Posted: October 14, 2010
National Association of Automotive Component and Allied Manufacturers (NAACAM) Conference
Members of the Media,
Ladies and Gentlemen,
Thank you very much for the opportunity to address your conference which I regard as a continuation of our regular interaction with stakeholders in the automotive industry. This conference takes place at a time when the global automotive component sector, like the rest of the automotive industry, faces significant challenges
As we all know, the world economy has just passed through its deepest recession at any time since the great depression of the 1930’s. In South Africa, the Great Recession led to plant closures, job layoffs and declining sales and exports for automotive component manufacturers amongst others. In response, government together with automotive industry stakeholders embarked on several initiatives to respond to the crisis. A key intervention was the bridging finance for distressed companies, provided by the Industrial Development Corporation (IDC). This assistance was well received by the industry and undoubtedly assisted in stabilizing businesses and preventing further closures and job losses. This is another good example of a Team South Africa approach in which government, labour and the private sector worked smartly to develop pragmatic solutions.
These partnerships will need to be nurtured and strengthened in the years ahead as the industry continues to face challenging times. This is particularly so as the recovery of the global economy continues to progress both falteringly and unevenly. Some of our major traditional markets in the developed world are still in danger of a double dip recession. This week, the International Monetary Fund warned that most recent forecasts of global economic growth were too optimistic and that growth, especially, in the developed economies, was likely to be subdued for some years to come.
While emerging markets are doing better, and becoming new poles of economic power and dynamism, relating to them in a mutually beneficial way poses significant new challenges for several of our manufacturing industries, including auto-components. The automotive industry remains the largest and leading manufacturing sector in the domestic economy. It has strong linkages with other industries, across the South African economic landscape, from raw-materials suppliers through to financial services, motor retail and advertising. Through backward linkages it draws in products from a range of other manufacturing sectors including steel, metal, plastic and leather products. Forward linkages extend to financial services, motor retail and advertising.
Before the global economic crisis, the automotive industry’s direct contribution to gross domestic product had risen to 1,5%, while its indirect benefits were close to 7%, including retail and other services. The sector also represented 10% of manufacturing investment, 16% of South Africa’s total exports and employed 135 000 people directly. It has a very high positive multiplier effect on the rest of the economy in terms of value-added manufacturing, employment, investment, balance of payments and net revenue generation.
The future of the industry in South Africa will therefore remain an important concern for all the stakeholders and it is very important that we position ourselves strategically in the face of a changing and uncertain global economic climate.
As a key partner in the development and growth of this industry, government signaled its’ confidence in the medium to long term future by announcing the broad framework of the Automotive Production and Development Programme, (APDP) two years ago. The programme underpins the vision that the long-term development of the sector will be best served through significant increases in production volumes and accelerated growth of the local components industry. At the same time enhancing firm level competitiveness must remain a key objective of competitiveness. The new APDP architecture is therefore based on four key pillars; tariffs, local assembly allowance, production incentives and automotive investment allowance. The programme includes a Local Assembly Allowance (LAA) allowing vehicle manufacturers with a plant volume of at least 50 000 units per annum to import a percentage of their components duty-free. The LAA will be issued in the form of duty credits to vehicle assemblers based on 18% to 20% of the value of light motor vehicles produced domestically from 2013. Manufacturers will also receive value-add support to help encourage increased levels of local value addition along the automotive value chain, with positive spin-offs for employment creation.
As OEM’s gear up to take advantage of this programme, we are thus beginning to see them increasingly invest in local capacity and supplier bases. As component suppliers, in turn grow their businesses to supply the new localization programme, key new opportunities will emerge to become integrated into the global supply chain.
Clearly, despite the significant gains in production, exports and general competitiveness achieved by the automotive industry in the past decade, there remains a huge opportunity to increase local content of vehicles produced by the industry. Such a localization effort will benefit the growth of the industry locally, increase exports and create an enabling environment for more jobs. We therefore welcome the recent investment commitments by several OEMs as a positive step towards the realization of the APDP’s objective of attaining higher production volumes and higher levels of local content which will lead to a deepening of the domestic component sector.
Recent investment commitments totalling approximately R9 billion by BMWSA, FMCSA, VWSA and GMSA will support in excess of 4 000 direct jobs in vehicle assembly. But these investments will be accompanied by an estimated R4 billion worth of investments by component manufactures supporting a further 20 000 jobs. These figures highlight the greater labour absorption capacity of the auto components sector and the strategic importance, therefore, of increasing local content. While many of the jobs in the above quoted figures will not be new additional jobs as they are associated with replacement models they are still significant in the light of the currently high unemployment situation.
These developments, we believe are a direct outcome of the new APDP architecture and show what can be achieved as we move forward with that programme.
Regarding next steps, the regulations for the rest of the APDP will be gazetted in the very near future to allow for full implementation by 2013 on the lapse of the MIDP. It is also worth noting that the Competitiveness improvement programmes for component suppliers are continuing in partnership with the United Nations Industrial Development Organisation (UNIDO) and the Automotive Industry Development Centre (AIDC).
We have recently completed a study on the Medium and Heavy Commercial Vehicle sector with a view to developing a growth strategy and action plan to support further industrialization. Further development of this segment should also provide market opportunities for the component suppliers given light and heavy vehicle manufacturing synergies. It is also our intention to promote the local Electric Vehicle industry.
While times may be difficult, as a country, we are increasingly being recognized as a world class manufacturer of automobiles, and government is working as a partner to push this potential forward. We have built a positive working relationship that shows that we can do more together as fully committed parties working for the future growth and development of the South African vehicle and associated industries, including developing worker skills and improving supply base capabilities, which in turn supports our black economic empowerment objectives.