VW ‘bombshell’ negates positive vibes at Intra Africa Trade Fair

That Volkswagen, with an 80-year history in SA, is even contemplating the future of its assembly operation in Kariega, the Eastern Cape, should serve as a major wake-up call for the current ruling party.

Though the ANC’s past performance shows it prefers to wait until things are totally broken and then lay the blame on Jan van Riebeeck.

Former VWSA MD and now brand chief of Volkswagen AG, Thomas Schaefer, dropped the bombshell during a recent visit to the country, saying he was very worried about the future of the company’s operations locally.

He cited the costs of mitigating power outages caused by chronic production shortfalls at state-owned utility Eskom, as well as rising labour costs and logjams on railways and at ports, as eroding the positive of competitive labour costs that once made the SA operation a high-ranker in the global network.

“Eventually you have to say, why are we building cars in a less competitive factory somewhere far away from the real market where the consumption is?” Schaefer said. “I'm very worried about it... We’re not in the business of charity.”

This news counterpunched the positive sentiments that emerged from the recent Intra Africa Trade Fair (IAFT) in Cairo, Egypt, and its two-day Africa Automotive Show.

Speakers at the Egypt investment forum highlighted opportunities for greater trade between Egypt and the rest of Africa.

Across the board, implementing the African Continental Free Trade Area  (AfCFTA) is vital to the continent as a whole — and something being championed by the African Association of Automotive Manufacturers (AAAM).

Kanayo Awani, executive vice-president of the Intra-African Trade Bank, said financiers played a crucial role in protecting Africa from the adverse effects of supply chain disruptions.

She argued there was a need to “reverse engineer” colonial trade routes, which were established without consideration for the African population. 

“We support that with financing but it has to be a collective effort,” she said.

In a move to expand its regional footprint, Dongfeng, a Chinese motor company, said it is considering setting up a car assembly plant in Rwanda.

John Mugabo, MD of Choice Africa Investments, a member of Carcarbaba, the official dealer of Dongfeng in Rwanda, said: “If the demand for our cars increases to 200 and 300 units a year, the assembly plant will be brought to Rwanda.”

Explaining the rationale behind considering Rwanda for the assembling plant, Mugabo highlighted the favourable business conditions in the country.

“Everything is organised, and there is no corruption. We target the East African region, with Rwanda as the hub for automobile manufacturing and expand to neighbouring countries such as the Democratic Republic of Congo and Burundi.”

And, there is another word SA’s current government should take note of — corruption.

Mercedes-Benz SA has just spent copious amounts of money on solar power for its East London plant, Stellantis is forging ahead with an assembly plant for the next-generation Peugeot Landtrek, BMW is gearing up (and spending big) to manufacture the X3 Hybrid, and both Ford and Toyota have ongoing capital investment programmes.

AAAM president and VWSA MD Martina Biene said at the opening of the Africa Automotive Show in Cairo: “There are multiple opportunities for everyone in Africa to be a part of the combined value chain.

“A comprehensive automotive policy creates the framework for trade and will build new car demand but remains dependent on economies of scale and any policy framework must serve to increase that demand.”

Presenting the results of a “road map” study done in Egypt on powertrain evolution, Dylan Jessup, automotive sector incentives manager at EY SA, said battery-electric vehicles (BEVs) are “not the panacea”. He said each segment in the possible alternative power source options needs to be evaluated separately and specifically for each country to “determine economic, environmental and social benefits”.

“SA’s auto industry is built on a trade-based policy but we need to look at regional integration and establish a healthy supply chain (that could involve beneficiating the raw materials mined in various countries rather than sending them away only to be re-imported).

“Each country needs to look at its strengths and work on those and the actual implementation of the AfCFTA will then make trade easier.”

Among issues demanding urgent attention is fuel quality, with much of Africa still running Euro II specification whereas Europe is moving to Euro VII.

Rynhardt Rall, regional product manager for Nissan, pointed out the carmaker had two plants in Africa — SA and Egypt. “It is very expensive to run internal combustion engine (ICE) vehicles on Euro VII fuel but Africa does not need to go head-to-head or play catch-up.

“Africa is rich in natural resources so it makes good sense to utilise that,” he said.

Biene concurred and added the low-level fuel meant VW could not introduce some of its latest generation hybrid vehicles that simply could not run on Euro II fuel.

“The South African government has to become more proactive on this issue,” she said.

The African Export-Import Bank (Afreximbank ) used Cairo as the launch pad for a new initiative that will open doors, allowing African contractors to capitalise on various infrastructure investments available across the continent.

Prof Benedict Oramah, president and chair of the Afreximbank board, joined by Rania Al-Mashat, Egypt’s minister of international co-operation, launched the Afreximbank Intra-African Engineering, Procurement and Construction (EPC) Contract Promotion Programme.

Oramah told guests the programme was one of the bank’s initiatives to support the implementation of AfCFTA, saying it aimed to enable African companies to successfully bid for, win and execute infrastructure contracts in Africa through capacity building, twinning, market access opportunities, financing, guarantees and technology solutions.

According to Jean-Louis Ekra, deputy chair of the IAFT advisory council and a former Afreximbank president, the AfCFTA can break Africa’s colonial legacy of exporting raw materials and importing finished goods,

“AfCFTA cannot fail, especially given intra-African trade is estimated at 16%”, which compares unfavourably with other regions.

He said the low level of intra-African trade was explained by constraints such as limited trade and infrastructure including payments and settlement systems, lack of access to relevant market information, limited knowledge about business, sustained investment opportunities and limited platforms to connect buyers and sellers.

He urged African countries to recognise the AfCFTA was the missing link the continent needed and that it presented many trade and investment opportunities in manufacturing, export development, SME promotion and trade in services.

Schaefer said: “With the proper government policies aimed at leveraging the country’s proximity to critical minerals such as lithium and cobalt, however, it could become a battery manufacturing hub.

“There’s a realistic chance that SA, with enough focus, with all the raw materials in the neighbourhood, could be a champion.”