Standard Chartered hails SA’s automotive sector
British multinational bank tells rest of continent to look to SA to build industrialisation with export-driven policies
British multinational bank Standard Chartered (StanChart) has hailed SA’s policies in the automotive sector as a prototype to be followed by the rest of Africa in crafting export-driven industrial policies.
StanChart, in its “Future of Trade: Africa” report, said SA was a case study in how to build industrial capacity to expand the export base of countries on the continent.
“The South African automotive sector is one of the most successful examples of industrialisation in Africa. The International Trade Administration estimated that in 2022, SA would produce more than half a million units of vehicles and export $13.1bn worth of vehicles and parts,” the report reads.
“Through an iterative approach to industrial policy design, the government of SA was able to boost both exports and the competitiveness of its automotive industry.”
The lender in particular pointed to the success of the Motor Industry Development Programme (MIDP), introduced by the government in 1995 as a means of making the SA automotive industry more competitive.
StanChart said a key takeaway from the SA experience is that a combination of duty reduction and import-export complementation can boost exports and bring on rapid industrialisation.
“Public and private incentive alignment is crucial and ongoing, as the latter will take the path of least resistance within a given policy space,” the bank said.
“During the MIDP era, producers favoured raw-material intensive exports and low volume production. This strategy worked as it required the least amount of investment and the least amount of change to existing production models to achieve duty neutrality.”
According to Mordor Intelligence, the Africa automotive market size is expected to grow from 1.33-million units in 2023 to 1.78- million units by 2028, with SA expected to grow its dominant market share position.
Volkswagen, Toyota, Groupe Renault, BMW, Ford and Mercedes-Benz are some of the major companies operating in the Africa automotive market.
SA is also looking to get a head start in the electric vehicle space. Trade, industry & competition minister Ebrahim Patel is expected to release a new white paper on incentives in the motor industry in the next two weeks.
StanChart said while Africa’s markets are important providers of inputs across many value chains, the continent fails to participate in much of the intermediate production steps.
It said production of copper wires used in the automotive sector provides an example of these missing links.
“Democratic Republic of Congo, Congo Republic and Zambia are major producers of copper alloy producers. However, instead of being further processed in the market for value addition, the alloys are exported to Asia to be made into wires. The wires are then imported into Morocco, Tunisia and Egypt to be processed into insulated wires,” StanChart said.
“The insulated wires are exported to Europe to be used in various vehicle components, such as electric motors and sound and lighting systems, which are then imported back into Africa for assembly and consumption. As a result, Africa runs a multi-billion-dollar annual trade deficit for both vehicles and components.”
The London-based bank said it expects Africa’s total exports will reach $952bn by 2035 and if the African Continental Free Trade Area (AfCFTA) fully implemented, this has the potential to increase this figure by a further 29%.
The lender estimates SA’s annual exports to grow to $165bn by 2025 and that the implementation of AfCFTA would further boost exports by an additional 17% in the period.
“On the infrastructure front, the SA government is committing up to $50bn in the market’s rail infrastructure to boost passenger and freight transport. In parallel, the government has partnered with the private sector to further develop the port of Durban, Africa’s biggest harbour, which currently handles about 60% of SA’s exports,” the lender said.
“These infrastructure upgrades will facilitate SA’s future export growth, including greater intra-Africa trade through the AfCFTA. With the tariff liberalisation set out in the AfCFTA, SA could substantially boost its key agricultural exports such as maize and citrus fruits, benefiting from a larger continental market.”
Business Day reported on Thursday that Transnet has yet to sign a contract with International Container Terminal Services, almost three months after it chose it as its partner to turn around its Durban container terminal.
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