Driving The Future Economy - Business Media MAGS

BD Manufacturing

Driving The Future Economy

South Africa’s largest manufacturing sector is rethinking localisation to deepen the value chain. By Anthony sharpe.

The automotive industry accounts for a third of South Africa’s manufacturing output and contributes roughly seven per cent of GDP. Those are not small figures, so the industry is a vital one that government wishes to cultivate. In 2016, the Department of Trade and Industry commissioned the South African Automotive Masterplan 2035 (SAAM), which has some ambitious goals: contributing 1 per cent of global vehicle production by 2035; increasing local content from 39 to 60 per cent; doubling employment in the value chain to 240 000; achieving minimum level 4 BEE by 2021; and basing support on value addition rather than just production sales value. Key to this is the Automotive Production and Development Programme (APDP), which comprises an interrelated set of incentives and rebates designed to promote local manufacturing.

“The APDP has, for a number of years, enabled vehicle manufacturers in South Africa to be sustainable by offsetting the inherent disadvantages of operating in this market,” says Billy Tom, CEO and MD of Isuzu Motors South Africa. He believes the industry can help South Africa in its transition to a higher-value economic model. “Government and the industry need to work together to enable a shift from raw material or commodity export business models to ones focused on the beneficiation of raw materials, as well as the local manufacture of components and commodities such as batteries and controllers. These can then be consumed by local OEMs and also be exported to other markets.”

Quality over quantity 

Renai Moothilal, executive director of the National Association of Automotive Component and Allied Manufacturers (NAACAM), says the existing APDP has helped build automotive manufacturing capacity, but prioritises production volume over local value addition and sourcing. That’s why it’s being extended from the beginning of next year with some notable revisions.

“The biggest difference is the implementation of the Volume Assembly Localisation Allowance,” says Moothilal. “This is an assembly incentive for OEMs linked directly to levels of localisation on their respective platforms. The current-generation APDP ending in 2020’ has a similar assembly incentive, but without any localisation element. Allied to this is a re-weighted Production Incentive with higher levels of reward for manufacturing value-add.”

It’s hoped the APDP will deepen the automotive value chain by encouraging OEMs to find new localisation opportunities due to reduced import incentives. As there is a limit to what they can localise themselves, they will pressure their tier 1 suppliers to produce locally, with an anticipated knock-on effect to tiers 2 and 3.

Localisation is not a nice-to-have, says Moothilal, but an economic and competitive necessity. “It’s common knowledge that the true economic benefits in any country’s automotive sector are found in deep value chains with high localisation levels. Job opportunities, technology and skills development, and transformation enhancing new business opportunities will be found as long as we keep striving for that 60 per cent localisation objective. Studies show that countries having localisation levels around the 60 per cent mark are regularly touted as global competitiveness benchmarks.”

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