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Automotive industry transformation to shift into higher gear

MONEY WEB / 23 AUGUST 2019 - 00.31 / ROY COKAYNE

New fund set to increase local content and exports.

South Africa’s seven vehicle original equipment manufacturers (OEMs) will be establishing a R4 billion automotive industry transformation fund before the end of the year.

Naamsa president Andrew Kirby says the fund itself will support black-owned suppliers directly, while the equity equivalent model will address the low levels of such suppliers. Image: Moneyweb

Andrew Kirby, president of the National Association of Automobile Manufacturers of South Africa (Naamsa), says the seven OEMs are quite far advanced in their discussions with the trade and industry department on this ‘equity equivalent’ project and are currently finalising the business model of the fund with the department.

BEE alternative

Equity equivalent investments are available to multinational companies that are against selling any shareholding in their South African-based companies in order for them to comply with the government’s broad-based black economic empowerment (B-BBEE) requirements.

Speaking at the Naamsa automotive conference at the Festival of Motoring on Thursday, Kirby said the fund will be crucial in supporting the four pillars the automotive industry has identified where the fund will contribute to advanced manufacturing.

The four pillars are:

  • Investments in technology and people;

  • Value chain transformation and equity equivalent projects;

  • Corporate social investment and youth development; and

  • Increased localisation and value chain development.

He says the OEMs will be directly supporting the funding of black-owned suppliers, while addressing the low levels of black-owned suppliers and the B-BBEE structure through the equity equivalent model.

Kirby believes there is tremendous opportunity available to the seven manufacturers.

“We are going to increase local purchases by R12.6 billion a year by 2023 and create an additional 16 000 direct jobs and 48 000 indirect jobs.

“By 2025, we should be able to create another 500 tier 2 and tier 3 suppliers, of which 130 at least should be black-owned.”

He says there is significant opportunity for the OEMs to unlock growth and transformation – but that there are still challenges in regard to policy stability and bureaucracy, parts and raw material competitiveness, skills transfer and development, fixed direct investment in technologies, and collaboration.

New markets

Trade and industry minister Ebrahim Patel, speaking at the same event, said that one of government’s focus areas over the next five years is to expand markets and facilitate entry into those markets.

Patel says the free trade agreement within the Southern African Development Community (SADC), as well as its geographic proximity and easy access to these markets, will enable SA to easily deepen trade with its neighbours.

He believes the “biggest game-changer” for expanded market access is the recently signed African Continental Free Trade Area (ACFTA), which will connect about 1.3 billion people in a single market where local products will be traded between countries with minimal tariffs.

“These agreements lay the basis for increased intra-Africa trade and can cement the continent’s position as the next growth frontier.

“We launched the implementation phase last month at a special African Union summit meeting in Niger, and 54 of the 55 African countries have the signed the agreement and 27 countries have now ratified it.

“It’s expected to come into effect from July 1 next year. It will fundamentally reshape and change the South African economy. Already exports to other African countries account for some 250 000 South African jobs and it’s the fastest part of the manufacturing portfolio,” he said.

Patel said SA is the largest assembler of automobile vehicles on the African continent, the ACFTA presented a significant opportunity to the South African car and truck manufacturing fraternity.

He added that SA is already the fourth largest exporter of cars on the African continent after Germany, China and Japan.

Patel said that of the 610 000 vehicles assembled in South Africa last year, more than 350 000 were exported to other countries, with these vehicle and component exports accounting for R180 billion in export earnings and making up 14.5% of SA’s total export basket by value.



Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

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