South African industrial policy should distinguish between companies that invest in the country’s productive capacity and those that simply trade within the market, says Esther Buthelezi, director of government affairs and transformation at Ford Southern Africa.
More than three decades of building a globally competitive automotive industry risk being undermined by allowing easy market access to “subsidised” imports, she says.
The government is reviewing the automotive production & development programme (APDP) and South African automotive masterplan, under which it operates. Their aims include doubling industry-wide vehicle production and employment, increasing local content in South Africa-made vehicles by 50% and creating more black-owned automotive enterprises.
It is now widely accepted that these goals will not be achieved by the 2035 target date. Some measurements have actually regressed. One reason, say industry executives, is that low-cost imports are taking sales from established local manufacturers, causing production to shrink and thousands of jobs to be lost among vehicle and components producers.
The government has hinted that it may increase duties on imported vehicles if there is clear evidence of unfair competition. Hints, though, aren’t sufficient. What’s needed is firm policy action.
Companies that establish factories, develop suppliers, transfer skills and create jobs contribute far more to the economy than businesses that import products with minimal local investment, says Buthelezi.
Ford has invested billions in its Silverton assembly plant and Struandale engine plant. It spent more than R16bn to bring the latest Ford Ranger bakkie to South Africa. These investments support extensive supplier networks and thousands of jobs.
“Yet manufacturers increasingly compete with importers that can bring subsidised vehicles into the country without making comparable commitments to local industrial development,” says Buthelezi.
Some Chinese companies, like BAIC and Chery, have begun to invest in local assembly, but while some other Asian companies have indicated they may follow suit, she says that “protecting and expanding the [existing] industrial base should take precedence over investment promises that have yet to materialise”.
Among many issues required to bring the APDP and masterplan in line with changed circumstances, the government is under pressure to update the ad valorem tax, which is based on tax brackets from more than 30 years ago. Any new car costing over R200,000 (only a handful qualify) is deemed a luxury item and penalised accordingly. As prices rise, so do taxes — exponentially.
Buthelezi says: “Outdated tax structures can become barriers to growth. The current ad valorem tax was designed for a different era and increasingly penalises technological advances by treating modern safety and environmental features as luxury items.
“As manufacturers introduce cleaner, safer and more sophisticated vehicles, production costs inevitably rise. The ad valorem tax compounds those costs, placing new vehicles beyond the reach of many South Africans. The result is weaker domestic demand, smaller production volumes and reduced economies of scale for local manufacturers.”
Buthelezi wants the government to encourage faster local adoption of electric vehicles. Sales are increasing quickly off a very low base, but, by international standards, numbers are painfully small.
The government is also being urged to fulfil its side of the masterplan bargain by providing efficient infrastructure. Buthelezi says the industry can’t compete without efficient ports, reliable rail services, dependable electricity and predictable regulation.
As things stand, the South African motor industry needs urgent action if it is to stop operating at a disadvantage. The same is true of South African industry as a whole.
“South Africa must urgently modernise the regulatory environment that underpins industrial development,” says Buthelezi. “The global economy is not waiting. Manufacturing and international trade are undergoing their biggest transformation in decades. Countries are streamlining regulation, improving logistics and offering incentives to attract investment and strengthen domestic production.
“South Africa cannot afford to stand still if it wants to retain its position as a global automotive manufacturing hub and achieve the economic growth needed to reduce unemployment and poverty.”
The government has been accused of adopting a laissez-faire attitude to the motor industry by failing to react promptly when policy has unintended consequences — like the growing market domination of imported vehicles. The impression, says one CEO, is that it hopes the situation will sort itself out. It won’t.
Buthelezi says: “South Africa’s automotive industry has long been one of our country’s greatest industrial success stories. It supports hundreds of thousands of jobs, anchors communities, generates forex from exports and demonstrates what is possible when sound industrial policy, skilled workers and global investment come together.”
But when, as now, it doesn’t work, “decisive [policy] action rather than incremental change” is required.
Policymakers must understand that local assembly plants are not competing with one another but with the rest of the world. “A Ford factory in South Africa competes directly with Ford plants in Thailand, Argentina, China and elsewhere for the next generation of production programmes,” says Buthelezi. “Foreign direct investment is highly mobile and multinational companies continually assess where future vehicles will be built. South Africa must ensure it remains one of the most competitive destinations.”
She says that while South Africa has many of the ingredients needed for sustained industrial growth — such as world-class manufacturers, skilled workers, established supply chains and a proven export platform — “commitment alone cannot overcome structural disadvantages. Global boardrooms make investment decisions based on competitiveness, policy certainty and execution.”
The choice is simple, she concludes. “We can watch as global manufacturing shifts elsewhere, or we can create the conditions that allow South Africa to write the next chapter of its industrial success story. With the right policies, determined execution and genuine partnership between government and industry, South Africa can do more than keep pace with the world. It can lead Africa’s industrial future.”