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The vehicle manufacturing sector is the star of the South African economy and makes up 60% of the country’s exports of manufactured goods.
Business Leadership South Africa CEO Busisiwe Mavuso. Picture: Gallo Images/Sunday Times/Masi Losi
Government must act now to absorb the impact of US president Donald Trump’s tariffs on South Africa’s vehicle manufacturing sector by focusing on the rest of Africa and ensuring that the African Continental Free Trade Agreement is fully implemented for vehicles.
Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), points out in her weekly newsletter that the US is the fastest-growing region for South Africa’s vehicle exports and that the tariffs of the Trump administration will have a significant impact on particular models exported to the US.
“If we want to forestall the impact of tariffs on our industrial base, we must act by trying to engage US leaders to shift course. We must also reassess the South African Automotive Industry Masterplan tabled in 2018.”
She says South Africa’s automotive industry is the industrial backbone of its economy and is responsible for 60% of its manufactured goods exports, as well as the single largest domestic manufacturing sector.
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“The automotive industry faced challenges even before the Trump administration’s tariff policies, with increased competition from imports and weak domestic demand, but the tariffs are a further blow.
“Vehicle exports to the US benefited from the African Growth and Opportunity Act (AGOA), which allowed duty-free access to the US market. Now the sector is facing a 25% tariff on foreign-made vehicles and components, as well as the 30% tariff on South African imports that was suspended for 90 days.”
The US was the destination of 6.5% of vehicles exported from South Africa last year, which was 22% higher than the previous year, making the US the fastest-growing region for South African vehicle exports.
Mavuso warns that the tariffs will have a significant impact on particular models exported to the US and deal a major blow to the factories and towns where they are produced, with ripple effects throughout the value chains that are linked to them.
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Although South Africa is in the same position as many other countries facing US tariffs, it’s time to act if we want to mitigate the impact on our industrial base, she says.
“The first step is to engage with US leaders to shift course. US foreign policy, through Agoa, has long reflected an understanding of the strategic importance of growing Africa’s economies and building them as source markets for US consumers.
“South African vehicles are only 0.1% of those sold in the US, but it helps to diversify exposure to Chinese manufacturing, which is an increasingly important priority for the US government. In addition, by ensuring the US is an important market for South Africa’s products, the US ensures it is a strategic priority for the SA government.
“If the US were closed to our goods, South Africa’s wider geopolitical interests would shift to other strategic relationships to the cost of US influence. The Trump administration has said it wants to negotiate. We must take it up and aim to clear trade barriers for the benefit of both our economies.”
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Mavuso says the second step will be to reassess the South African Automotive Industry Masterplan that provides a roadmap to 2035 for the industry and focuses on building African markets as well as diversifying into electric vehicles.
“It is time to revisit the plan to assess how it can cope with the US tariff shock and ensure it is geared for the world we now find ourselves in.
“The plan has ambitious targets, including growing the industry by 60%, increasing local content and significantly increasing employment. These are fine targets, but the world for which the plan was set up has changed.
“It is now more important than ever, for example, to focus on the rest of Africa. To do so, we must ensure the African Continental Free Trade Agreement is fully implemented for vehicles. The continent buys 1.3-million new vehicles per year, a figure which will grow significantly.”
She emphasises that South Africa’s manufacturing must focus on brands and vehicle types that are suited for the continent, which has much to gain from lower-cost mobility solutions.
“We must ensure supply chains adapt for these outputs and that our skilling system delivers people with the right skills.
“The plan already envisages South Africa as a manufacturing hub for the continent but such long-term plans must be dynamic and adapt to the changing environment.”
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In addition to the US tariffs, Mavuso points out that Europe’s Carbon Border Adjustment Mechanism poses a further challenge for vehicles manufactured in South Africa, despite already being the biggest market for our vehicle exports.
However, she says, the EU must also deal with American trade shocks that could provide new opportunities for local exports, while the markets in the rest of the world will also be looking to forge new deals.
“Business clearly recognises the importance of the vehicle manufacturing sector. It has critical spillover effects into the rest of the economy, supporting industrial capacity that enables many other producers.
“It is a major employer and export revenue earner. It is, within a general theme of deindustrialisation over the last three decades, the one exception. It is also a fine example of how business and government can work together to develop industry.”
Mavuso says the first Motor Industry Development Plan, launched in 1995, transformed the vehicle manufacturing industry from a domestic producer to an export-oriented manufacturing powerhouse.
She says it stands out as an example of how export-oriented industrial policy can work.
“Industrial policy has certainly not always followed the example, often becoming distracted by import substitution, a sure way to harm international competitiveness.
“The master plan must adjust to the strange new world we find ourselves in, where the world’s former champion of free trade and globalisation has become its biggest challenger.”
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