DAVID FURLONGER: Race to the finish line
New auto strategy is almost ready but some questions remain
With fewer than 10 weeks to go before the start of the latest motor industry incentive programme, government and the industry are frantically trying to fit together the last pieces of the jigsaw.
Opinions are split on whether the SA automotive masterplan will be ready by its scheduled July 1 launch date. Whatever the outcome, it won’t be for want of trying.
The masterplan, based on an updated version of the eight-year-old automotive production and development programme (APDP), should have started on January 1. Covid-19, however, took everyone’s eye off the ball and forced a six-month postponement.
Now, as has generally been the case with automotive policy, there’s a last-minute dash to get everything ready on time.
The outline of the new strategy, which will run to 2035, has been known since late 2018. While many of the features of the existing APDP will remain intact, there will also be significant changes. For example, current incentives are based on production volumes. In future, they will reward local content and value addition.
Since 1995, successive automotive policies have done much to make the local industry globally competitive and attract foreign investment. What they haven’t done, in government’s view, is encourage racial transformation or the local manufacture of more components. As things stand, barely 40% of the ex-factory price of the average SA-built car or bakkie is sourced locally. That includes parts, labour and manufacturing costs.
Government wants this to rise to 60% by 2035, and for much of the additional work to go to black-owned companies. Vehicle manufacturers have created a R6bn fund to identify and prepare such companies. Most are likely to provide subcomponents and services to multinational components manufacturers.
The other chief objectives of the masterplan are to double employment at vehicle and components companies from 120,000 to 240,000 and more than double annual vehicle production from 600,000 to 1.4-million. However, production and employment have both fallen in the past 12 months because of Covid and they could take two or three years to return to previous levels – meaning a quarter of the masterplan’s lifespan may be gone before real growth is possible.
One of the reasons for postponing the programme to July was that government hadn’t determined how to make the programme work. The frame was there but not the nuts and bolts to hold it all together. In order to prepare, companies need to know things like category definitions, how duties will be calculated, and when and how to claim incentives.
That is finally being done. BMW SA CEO Peter van Binsbergen says: “We have received guidelines and are analysing them.” He welcomes the fact that the new policy builds on the old. “Continuity is important.”
With final discussions under way, Mikel Mabasa, CEO of the Automotive Business Forum, and Renai Moothilal, director of the National Association of Automotive Component & Allied Manufacturers, both think the masterplan’s July 1 launch date is feasible, if not guaranteed.
They are also comfortable with the way government is managing other policy-related issues. As part of the overall masterplan, government has pledged to improve SA’s automotive-related transport infrastructure to facilitate the import and export of vehicles. The industry, which exports nearly two-thirds of the vehicles it builds, has grown increasingly frustrated with the country’s underperforming ports and railways.
As part of the deal that persuaded Ford to recently announce a further R16bn investment in its SA operations, Transnet offered a dedicated rail link from the Tshwane assembly plant to Gqeberha (formerly Port Elizabeth) harbour in the Eastern Cape. The industry hopes that after years of broken promises, Transnet is finally serious about meeting its commitments.
This week’s news that Durban’s shambolic harbour is seeking private-sector help to improve its services may also reassure companies.
Mabasa says: “Transnet gives us hope. We have had some very good conversations and are working out what we can do together to reduce inefficiency and costs.” Moothilal observes: “We are seeing more support and higher levels of engagement. In the Eastern Cape we have developed a strong relationship with Transnet in the ports.”
One important policy issues has still to be resolved. Government is belatedly engaging the industry about the need to build electric vehicles in SA. At present, about 99% of those built here are driven by internal combustion engines. With some of the biggest export markets planning to ban diesel and petrol cars in the next decade, a technology shift is urgently needed. Government is also under pressure to incentivise the local sale of electric vehicles instead of penalising them, as it currently does.
Mabasa says direct dialogue with government has begun: ”We are making good progress. We have held a number of substantive discussions in the past four months. We are pleased the subject is finally under discussion.”
Moothilal says “there is space for a policy shift” to accommodate electric vehicles within the industry masterplan. That certainly won’t happen before July 1 but he says: “Any policy should include the space for shifts or tweaks. We need a strategy for electric vehicles and I’m sure they can be infiltrated into the masterplan if and when necessary.”
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