SA Auto Week: Import subsidies out, localisation in

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JIMMY MOYAHA: This week the City of Durban was the host of the annual SA Auto Week, with the Automotive Business Council of SA, alongside the Department of Trade, Industry and Competition [dtic] hosting SA Auto Week in KwaZulu-Natal.

We are going to take a closer look at this with our resident automotive expert. Industry specialist Edward Makwana joins me on the line now to see what we make of this.

Edward, always lovely having you on the show, thanks so much for taking the time. Let us start perhaps with a sense of what was happening this week, what was in focus, what was under discussion.

Going into this week, I can imagine a lot was riding on this particular gathering as we continue to look to execute on our Automotive Masterplan objectives of 2035. What was the sense of the mood around this week?

EDWARD MAKWANA: Jimmy, thank you so much for having me and a good evening to the SAfm Market Update listeners.

Yes indeed, this year’s auto week came at a particular time for the industry. I think we’ve been seeing mounting pressure from global competition, we’ve been seeing changing technologies, we’ve been seeing the need to accelerate transformation.

I started attending the session on Monday – or I attended only on Monday, which was called Transformation Day.

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The message was clear that, while progress has been made indeed, we’re still some distance from achieving the ambitions of the Automotive Masterplan of 2035.

If you look at today’s announcement as well from the dtic minister, Minister Parks Tau, on phasing out support for semi-knocked down assembly, it’s perhaps one of the clearest signals that government wants to prioritise genuine local manufacturing.

So it looks like it’s really been a conference of implementation, because I think we all are used to conferences being shops, but this one I think has been impactful and really gravitating towards implementation of policy commitments.

JIMMY MOYAHA: Edward, I want to take a closer look at that announcement today. The minister as you allude, was looking to re-emphasise what our automotive sector has been saying around localisation.

We’ve heard comments from the likes of Toyota, the likes of Isuzu, the likes of BMW – all OEMs [original equipment manufacturers] and automotive participants – even from a worker’s perspective – around the importance of localisation, this being a significant step.

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It might not be the biggest of steps that could have been taken, but a significant step nonetheless on the ever-changing battle between import subsidies that are now looking to be phased out and the phasing in of localisation.

Where does this fit into – if you just refresh our memories – to that Automotive Masterplan? You and I spoke about it a couple of months ago, but where does this kind of shift position us if we’re looking ahead to that 2035 deadline?

EDWARD MAKWANA: Well, the keyword I think is more around localisation. As you remember, the target for the automotive masterplan of 2035 is that there should be 60% of local content going into vehicles that are produced locally.

However we currently sit at 38%, which is almost 50%. So it’s important, in order for the industry to reach that level, that drastic decisions or steps need to be taken.

If you remember, I think with the whole SKD [semi-knocked down] operations aspect, it was if you operate on a semi-knocked down operation you would basically get financial grants.

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Or it was like the incentive framework. You’d get reduced import duties, and you’d get tax allowances if you were an SKD-producing company and so forth.

I think it’s an important policy signal, and I think what I’m seeing here is really government wants to encourage much deeper manufacturing, rather than simply importing vehicle kits.

So I think localisation is really talking a lot to the localisation aspect here, and it’s not simply putting a South African label on a component, but it’s about building businesses that can manufacture competitively and, indeed most importantly, meet international standards and secure sustainable contracts with vehicle manufacturers that are producing vehicles in South Africa.

JIMMY MOYAHA: Edward, before I let you go, I want to take a look at that ‘meaningful contract’ aspect of it, particularly when we look at investment.

South Africa’s automotive industry is the best on the African continent, and has historically been one of the strongest from a manufacturing perspective if we look at it globally as well.

If we’re looking to continue to bolster that industry or even re-energise it from where it currently sits, I want to take a look at the importance and the commitments perhaps that we’ve had from some of the OEMs around investing into the local space.

You and I touched on the Nissan factory that was recently taken over by the Chery Group – and that is just one example of deepening manufacturing conversations.  The Volkswagen Group is celebrating 75 years in South Africa.

What other commitments and takeaways did we get from an OEM perspective around this week?

EDWARD MAKWANA: Well I think just generally a sense of commitment, because if you also look at other elements, a lot of these OEMs are sitting down with their management boards at headquarters, trying to decide on the future of their manufacturing plants.

You talk about 75 years of VW. I think President Cyril Ramaphosa was at the announcement of the Tiggo model – which is going to be their third model that’s going to be produced at plant Gqeberha. You have the likes of Isuzu, who have just announced their new investment into the commercial vehicle line.

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There are a number of them that are also behind the scenes really discussing beyond 2027, because usually these decisions are taken with a long-term view of, come 2035 we still produce the vehicles that we’re producing here at the cost that we need to – and so forth.

So ultimately I think we should be proud that South Africa has an established automotive manufacturing base, a skilled workforce – which is something that also came across quite deeply.

Skills development and transformation, I think most importantly, are key – and access to important international markets.

But we can’t take that position for granted – of a really good track record of manufacturers in South Africa.

But the next phase really must be about implementation, strengthening local suppliers, attracting investment, which is what I’m talking about now – about the decisions of headquarters, decisions about the future, of which vehicles are going to be produced locally – and really, most importantly, preparing for new technologies.

That’s how we protect existing jobs while we create new opportunities for the future. That is really the gist of messages from manufacturers at the conference.

JIMMY MOYAHA: A focus on localisation, a focus on deepening the South African automotive sector from an investment perspective. SA Auto Week is wrapping up this week, wrapping up tomorrow in fact, in the KwaZulu-Natal province in Durban.

We’ll leave the conversation on that note. Automotive industry specialist Edward Makwana joined us to reflect on this year’s SA Auto Week.

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