 percent to 622 000 vehicles this year, Naamsa said this month. The growth is being driven by exports: 55 percent of the cars produced in South Africa last year were transported to other countries, according to Naamsa, which predicts the percentage of exports will rise to 68 percent this year.
Vehicles and accessories made up 11.3 percent of South Africa’s total exports in the first nine months of the year, up from 9.9 percent in 2010.
Exports from South Africa are also supported by a 19 percent decline in the rand against the dollar this year, the secondworst performer of the 16 major currencies that are tracked by Bloomberg.
The government’s decision to extend the carmaker’s incentive program was extremely encouraging, BMW South Africa managing director Tim Abbott said in an interview.
“That gave us the confidence to say yes,” he said.
“We’ve been here 42 years, we don’t see that changing at all.” – Bloomberg