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

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

The Star Early Edition - - NATION - 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.


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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