Some 'courageous' decisions will need to be made for South Africa's automotive industry to 'flourish' and leverage the opportunities in Africa. Image: Waldo Swiegers/Bloomberg
South Africa is seeing the first signs of the deindustrialisation of its automotive industry, warns Toyota South Africa Motors (TSAM) president and CEO Andrew Kirby.
“Simply, the number of imported vehicles into South Africa is increasing as a percentage, and the average local content from the seven OEMs [original equipment manufacturers] is declining.
“That is a definition of deindustrialisation. We know [the industry] will go through cycles, and these are early signs, but this is something we need to take very seriously,” he said on Tuesday at a seminar hosted by the National Association of Automotive Component and Allied Manufacturers (Naacam) and the Toyota Wessels Institute for Manufacturing Studies (TWIMS).
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Speaking on the sidelines of the seminar, Kirby said this deindustrialisation essentially means that South Africa’s automotive sector is going backwards in terms of the objectives of the South Africa Automotive Masterplan (SAAM) because it does not have the environment where it is building any of the six pillars of the masterplan, particularly the first pillar of South African market optimisation.
Kirby said that while South Africa’s automotive industry has the Automotive Production and Development Programme II (APDP II), also referred to as the SAAM, it does not have any specific activities to support local market optimisation.
“In fact, the South African market is very, very soft. We haven’t really had a breakthrough on the continent and, with local content also dropping, it means the other [APDP] pillars will suffer – the value that we bring to the economy overall and, of course, skill[s] development – so it is a big concern.
“It’s not something that can’t be changed but it’s just that we shouldn’t wait until we are in ICU [intensive care] until we make the changes.
“We can see what’s coming, let’s address it now and have the foresight and the willpower and the courage to do the changes and modifications to it,” he said.
Kirby added that there is nothing wrong with APDP II but it needs other elements, such as what they had seen from the Thailand example.
He stressed that a lot has changed since the policy was developed in 2018, and while the consistency of the policy is important, there is a need to add to it as Thailand has done with its automotive policy.
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Masterplan objectives
The objectives are to:
Kirby said OEMs have not yet met with new Minister of Trade, Industry and Competition Parks Tau and his team, but is hopeful this will happen soon. He said the deindustrialisation of the sector will be high on the agenda.
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However, Kirby said ad valorem tax on vehicles “is a big problem and probably No 1” on the agenda.
“It really is an archaic system. It hasn’t been changed since 1995, and basically, what it does is it taxes an entry-level vehicle and a high-priced premium product as it would have been in 1995.
“It’s making vehicles a lot less affordable, and it’s not helping to create access to mobility.
“It is something that very simply needs to be addressed, updated and fixed, which will go a long way to helping create the scale and growing the market in South Africa,” he said.
Automotive business council Naamsa, the representative body of South Africa’s OEMs, was preparing to approach the government in 2020 with a request to reduce the taxes on new vehicles as part of an initiative to stimulate local demand for vehicles in the country.
Naamsa CEO Mikel Mabasa said at the time that the tax on new vehicles in South Africa is too high relative to other countries and highlighted that the tax charged on premium vehicles in South Africa, for example, is about 42%, taking into account all the different taxes.
This tax basket includes the 15% Vat, import duties, ad valorem tax, the tyre levy, the CO2 emissions levy and the export levy.
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‘Bold in thinking, conservative in approach’
Kirby said on Tuesday that SA is bold in its thinking, but when it comes to actual policy, tends to take a very defensive, conservative approach rather than a long-term visionary approach.
Naacam CEO and executive director Renai Moothilal said Kirby “hit the nail on the head” when talking about the supplier base and deindustrialisation.
Moothilal referred to the smart linkages in Thailand between the domestic market incentivisation and production and subsidies.
“If you are going to be producing … and commit to localisation of these parts, then you get the subsidy. That on its own leads to greater volumes to be produced,” he said.
Moothilal said the APDP to date has been fantastic in maintaining a base of production and keeping South Africa relevant in terms of being a producer of vehicles.
However, Moothilal believes the time has come to start thinking about what South Africa’s key drivers of localisation are, and what that means for an OEM production discussion.
“We need to start thinking about how do you use that domestic market in a way that benefits those that have invested into the country and those that have committed to levels of procurement to make that domestic market more attractive and then build on that and the regional context,” he said.
Moothilal said the reality is that the South African supplier base is ready to respond to whatever decision vehicle OEMs make regarding new technologies.
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The seminar was focused on the lessons for South Africa’s automotive industry from Thailand’s recent automotive value chain developments and navigating the transition to new energy vehicles (NEVs) while maintaining its position in light commercial vehicle production.
Professor Kriengkrai Techakanont, an associate professor at the Faculty of Economics at Thammasat University in Bangkok highlighted the visionary approach taken by the Thai government in developing its automotive policy.
He said Thailand had no background in manufacturing and tried to do it themselves, but failed – but the government realised this limitation, had a plan, and decided that if the country could not manufacture the product itself, it would ask others to come into the country, manufacture it, and support them.
Thailand’s automotive industry experienced substantial growth over the last two decades. From being similarly sized to South Africa’s automotive market, it now produces three times more vehicles and has substantially deepened its value addition.
Thailand’s automotive manufacturing value chain consequently employs more than 400 000 people.
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Professor Justin Barnes, manufacturing ambassador of TWIMS and an associate editor at the Gordon Institute of Business Science, said the challenge facing SA’s automotive industry is that the market penetration by imports of the passenger vehicle market must be 80%, which “is ridiculously high”.
Barnes said the pie does not get bigger; the slices only get thinner if NEVs are included.
“Then you have got a local production base that is essentially trying to operate off crumbs,” he said.
Barnes added that a country does not develop its own industry by copying others because every industry has its own dynamics, but indicated what interests him is the process that leads to bolder policy decisions.
Kirby said for South Africa to move from this period of deindustrialisation to a period where the automotive industry can flourish and leverage the opportunities on the African continent, some courageous decisions will need to be made.
Barnes said Thailand is a much more protected market than South Africa. It has an 80% duty on passenger vehicle imports and a 40% duty on light commercial vehicle imports, and he believes the duty on imported components is 30%.
This article was republished from Moneyweb. Read the original here.
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