SA's car industry ambitions may crash

SA's plans to boost manufacturing through initiatives may not work say some analysts. Image: Get News

Just 14 months into the government's 2013 to 2020 automotive production and development programme (APDP)‚ industry officials say production is already 30% off where it should be.

Hanna said for the target to be reached‚ at least one global manufacturer would have to spend at least US$1bn on a new car plant. "South Africa's problem is that you are competing for investment with faster-growing regions like China and India," he said.

South Africa struggles with an unstable labour environment‚ low volumes and a volatile currency. "If I was an overseas investor‚ I would probably put my new factory in China‚" Hanna said.

Though the 1.2m target is not written into the APDP‚ it was set by former trade and industry minister Mandisi Mpahlwa.

Volkswagen SA's David Powels said failure to meet the targets would not undermine the integrity or concept of the APDP but that was not a unanimous view.

Production lag

Some critics say that if production continues to lag almost one-third behind target‚ it will raise questions about the validity of an industry policy that contributes to South Africa's trade deficit. Further‚ it has done little to increase automotive employment since 1995 when the APDP's predecessor‚ the motor industry development programme (MIDP)‚ was initiated.

BMW lost a major production investment because of labour unrest and disputes in South Africa. Image: BMW

University of Cape Town economics professor David Kaplan said entrenching the MIDP's minimum 25% import duty on built-up cars for the life of the APDP would not help the industry achieve one of its long-term goals‚ namely "to stand on its own two feet".

The APDP offers duty rebates to vehicle manufacturers building at least 50‚000 vehicles a year and also returns up to 30% of investments by vehicle and components companies.

Kaplan said the motor industry received a disproportionate share of South Africa's manufacturing incentives. "It's time taxpayers asked what they have got in return for subsidising wealthy multinationals' South African investments," he said.

To be fair to the industry‚ Mpahlwa's 1.2m target was set before the 2007 global economic meltdown, which saw international vehicle sales collapsed. One of the local industry's main export targets is the European Union‚ whose new-car market is still below pre-crash levels.

Minimal growth

The local market is forecast to show minimal growth over the next couple of years‚ in response to rising interest rates‚ higher fuel prices‚ and weakening consumer confidence.

Mercedes Benz South Africa has invested in its East London plant to ensure production of the C-Class meets world demand. Image: Car Fan

Toyota SA's president Johan van Zyl emphasised the need to be realistic. "Both locally and with regard to exports‚ we can only do what the market allows us to‚" he said.

"Long-term market forecasts are always dangerous. To forecast accurately‚ you must forecast often," he added.

Many industry officials remain positive despite Hanna's doubts. They said it was not impossible for the industry to make up some of the assembly deficit.

Nico Vermeulen‚ director of the National Association of Automobile Manufacturers of South Africa (Naamsa)‚ said plans for a multi-brand assembly plant in East London or in the Coega industrial zone near Port Elizabeth were moving beyond the concept stage.

Magna Steyr‚ an Austrian company that builds vehicles for other companies‚ is understood to be in advanced discussions with a number of Asian manufacturers.

Hanna said he expected at least one Chinese company to invest in South Africa as its main African production base over the course of the next few years.

Van Zyl‚ who is also Naamsa president‚ said government and industry officials might consider whether the APDP needed revision to attract more investment.

Garth Strachan‚ the Department of Trade and Industry's acting deputy director-general responsible for industrial development‚ confirmed that the APDP was already being reviewed. Former industry executive Roger Pitot‚ who has experience in the vehicles and components manufacturing industries‚ has been hired to oversee the process.