Why SA’s automotive sector needs more than local content targets to succeed
Department of trade and industry's automotive policy will need a thriving business environment as well to succeed, says Toyota CEO Andrew Kirby
Success in meeting new local content targets in SA-made cars and bakkies depends less on the willingness of motor companies and their suppliers to co-operate than on the environment in which they would do business, Toyota CEO Andrew Kirby said on Friday.
Kirby was speaking after trade and industry minister Rob Davies announced details of the next stage of government-led automotive policy.
The existing Automotive Production and Development Programme (APDP), which runs until 2020, will be extended to 2035. Many current features will remain but the extended programme will make tough demands on companies’ ability to increase local content and grow black participation in the industry.
Davies wants average industry local content — which includes labour and manufacturing costs, as well as the value of SA-made components — to rise from 38% to at least 60%. But targeting alone won’t make it happen. Increased local content will become viable only if vehicle production also rises.
Current annual production of the SA motor industry is about 600,000 vehicles, or 0.62% of the international total. Davies wants this share to rise to at least 1%. This would require SA to build anything from 1-million to 1.4-million vehicles by 2035.
For this to occur, domestic demand will have to rise sharply and motor companies will need to secure more export markets.
The extended APDP is part of a broader automotive masterplan that sets out to create growth-friendly conditions. The masterplan will also address domestic market development, special investment zones, regional co-operation, new technologies and the improvement of local infrastructure like ports and rail.
“I think the 60% local content target is achievable but there is no straight yes or no. It’s not just about what we are willing to do between now and 2035. So many other things also have to happen,” Kirby said.
That doesn’t mean motor companies will have an excuse not to pursue local content. As the APDP stands, they earn incentives according to the number of vehicles they build. From 2021, the determining factor will be local content. Davies admitted some companies would see their incentives earnings drop considerably, but said targets would be phased in to lessen the blow.
Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (Naacam), said: “The conversion of what was previously purely an incentive for vehicle assembly, to one that factors in localisation is a step change in how assemblers will view domestic sourcing.”
More local content also opens the door to more black-owned businesses. Vehicle manufacturers have committed to putting up to R4.5bn into a central “pot” to fund the development of black suppliers. Most of this will be at sub-component level, providing parts to bigger producers.
Many of the APDP’s changes will benefit the components sector. Companies there will have more access to investment incentives while vehicle producers will be rewarded for buying SA-built tooling and machinery. Naacam executive Ken Manners said the changes would make suppliers less reliant on SA motor companies for business and encourage them to seek overseas clients.