The Star Early Edition

SA can drive vehicle manufactur­ing industry in Africa, says Alec Erwin

Continent has all the ingredient­s to take a meaningful step towards its industrial­isation

- ALEC ERWIN Alec Erwin is a director of Ubu Investment Holdings and member of the Naacam Show stakeholde­r reference group.

THE MANUFACTUR­E of vehicles is one of the most advanced forms of manufactur­ing within the global economy.

There are many structural features of the automotive manufactur­ing process that cause it to locate in relatively few economies. These same structural features also mean that there is a high level of trade between producer countries in both built-up vehicles and componentr­y.

The South African automotive sector only really entered the global value chain after the motor industry developmen­t plan in 1995.

However, it has made good progress and now exports about half of the vehicles produced. As a deliberate objective, the range of models produced reduced and the wide variety of vehicles available is achieved through imports.

However, unlike the pre-1995 era there is a reasonable degree of balance between the imports and exports. Such balance of payments stability is the usual macro-economic objective of automotive policy programmes.

For South Africa to deepen its local content capacity we need to produce more vehicles. This objective presents South Africa with a strategic possibilit­y that will benefit it and other industrial­ising economies in Africa. The level of vehicle production in Africa is low compared to existing demand.

For instance, sub-Saharan Africa consumed about 1.6 million vehicles in 2016. Of the total vehicle demand, 791 000 units were new vehicle sales and 838 000 pre-owned imports.

Contrastin­g demand to supply, only 664 000 vehicles were produced in sub-Saharan Africa in 2016 (of which the majority, 547 000 units, were produced here).

The current vehicle fleet in most of Africa is suboptimal. The vast majority are second-hand, and vehicle standards and homologati­on have little impact on the quality of the vehicle fleet. The balance of payments effect is adverse and safety, fuel efficiency and emissions levels are all suboptimal.

However, the advanced nature of auto manufactur­e also requires advanced infrastruc­ture. Many African economies don’t have such infrastruc­ture. However, this is not a show-stopper as the structural features of the auto industry allow a progressio­n of different forms of assembly over time, allowing careful planning to provide the necessary infrastruc­ture in phases.

Auto manufactur­e occurs in economies where specific policy programmes have been developed. This is, therefore, an opportunit­y for South Africa to work with African partner economies to develop an efficient African manufactur­ing and intra-sectoral trading system. The best way of understand­ing this is to put the counter factual propositio­n.

If South Africa were to see the rest of Africa only as a buyer of the country’s vehicles – the prospect of a Continenta­l Free Trade Agreement suggests that this might be an enticing prospect – it would be making a costly strategic mistake.

In the first place, we would be competing with much larger exporting countries across the world, which are unlikely to let us dominate such a market. But, more fundamenta­lly, this is not a sustainabl­e situation for the larger African economies.

For Africa’s larger industrial­ising economies, the absence of auto manufactur­ing means all vehicle needs would have to be imported. This has two fundamenta­lly adverse effects.

The first is that it destabilis­es the balance of payments and, secondly, they lose the key industrial­isation advantages that the auto sector provides. In fact, they would be attempting to grow with an inefficien­t transport sector.

It is by no means a coincidenc­e that the global auto industry’s developmen­t is characteri­sed by various forms of partnershi­p arrangemen­t between producer countries.

As pointed out at the beginning of this discussion, there are structural features of the auto-manufactur­ing process – related in the main to economies of scale – that are conducive to a global manufactur­ing system characteri­sed by high levels of intrasecto­ral trade.

In Africa at present there is a favourable conjunctio­n of events that need to be seized as a strategic opportunit­y.

Firstly, economies such as Nigeria, Ghana, Kenya and Ethiopia are seeking to implement auto programmes.

Secondly, South Africa, working with its global OEM (original equipment manufactur­er) partners are firmly of the view that an African auto partnershi­p of some form is in the best interests of the African economies. Auto policies are complex and multifacet­ed industrial policies and need great attention to detail and an accommodat­ion to the structural realities of this global industry. However, the ingredient­s are there for Africa to take a very meaningful step towards its industrial­isation.

 ?? Supplied ?? IF SOUTH Africa were to see the rest of Africa only as a buyer of the country’s vehicles – the prospect of a Continenta­l Free Trade Agreement suggests that this might be an enticing prospect – it would be making a costly strategic mistake, suggests this writer. I
Supplied IF SOUTH Africa were to see the rest of Africa only as a buyer of the country’s vehicles – the prospect of a Continenta­l Free Trade Agreement suggests that this might be an enticing prospect – it would be making a costly strategic mistake, suggests this writer. I
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