South Africa – motoring ahead
With eight of the world’s major OEMs having assembly operations in the country, the South African automotive industry is one of its leading industrial sectors. This year, the combined 2008 component and vehicle export revenue is estimated to reach R95 billion (US$13-billion). The vision shared by government and industry is to double production from the 2006 levels of about 600 000 units to 1.2 million units by 2020, with a much stronger development of the automotive component sector.
While the local market – along with those in most other countries around the world – has contracted (by 9% year on year), exports of both vehicles and components continue to grow. Revenue generated by vehicle exports is expected to grow from US$4-billion in 2007 to about US$6-bn in 2008, says the National Association of Automobile Manufacturers of South Africa (Naamsa).
“The positive developments and achievements in the South African automotive industry, since 1995, have been the driven by a supportive automotive policy regime,” says Norman Lamprecht, executive manager of the Naamsa and the Automotive Industry Export Council (AIEC). The catalyst for South Africa’s importance in the automotive world came in the mid 90’s when the South African government launched the Motor Industry Development Program or MIDP. From the start of the MIDP to 2007, capital expenditure by OEMs was over US$4-bn. Lamprecht says that a compounded annual growth rate of 26.2% for completely built-up vehicles and automotive components exports was achieved from 1995 to 2007.
“Passenger cars, commercial vehicles and automotive components were exported to 126 destinations around the world in 2007. Diversification into new emerging markets is continuing and underlines the automotive industry’s competitiveness drive and a widening of the country’s traditional trading base. New trade and business links in Africa, Asia, the Middle East, South America and, importantly, the new emerging automotive giants, China and India, are being forged. From 2006 to 2007 exports more than doubled to 37 countries. The diverse range of products and the wide spread of export markets are indicative of the success of the domestic automotive industry’s integration into the global networks of foreign parent companies,” says Lamprecht.
According to Naamsa, Europe remained the industry’s main market in 2007, when vehicle and component exports comprised 48% of South Africa’s total automotive exports of US$10-bn. Exports to NAFTA increased by 43% from US$0.9-bn in 2006 to US$7.2-bn in 2007. Highlights include a 145% increase in exports of catalytic converters; and a 39% growth in light vehicle exports - mainly the new generation BMW 3-series and Mercedes Benz C-Class.
“The exporting link for the majority of the multinational automotive component manufacturers in South Africa is the South African based OEMs and parent companies. Some of the locally owned component manufacturers have also been successful in obtaining OE business, while many others focus on replacement parts exports,” says Lamprecht. Most are keen to do form alliances with international component companies wanting to set up in South Africa.
Roger Pitot, executive director of the National Association of Automotive Component and Allied Manufacturers (Naacam) tells Automotive Industries (AI) about the growth of component exports.
Pitot: The total value of component exports in 2007 was €4 billion, and represented an average annual growth rate of 23% since 1995. The other noteworthy
achievement is that the number of companies exporting has more than doubled in the past ten years. Almost 80% of our 230 members are exporting.
Although many people talk of the growth of catalytic converters, other types of complex components have also grown. For example exports of complete engines have risen from 0.5% of total exports in 2001 to 4% last year.
AI: Has the rising materials prices affected catalytic converter exports?
Pitot: Not at all. Because the material prices are essentially the same the world over, South Africa’s competitiveness has not been affected by the higher commodity prices. In fact, the value of these exports continues to grow. At present we make one in seven of the world’s catalytic converters.
AI: What are the biggest challenges facing SA auto parts manufacturers?
Pitot: Many of the challenges are similar to those in other countries, such as the global economic slowdown, high oil and other prices, currency fluctuations, and finding ways to continually reduce costs. We are farther away from our major export markets than some of our competitors, so getting the logistics right and bringing down those costs is a challenge, but government support for our exports has helped us to offset that. We have until now had a period of uncertainty over what type of support we would get after the MIDP ends in 2012, but the South African Government has now pledged its support for the automotive industry through at least 2012, with a package of incentives to encourage investment and production.
AI: What strengths of the SA parts industry will you highlight at Automechanika 2008?
Pitot: The South African Government has over many years shown remarkable fiscal discipline, resulting in a National Budget surplus, as well as GDP growth of over 4% for the past five years. This is in contrast with the fluctuating policies of many developing countries, and provides stability for investors. In addition, the government has established and maintained good relations with every country in the world.
Many potential customers in other countries do not realize that we have a world-class infrastructure which is being improved even further to support the 2010 World Cup, and that our IT and telecommunications are first-world, and support a world-class financial services sector. This simplifies business between South Africa and the rest of the world and, together with the good political relations, makes us a very easy country to deal with.
Our component manufacturers, because of the combination of relatively low domestic vehicle volumes and a high level of exports, are adept at producing components at any volume, and in particular minimizing the costs of low-volume runs.
AI: What role will the auto parts makers play at the Automechanika South Africa 2009?
Pitot: Naacam is pleased that a new event with such a strong international brand is coming to South Africa for the first time. We expect that many parts makers will be exhibiting, not only from South Africa, but of course from other countries wishing to do business with us. An important aspect of this event will be the networking that we expect to take place, as many of our members will be keen to meet companies from around the world to look at various co-operative ventures. These events are not simply about selling your product to another country, but also about exploring possibilities to share production, to source sub-components, for joint marketing, technology exchange, and many other win-win opportunities.
That’s what we believe the focus should be – doing business globally to help each other locally. We look forward to meeting many companies, both here in Germany and next year in South Africa.
South African auto sector continues to attract investment
Powered by exports, the biggest vehicle market in Africa and the potential as a gateway to the continent, international OEMs continue to invest in South Africa, according to Nico Vermeulen, executive director of the National Association of Automobile Manufacturers of South Africa (Naamsa).
Vehicle production is the second-biggest industry in South Africa's manufacturing sector, and one of the fastest-growing. OEMs include Volkswagen, General Motors and Mercedes-Benz in the Eastern Cape province, Toyota in the Natal province and Nissan, Ford, and BMW. Tata, Fiat and Renault are among the companies which have plans to set up plants in the near future.
OEMs in the country are expected to invest over half a billion dollars in new equipment, facilities, training and R&D during 2008. This is four times higher than the amount invested in 2001.
While the local passenger car market has contracted, Vermeulen says export volumes are accelerating projected at 266,000 units in 2008 – a huge increase over the 68,000 in 2001. Markets include Africa, the East, Europe and the Americas. This growth and the successes of SA component exporters has led to Naamsa predicting that, “for the first time since 1995, the industry could achieve a modest trade surplus”.
“The substantial growth in vehicle and component exports will lend support to local vehicle and component manufacturing operations,” says Vermeulen. There are also signs that the South African economy is continuing to move forward in the face of the global slow-down. In his quarterly review of business conditions, Vermeulen says “sales of new commercial vehicles registered strong gains rising to record levels on the back of strong investment in infrastructural development projects”.