Strong rand hits car parts exports

Stewart Jennings, the president of the National Association of Automotive Component and Allied Manufacturers, an association which represents component suppliers, told Business Day last week that the government should look at different ways of keeping the rand competitive at about R9 against the dollar.

Vehicle component makers supply items such as shock absorbers, catalytic converters, tyres and windscreens to vehicle makers, which have dramatically reduced production because of the economic crisis. In turn, parts producers have experienced a severe decline in volumes. Jennings, who is also the CEO of PG Group, a glass producer, said that local component exports had declined 50% since the start of the year.

The strong rand, he said, had also hurt exporters and this could lead some component makers to stop exporting or, in a worse-case scenario, close doors.

National Union of Metalworkers of SA spokesman Alex Mashilo said the union had taken up the exchange rate issue with the Reserve Bank, arguing for the weak rand.

But Tony Twine, an economist at Econometrix, warned that a weak rand was not the economic equivalent of a free lunch because it would “ultimately turn around and bite exporters in the leg”.

Twine said a weak rand would raise the rand costs of imported necessities for production such as fuel, capital equipment to generate electricity, aluminium, plastics, copper and anything else that was not produced at globally competitive prices in SA.

Mashilo said that the local motor vehicle components sector lacked leadership and creativity, and had failed to come up with measures that could solve the problem of low local content and low volumes exports.

He said problems were still likely to persist regardless of whether there was a global economic crisis.

But Jennings said the component industry had suffered from the recession and the resultant reduction in car sales and decline in volumes.

For the first half this year, new vehicle sales declined 33.8% to 190245, according to National Association of Automobile Manufacturers of SA.

Jennings said the component manufacturing industry had lost thousands of jobs. In the year to date, 9000 jobs have been lost in the component industry, which now employed 54000 workers.

Car incentive programmes which had been implemented in countries such as Germany and the US were ending. “This could negatively affect SA car exports over the next six to nine months,” Jennings said.

He said the automotive rescue plan, which included bridging loans, had not kicked in yet. “The government has taken no action in alleviating the effects of recession.”

Other challenges the component producers faced included rising electricity prices, high labour costs and punitive interest rates, he said.

Source: Business Day

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