Motor industry’s black industrialist programme stalls
With less than nine months to go before the launch of a new industry policy, Covid-19 threatens to derail its transformation targets
The government’s timetable to create a black industrial base in the SA motor industry could be at risk if the effects of Covid-19 continue to run riot through the economy.
A proposal to use a R6bn industry transformation fund to help emerging, black-owned components companies survive the pandemic appears to be a nonstarter. The fund, intended to support the development of new black players in coming years, is supposed to go "live" in 2021, but there have been suggestions that some money should be made available now to bail out distressed companies.
However, vehicle manufacturers, which will capitalise the fund, have yet to put in their contributions, and are unlikely to do so immediately.
Tim Abbott, MD of BMW SA and president of the National Association of Automobile Manufacturers of SA, says individual members’ main responsibility in the current crisis is to their own workers. "Like it or not, we need to be looking inward," he says.
Renai Moothilal, director of the National Association of Automotive Component & Allied Manufacturers (Naacam), says a number of small companies are at risk of closure. "The outlook for employment post-crisis is not positive," he says.
That’s bad news, coming less than nine months before the start of a government programme to encourage the development of black-owned companies. The SA automotive masterplan, launching in January 2021 and incorporating an updated version of the seven-year-old automotive production & development programme, is meant to help the industry double production and employment by 2035, and increase local content in SA-made vehicles by at least 50%.
The outlook for employment post-crisis is not positiveRenai Moothilal
This, it is hoped, will encourage the establishment of a black-owned components supply base in a sector that’s almost exclusively white and dominated by subsidiaries of multinationals.
The R6bn transformation fund is an important part of the jigsaw. The target is for at least 20% of companies manufacturing subcomponents to be black-owned by 2035.
This all assumes continuity of market supply and demand. But, as figures released last week show, that is no longer a safe assumption.
SA new vehicle sales in March fell 29.7% from a year earlier. That was with only 3½ sales days lost to the Covid-19 national lockdown. April, with at least two weeks lost, and possibly more, if the lockdown is extended, is likely to be a "disaster", says Cyril Zhungu, head of automotive retail finance at Standard Bank.
And in coming months? No-one knows.
What is clear is that the market was already on a downward trajectory — heading for its sixth decline in seven years — before Covid-19 intervened.
But that was no reason for the industry to panic. Thriving export demand meant local vehicle assembly plants could continue to churn out vehicles. More than two-thirds of cars and bakkies built in SA are destined for overseas markets.
At least, they were. In Europe, a major destination for SA vehicles, markets collapsed, falling 40%-86% in March, and governments have no idea when they will recover. The head of a major distributor in the UK, the destination for more than a third of SA exports, last week predicted a 96% drop in short-term sales.
Even before the SA motor industry halted production two weeks ago for the lockdown, BMW, Mercedes-Benz and Ford had already announced the shuttering of their SA plants because export demand — on which they rely more than most — had dried up.
The net result of all this is that, just as they should be planning for long-term growth, the only ambition for many smaller supply companies is survival.
Automotive empowerment may be slowed by the Covid-19 pandemic
Like other industries, they may have access to support initiatives offered by state and private sector donors. Some may benefit from a cross-industry initiative to make medical ventilators to fight Covid-19.
"More than 20 Naacam members are directly involved or on standby to aid production," says Moothilal.
"Our members are also supporting production of other medical devices, using repurposed automotive capacity."
If Covid-19 continues to collapse vehicle demand and manufacture for the rest of this year, the SA motor industry could find itself with a far greater challenge to meet 2035’s production target of about 1.4-million units a year. And with many new black suppliers possibly out of the picture, empowerment targets will also be more daunting.
To cap it all, the economic slowdown and growing national debt will make it harder for the government to fulfil its part of the automotive masterplan. It has pledged to improve transport infrastructure such as ports and rail networks. Unable to meet current industry requirements, these will require huge investment to cope with double the volumes in coming years.
Where that money will come from, given the many demands on the post-pandemic fiscus, is not clear. The challenges just keep coming.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.