Boost in exports trims vehicle industry’s trade deficit
A 13% surge in exports helped the South African motor industry slash its trade deficit by more than one-third last year. The deficit — the value gap between exports and imports — fell from R24bn in 2013 to R15.8bn.
Having breached the R100bn export barrier for the first time in 2013, at R102.7bn, the industry shipped out R115.7bn in vehicles and components last year.
A market recovery in the European Union (EU), the local industry’s biggest trading partner, was a major stimulus for growth.
Imports also grew but only at 3.8%, from R126.7bn to R131.5bn.
The main reason for the modest rate was the fall in local sales for the first time in five years. With imports accounting for two-thirds of new car sales in SA, a slowdown in foreign currency spending was inevitable.
But it’s too early to crack open the champagne. Since the automotive production and development programme (APDP) replaced the 18-year-old motor industry development programme in 2013, a new Treasury formula for assessing trade values has slashed the deficit.
Among changes, South African sales to Namibia, Botswana, Swaziland and Lesotho are now considered exports. Previously, they were deemed local because they are part of a customs union with SA.
Under the old system, which also included after-market spare parts as imports, the 2013 figure would have been a record R63.8bn, reducing to R59.7bn last year.
Nico Vermeulen, director of the National Association of Automobile Manufacturers of SA, says performance in 2013-2014 was "an aberration, a distortion".
Prolonged strikes in both years slashed export earnings and encouraged imports to make up for local market shortages.
Nigeria and Algeria, SA’s leading African markets, imposed new controls manufactured goods imports.
Lower international oil prices also influenced the ability of some oil producers to import goods.
Ford SA MD Jeff Nemeth said on Tuesday that shipments of some Nigeria-bound Ford Ranger pick-ups, built at his company’s Silverton assembly plant outside Pretoria, had been postponed as a result of lower-than-expected oil revenue.
The 2013-2014 period also included a prolonged shutdown by one of SA’s biggest exporters, Mercedes-Benz SA (MBSA), while it changed over to a new C-Class model.
Since the middle of last year, when MBSA’s East London plant returned to its full production capacity, total annual industry export growth "has been running at more than 20%", says Mr Vermeulen.
After exporting almost 280,000 vehicles in both 2013 and 2014, the figure is expected to grow to 320,000 this year and 350,000 next year. SA enjoyed a trade surplus in built-up vehicles last year. More than half the cars and commercial vehicles built in SA are exported and in 2013, exports amounted to R70bn, against imports of R57.2bn — a surplus of R12.8bn.
Components remained in the red: R74.3bn of imports and R45.7bn of exports, for a R28.6bn deficit.
One of the APDP’s cornerstones is increased local content in SA-built vehicles, and reduced reliance on imported components. Many industry executives believe average industry local content should be more than 70%, rather than the sub-50% level, where it sits now.
The government is set to announce the results of an APDP review and the industry hopes it will include ways to deepen local content, particularly tooling. Even then, there is no guarantee that the industry will ever wipe out its trade deficit.
"Policy is not a light switch that changes something instantly. All it can do is encourage you to move in a direction," Mr Vermeulen says.
South African vehicles and parts are exported to 263 countries. The biggest single market remains Germany, which swallowed R21.7bn of SA’s automotive exports last year.
The US, the main destination for BMW 3-Series exports, accounted for another R17.1bn — underlining the importance of SA remaining part of the nation’s African Growth and Opportunity Act (Agoa), whose benefits include duty-free access for goods made in sub-Saharan Africa.
SA’s officials recently expressed optimism that they had overcome a trade impasse that threatened to exclude SA after the current Agoa agreement ends later this year.
Namibia was SA’s third-biggest market, at R8.3bn, followed by Belgium (R8.2bn), Japan (R6.6bn), UK (R5.5bn), Botswana (R4.4bn) and Australia (R3.9bn).
Nigeria, in 12th place with R1.8bn of South African goods, is expected to climb the table in coming years as SA plays a growing role in developing the West African nation’s own automotive development programme.
The EU accounted for R109.2bn, or 44.2%, of SA’s R247.2bn automotive trade last year. SA-made vehicles and parts qualify for duty-free entry into Europe if they contain at least 60% local content, including labour, raw materials, transport, manufacturing costs and profit margins.