There are only a few nations which can entirely build cars from the ground-up (from scratch). Unfortunately, South Africa is not one of them. The country sources core powertrain (engine) and drivetrain (transmission, gearbox, etc) technologies, from first tier automotive countries which produce more than 1.5 million vehicles per year. It is also sadly incapable of developing telematics (GPS systems, on-board vehicle diagnostics, wireless device connectivity, etc) . In contemporary vehicles, drivetrain, powertrain and telematics make up about 50% of the vehicle’s value. Due to such dependency, South Africa’s local content in domestically produced vehicles is just around 40%. Investments needed in the development of core powertrain, drivetrain and telematics technologies, consist of high value componentry. The highly technical, capital-intensive systems, make it difficult for a multi-national vehicle manufacturer, to justify the investment in South Africa, due to the relatively depressed production quantities.
The other complication characterizing SA’s automotive industry, is that, much of domestic production is exported, instead of purchased locally. The reliance on exports does not augur well for a nation which frequently finds itself in conflicting foreign policy directions with its most useful export markets. South Africa depends on Europe for about half of its automotive output (exports). It is in Europe where imports of South African vehicles sustain the domestic automotive industry.
The local automotive industry contributes between 4- 5% to SA’s total economic activity (GDP) and 18- 30% of the nation’s overall manufacturing sector, depending on its output for each particular year. The reliance on exports, placed against SA’s foreign policy orientation, which is, at several times in conflict with the Western world, and the sector’s centrality to the country’s overall economic performance, demand that, some alterations be made. South Africa will have to change its disagreeable, vociferous, foreign policy perspectives, or at least be more reserved about them. Failure of which, it will need to increase the domestic demand for the local automotive industry, in order to eliminate the reliance on export markets. If the former two (reserved foreign policy, reduced reliance on exports) cannot be definitively achieved, then the country will need to introduce new manufacturing industries. A failure to bring the three in harmony, poses grave risk for the economy and the welfare of citizens. It may be that, since the ANC is new to confrontation with the Western world, the party does not adequately grasp the implications of such friction. Zimbabwe has been under Western sanctions for the past two decades on account of its autonomous policies.
Further, there are also issues with availability of railway transportation, electricity, security and safety, which continue to present a threat to the expansion of the local industry.
Solutions and opportunities
In order to improve access to premium technologies (drivetrain, powertrain and telematics), it will be essential for SA to start by considering developing its own sovereign vehicle brand(s). In the process, joint ventures between the proposed South African brand and foreign manufacturers, will lead to collaborations and sharing of techniques. This is how China managed to develop a first-class automotive industry. In July 1979, the nation introduced its; “Law on Joint Venture Using Chinese and Foreign Investment.” The law meant that, no foreign vehicle manufacturer could establish operations in China, if they had not partnered with domestic corporations. On the other hand, duties on imported vehicles were exorbitant, with strict foreign exchange controls further limiting the number of Chinese nationals who could purchase cars from abroad. Subsequent to the law, joint ventures were established between Chinese companies and major brands such as; Mercedes Benz, Volkswagen and General Motors, to name just a few. This is how Chinese manufacturers managed to understand the latest vehicle technologies of that time and accelerate their production to become the world’s largest producer and exporter of cars, to date.
SA can also invite manufacturers willing to invest on a gargantuan scale, so that local investments in powertrain, drivetrain and telematics become feasible. In 2012, Morocco invited Renault to build a plant. The factory now produces around 400 000 vehicles each year. This is about 80% of South Africa’s total output. After witnessing Renault’s success, in 2019, Peugeot also established a manufacturing plant in Morocco, which has an annual production capacity of 200 000 cars. Thus, the two plants in Morocco (Peugeot and Renault) are currently producing more vehicles than SA’s whole industry, even though they were just established a few years ago. In the same context, if South Africa were to invite such juggernauts, the industry would be huge enough to justify high-value investments.
A look at what the US and China are doing to thoroughly protect their industries, for instance, shows that the automotive sector has become a trade battlefield in the largest markets, with a strong governmental bias, towards local production. The US offers direct subsidies of up to $7 500 for each New Energy Vehicle (battery electric or hydrogen) produced. Additionally, there is a $6 billion purse which is currently subsidizing the production of batteries for electric vehicles. There is also $5 billion meant for financing the installation of electric vehicle charging stations. The US government has made it clear that, the subsidies will not be supporting manufacturers who use more than, trace amounts of Chinese critical minerals in their components.
China itself is also notorious for massive government support to Chinese car makers. In the electric vehicle sector, it offered direct consumer purchase subsidies (up to $7 200, until 2022), charging station installation incentives (discounted electricity charges, government-supported pricing), reduced taxes for the manufacturer, etc. In September, 2023, the European Commission also initiated investigations into China’s subsidies, with the aim of finding out how they link to the greater competitiveness of Chinese car makers, whose products are now in high demand in Europe and better priced than the European alternatives.
With such a background, it becomes clear that the SA government has to take a stance to also increasingly support its automotive industry, so that it remains competitive and relevant. The country will also need to focus on hydrogen electric vehicles, where its competitive advantages lie. A single hydrogen vehicle uses as much as ten times more platinum (between 60- 80 grams), than a traditional fossil-fuel-powered car, and SA has over 80% of the world’s platinum group metals (in natural deposits). In this regard, it should not be the case, that it is only BMW and a few others, who are working on the development of hydrogen powered cars, in South Africa. Government should therefore strive to have more car manufacturers on board, with such initiatives.
Kevin Tutani is a political economy analyst- tutanikevin@gmail.com
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