Automotive component manufacturers in South Africa have pledged to invest R4.86 billion into the domestic economy between now and December 2024.
National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Renai Moothilal said on Thursday this investment represented the response from 16 exhibitors at the Naacam Show 2023, to a call to report on their committed or planned investments.
This announcement coincided with Deputy Finance Minister David Masondo announcing that Finance Minister Enoch Godongwana will provide details on the fiscal support to the industry in October and automotive business council Naamsa releasing an African Growth and Opportunity Act (Agoa) research report.
Vote of confidence
Trade and Industry and Competition Minister Ebrahim Patel said the investment pledges are a strong vote of confidence in the country.
Patel said the importance of component manufacturing has been underplayed, with the attention often on the large assembly original equipment manufacturers (OEMs).
He paid tribute to the component manufacturers “whose performance and contribution to the economy is one of the most fundamental arguments for the incentives that South Africa offers the auto industry”.
“Strip away the component manufacturers, and the economic argument for the APDP [Automotive Production and Development Programme] is weaker and poorer.
“The component manufacturing capability of a country is an important indication of the industrial depth of a domestic auto sector, and it draws in workers on a large scale, enabling local manufacturers to have opportunities to participate in this great enterprise that constitutes the making of the modern car,” he said.
Mikel Mabasa, the CEO of Naamsa, also welcomed the pledges, particularly when many automakers are looking at creating new opportunities, not only in South Africa but globally, and also at expanding their component manufacturing landscape.
“This is fantastic news for us because it also reaffirms that many of these companies are looking at continuing their presence in South Africa.
“We also know that among the 16, there are local component manufacturers that are emerging black-owned,” he said.
New energy vehicles
Mabasa said the investment is very significant for the automotive industry because it is moving towards producing new energy vehicles (NEVs).
“We believe that many of these component manufacturers are looking at introducing newer technologies and innovating ahead of the curve to be able to respond to the needs of OEMs in relation to the production of NEVs in the country,” he said.
Mabasa said the investments will also facilitate an improvement in the local content of vehicles manufactured in South Africa.
“We want to increase our current threshold of local content, which is currently sitting at around the 39% to 40% range, to about 60% in line with our masterplan commitments,” he said.
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Masondo said the ambition of the automotive industry to reach 60% localisation rates by 2035, under the SA Automotive Masterplan 2035, is crucial to realising the economic benefits the government expects from the support it gives the automotive sector.
He said the automotive industry is a valued part of South Africa’s domestic economy, but there are increasing questions on whether its full value is being unlocked.
“The only way to justify the government’s fiscal support to the sector is through greater localisation and more component production opportunities,” he said.
Masondo said the transition to NEVs cannot only be about vehicle assembly and support; localisation gains must also be demonstrated.
He said the government would like to see targeted investment into specific components for NEVs, especially in the battery and other high-value power electronics systems.
NEV hub
South Africa and the African regional base can effectively serve as the hub for NEV vehicle grade materials and components beneficiation, but this requires OEMs to commit to the necessary investments across the supply chain, he said.
Masonda added that achieving the 60% localisation level is important to turn the tide against the deindustrialisation seen in South Africa in the last two decades.
“From a high of around 22% of GDP in the late 1980s to the early 1990s, manufacturing now contributes around 12% of GDP.
“During this period of deindustrialisation, however, the automotive industry has been a consistent area of growth and innovation, thanks to the well-designed package of incentives and a supportive policy environment,” he said.
Artificial intelligence
Masondo said as South Africa looks towards the future, embracing electric vehicles is not just a choice but an imperative for the planet’s sustainability and the nation’s prosperity.
But Masondo said South Africa faces systemic transformations caused by decarbonisation and artificial intelligence.
Masondo said the automotive sector will not only be affected by these economic systemic changes but also by the environmental, labour, and social issues they cause.
“The technical change in the labour process driven by artificial intelligence requires fewer blue-collar workers.
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“Around 67% of South African component exports will be lost in the transition from ICE [internal combustion engine] vehicles to EVs [electric vehicles].
“This simply means that the transition will entail a fundamental restructuring of the labour market.
“New employment opportunities will have to be created for those who will inevitably lose out,” he said.
Exports
Masondo said whatever the proposals announced in October on a new set of incentives to spur the production of NEVs are, it should be borne in mind that this comes at a time when the fiscus is particularly stretched, making it difficult to put resources towards every priority.
He said the measures to support the growth of NEVs should aim to complement the extensive policy support the government has already provided in previous decades through preferential market partnerships such as Agoa, the EU-SA Economic Partnership Agreement and the APDP.
Naamsa’s Agoa research report said that in 2022, the US comprised the domestic automotive industry’s second-largest export destination, sixth-largest country of origin and second-largest trading partner.
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Total automotive exports to the US amounted to R24.1 billion, and total automotive imports from the US amounted to R18.3 billion in 2022, it said.
However, the report stressed the benefits stemming from Agoa for South Africa are much broader than the mere duty and quota-free access to the US.
Agoa also stimulates opportunities for a chain of collaborative arrangements with manufacturing companies from sub-Saharan African countries to access the US duty-free, it said.
“Agoa has created in the order of 85 000 direct jobs and 426 000 indirect jobs in South Africa.
“Given the extension of South Africa’s value chains throughout the region and its positive impact on other economies on the continent via enhanced intra-Africa trade and regional integration, it remains imperative for the continent’s most advanced and regionally integrated economy to remain eligible in an extended Agoa,” it said.
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