Why transformation in the car industry is good for business
President Cyril Ramaphosa’s announcement on Wednesday of the Automotive Industry Transformation Fund closes a circle for us in the motor trade. It’s a wise and considered intervention, and it comes at a critical time.
You don’t need to be a particularly keen observer of the motor industry to know that we’ve been under much pressure recently. Given the travails of the local market, BMW Group SA looks to the success of our export operations to justify our manufacturing presence here.
In 2018, we began ramping up production of the BMW X3 at our plant in Rosslyn, Tshwane. The plant has a capacity of 76,000 cars a year, with most going to export markets across Europe, Turkey and Hong Kong. It’s a complex operation and required an additional investment of R6.1bn. We think that’s a huge vote of confidence not only in the more than 4,000 colleagues who work for BMW in SA, but also in the regulatory infrastructure the government has created.
We admire the achievement. With the extension of the Automotive Production and Development Plan until 2035, the department of trade & industry has created an environment for the manufacture of cars that would not exist without its interventions.
Through no fault of its own, SA is not a logical location for car factories. In a world where scale is critical, a market the size of Sub-Saharan Africa is too small to justify a factory of its own, and SA is too far away from our key markets to overcome the cost of the logistics involved. Despite this, SA does indeed have a motor manufacturing industry. That’s all down to the broader vision of the government.
We believe a job in the motor industry is a job that comes with security, safety and dignity, and that this itself has powerful social benefits
The motor industry does much for SA: it contributes nearly 12% of manufacturing sales and more than 16% of merchandise exports. Directly, it makes up nearly 3% of GDP but, including our retail and production supply chains, the number is 7.7% of GDP.
In terms of employment — including people who work in dealerships, in the supply chain, in IT shared services and financial services — more than 40,000 South Africans directly and indirectly work with BMW Group in SA. It is estimated in a study by Econometrix that the motor industry directly employs nearly 470,000 South Africans.
These people can be found making the components that go into cars exported worldwide — from wheels and rubbers to the body panels, leather products, gears and bearings that make wheels turn from Munich to Muizenberg. There are other large industries operating in SA, but we believe a job in the motor industry is a job that comes with security, safety and dignity, and that this itself has powerful social benefits.
I’m proud to represent a company that leads in many measures of transformation. In socioeconomic development, management and control, skills development and supplier development, we are leading contributors. However, this is somewhere we as an industry believed we could do better.
Regarding the president’s announcement, after years of consultation with the department of trade & industry, the industry has come up with an investment plan to improve transformation in the broader industry.
The industry proposed a R6bn venture capital fund, to be funded by the seven local original equipment manufacturers and managed by a black-owned fund manager, which will develop and support black-owned companies in the motor industry supply chain.
The fund’s power is that it has been founded by the companies that will use the services of the new businesses. We are the demand, and we’re intent on creating the supply. Opportunities for private capital and other government initiatives to co-invest will also help to create momentum.
I see this as a profoundly transformative opportunity. The industry at large has struggled to find the black industrialists who are able to find the vast capital required to start operations that meet the scale and the punishing compliance levels motor industry purchasers require. This fund will help address this issue.
It may be that the original equipment manufacturers are wholly owned foreign companies, but in the SA of 2035 our local supply chain will be ever more South African, increasingly black-owned and driving an increase of local content in locally built cars. I see this as the sort of transformation that really changes lives. We’re not handing a slice of equity to connected individuals; we’re creating great new companies, skills, decent jobs and lasting knock-on effects across the real economy.
People asking about our return on investment into this scheme haven’t understood. Doing business with great black-owned business in the SA automotive supply chain is all the return we’ve ever sought in this scheme.
Despite the enormous amount of work that’s gone into the fund, its announcement by the president marks the end of the beginning. In all aspects of life in SA, the undoing of this country’s historical legacy presents a phenomenal task, and I know all shoulders need to bear the burden of this work. We can discuss broad-based BEE codes all day, but for me this has never been a technical exercise in compliance. Transformation is a moral imperative in any company, and is just good business.
When we’re told that SA is responsible for just 0.6% of global automotive production it’s perhaps tempting to dismiss it as irrelevant. For 46 years our Rosslyn plant has played a crucial role for the BMW Group. We’re building the X3 here precisely because we see a bright future for this operation.
We like to say that “we build more than just cars in SA”, and our involvement in the creation of this fund feels like yet more evidence. We’re committed to SA, to the continued upliftment of South Africans through their association with BMW, and to the sort of empowerment that will profoundly change lives.
• Abbott is CEO of BMW Group SA and Sub-Saharan Africa