Remarks by Minister Ebrahim Patel at the NAAMSA Automotive Conference at Kyalami Conference Centre on Thursday, August 22, 2019

Remarks by Minister Ebrahim Patel at the NAAMSA Automotive Conference at Kyalami Conference Centre on Thursday, August 22, 2019

Thank you for the opportunity to make a few remarks at your Conference today; and for so kindly accommodating my request to speak earlier, in order for me to attend a session of Parliament this afternoon in Cape Town.

This is the first NAAMSA Conference after the inauguration of President Ramaphosa and the first State of the Nation Address of this new administration, an address where the President laid out his plans for what he termed a ‘re-imagined industrial strategy’ for the South African economy and where he envisaged a different South Africa, with new smart cities, high and rising levels of skills and incomes, and a nation at peace with itself, engaging with the rest of the continent and engaging with the world.

It is in that context that I am pleased that you chose as your conference theme, ‘Reimagining the future together’, which provides a framework to think differently about the decades ahead, that the future is not simply the present with a lick of paint but it is something that we can shape to realise our greater national dreams.

I want to start with a few remarks about the economy; recall for us some of the challenges we face and also strengths that we can build on; and then reflect on the industry and our partnership.

South Africa is Africa’s most industrialised and diversified economy, with a GDP of R5 trillion, with 16,3 million people in employment and a robust, noisy democracy with a growing population.

Economic growth in the last number of years has been modest and at times lackluster, through a combination of domestic and global factors.

Generally weaker commodity prices, weak or slow implementation of public policies together with the erosive and damaging effects on the economy of the state-capture project, infrastructure challenges such as the cost and availability of electricity, skills gaps and limited private sector investment, adversarial relationships in the economy and between the public and private sectors, have all contributed to low growth.

Growth over the past 5 years has averaged 1.1% a year and 1,2 million net new jobs has been created in the economy over the five year period. Our potential growth rate is significantly higher; and we need to create more jobs.

Low GDP and inadequate jobs growth impacts on the opportunities for the nation as a whole and it impacts of course also on the size and growth of domestic car consumption.

Our economic vision is to lift the rate of inclusive economic growth.

It requires that we address both the economic factors and political environment to enable faster growth, more job creation and greater levels of economic inclusion.

We have a number of strengths we can build on.

While growth has been modest, the long-term growth trend has remained in positive territory. There is a significant production and technological base we can tap into, we have the continent’s most advanced infrastructure in energy and logistics, with sophisticated and deep financial markets, a rising skills base with a growing number of young people with more than high-school qualification, rapid urbanization and a growing middle-class that provides new markets (and new consumers for transport services).

We are located on a continent that has high growth potential with enormous stores of natural resources that can be tapped and of course now a political agreement to create a very large African free-trade area.  We are part of significant global structures such as the G20 and BRICS; and we have significant market access to the EU and the US.

We have a large road network. In fact, you may not know this but we have the world’s 10th largest road network.

Someone once said that the problem with traffic is that the people of today are driving the cars of tomorrow on the roads of yesterday. So when we invest on road infrastructure it’s to connect the opportunities of what the new car technologies can bring with what our infrastructure delivers.

We must make sure that we utilise these enormous strengths that we have.

In the past 63 days since the State of the Nation Address, Government has stepped up the pace to lay the foundations of the re-imagined industrial strategy.

• We met with the CEOs of the auto OEMs, to affirm the importance we place on the partnerships with the sector
• We held a number of sector engagements, including with the steel and metal fabrication industry, poultry producers, the sugar industry and the clothing, textile and footwear sectors, to progress discussions with them on sector Master plans in the number of different sectors
• We met with the leaders of business and labour at Nedlac, and with Business Leadership SA and BUSA, for detailed engagement on our overall trade and industrial strategy to begin to build a different partnership
• There is greater policy certainty: for example, Government gazetted its new spectrum-release policy to help build a stronger digital economy.

At the international level in these number of weeks,

• President Ramaphosa co-launched the implementation phase of the AfCFTA in Niger and I was pleased to see one of the local CEOs in attendance. Next year the President Ramaphosa chairs the African Union.
• I have commenced discussions with the Office of the US Trade Representative on our trade relations and we attended a consultation with the US on AGOA
• We restarted the stalled talks with the UK on ensuring seamless trade in the event of a no-deal Brexit; and held informal talks with the EU on Brexit’s implications for our EPA-arrangements particularly in respect of the auto sector.
• We met with senior representatives of the Chinese government to take forward our goal of addressing the composition of trade between China and SA in ways that will need to deepen local manufacturing.

I have given you a random set of examples. It’s examples that illustrate the shift in a different gear in engagements with industry and with partner governments.

With the return of industrial policy as a focus of governments across the world, you’ve heard about “make America great again”, you’ve heard about the measures undertaken in Europe, in China, in elsewhere, it is worth recalling that the objective of industrial policy is to lift the rate of growth, to stimulate specific economic sectors, including through promoting technology and innovation, to promote ‘structural change’.

The role of industrial policy in our current context is to unleash private investment and to energise the state to boost economic growth and inclusion. It’s an essential part of building investor confidence and the platform for job-creation.

Technology is reshaping our world and your industry, in ways that we cannot fully imagine yet. Technology led to the car and shifted us from literally a pedestrian existence, displacing horses, the occasional donkey and the ox-wagon.

Based on what is currently known, technology will reshape:

• How cars are produced, with the rise of smart robotics and new systems of production automation, together with new materials used in car production
• How cars are powered, with the rise of green technologies like electric vehicles and hybrids
• How cars are driven, with autonomous vehicles being tested on scale
• How cars are owned, with experiments in sharing and pooling that may impact on financing systems and demand
• How cars are connected through digital systems to each other, to their physical infrastructure and to the services that users of cars will be able to access
• Perhaps even the surfaces and infrastructure that cars will drive on.

So we are looking at the future of the car as much as we may reimagine the future car.

We cannot predict the pace and direction of change; only that it will be relentless and it may be faster than we currently predict. Some but perhaps not all these changes will impact on car-production within the timescale of the new Master Plan. That makes planning and policy-making more complex, because we should work on both existing technologies and the markets for them; as well as position ourselves for the new opportunities that are beginning to emerge from new technologies and new market demands.

It requires therefore a Master Plan that is flexible enough to adapt to, and embrace emerging technologies; manufacturers that are agile enough to adjust to and lead these changes; workers who are able to reskill on a continuous basis to embrace the new industrial realities; and government able to navigate the terrain to position our people to benefit from, rather than be the collateral damage of technological innovation.

The automotive industry is one of the success stories of carefully implemented industrial policy.

About 7% of South Africa’s GDP is contributed by the industry, supporting more than 100 000 jobs.

The success of the new SA Auto Masterplan will be based on a number of key principles

• Policy predictability and certainty, within which investment and OEM’s, each of those windows with the big OEM, decisions are made to allocate resources where cars are built, and what investment to commit. Within that period we need policy predictability.
• Reciprocal commitment; in which parties to this Partnership bring something substantial and each achieve their objectives
• Efficiency in the application of public resources – in respect of the applied incentives and the broader economic and social returns
• Responsiveness to the technology revolution that is reshaping the transport industries
• Utilizing and expanding the opportunities that arise from in trade agreements and market opening
• Deepening local component manufacturing and transformation of the industry.

In the available time this morning I want to outline six arears of focus by government over the next five years, and the opportunities for the automotive industry and a call on you to continue to deepen the partnership in each of these areas.

First, we want to expand markets for our products and facilitate entry to those markets.

You are a significant exporter.

Of the 610 000 vehicles assembled in South Africa in 2018, more than 350 000 were exported to other countries. Exports of cars, trucks, bakkies and components accounted for R165 billion* in earnings in 2018, making up 14.5% of our total export basket by value.

From the EU, to the US, Japan and the rest of the African Continent, South African-assembled vehicles are exported to more than 150 destinations globally.

The global and bilateral trade regime matters therefore, as they define market demand. Whereas, as I indicated earlier, working with the authorities in the UK,in the US to ensure that we are able to access these markets.

To realise the export potential, infrastructure and especially the logistics is critical. The downtime that car makers faced recently in different ports, particularly at the port of Ngqura, are the kind of challenges that will need to be resolved to enable companies to develop efficient production and distribution systems, as competitiveness will not be a function solely of what happens on the factory floor but across the entire supply chain to the final consumer.

The market in the rest of Africa is the second largest regional destination for our export business at present. It accounted for R32 billion, or 18%, of South Africa’s total automotive exports last year.  Exports just to SADC-countries comprised R27 billion, or 85% of our African exports.

The free trade area within SADC, as well as the geographical proximity of these markets, which are relatively easily accessible by road or by rail, contributed to the significantly to enable us to deepen trade with our neighbours.

The biggest game-changer for expanding market access is the African Continental Free Trade Area (or AfCFTA as it is called) which will connect 1,3 billion people into a single bloc where local products will be traded between countries, with minimal tariffs.  These agreements lay the basis for increased intra-African trade and can cement the continent’s position as the next growth frontier.

We launched the implementation phase last month, at a Special AU Summit meeting in Niger, 54 of the 55 African countries signed the Agreement, 27 countries have now ratified it. We expect it to come into effect from the 1 July next year.

It will fundamentally change and reshape the South African economy. Already, exports to other African countries account for about 250 000 South African jobs and it is the fastest-growing part of our manufacturing portfolio.

As the largest assembler of automotive vehicles on the African continent, the AfCFTA presents a very significant opportunity to the South African car and truck making fraternity. We already the 4th largest exporter of cars elsewhere on the continent after Germany, China, and Japan

For the period of this Administration, there is an enormous amount of work we now need to do to take the conception agreement and ensure that in a disciplined bit by bit way we implement it, we bed it down, we get the detailed modalities secure.

Starting immediately, we are working on finalising a tariff schedule, listing products covered to be by the AfCFTA; and the rules of origin and all the associated issues.

Last Thursday, I established a National Committee, comprising business, labour and government, to develop action plans around the new AfCFTA. This National Committee will have sector-level task teams to help ensure that we are ready to take advantage of the opportunities of the continental Free Trade Area.

NAAMSA and NAACAM, together with the unions in the sector, should be part of a sector readiness committee, mapping out the opportunities available for the industry through the free trade area.

The proposed African Auto Pact is one way of ensuring greater cooperation between key African countries to develop both the consumer market on the continent – in part by addressing the large level of second-hand car imports – and also to increase the production capacity across a few hubs in south, east, west and north Africa, and drawing in components from a wider pool of countries.

It’s when we are able to show that in fact the benefit of industrialization is spread across the continent, that we build a deep commitment to this important, a truly historic mission, to work with the generations to realise the dream of African leaders to build a single, a prosperous and united Africa.

The second focus is to support improved industrial performance, dynamism and competitiveness of local companies and aligning plans to technological innovation.

This will include supporting companies to improve industrial capacities and sophistication, focusing on export orientation, and reclaiming domestic market space lost to imports.

In November last year Cabinet endorsed the South Africa Automotive Masterplan whose 2035 vision is the achievement of “a globally competitive and transformed industry that actively contributes to the sustainable development of South Africa’s productive economy, creating prosperity for industry stakeholders and broader society.”

You know the main metrics of the Masterplan. It aims by 2035 to increase local content sharply, from 39% currently to 60%, to double annual car-production, to expand employment to 220 000 people and to create a large fund to support black industrialists and transformation in the sector.

To realise these targets, the South African industry will need to respond to the technological shifts that I spoke of earlier.

The electrification of an automobile is being enabled in part by breakthrough battery technologies that are helping us to develop cars which will achieve better and much improved city and highway driving economy.

Electronics is also at the root of many advances in vehicle safety.

By integrating cameras, radars and sophisticated sensors, cars of the future will offer an array of intelligent technologies like blind-spot detection, collision warning systems, adaptive cruise control, crash-imminent braking and vehicle-to-vehicle communication. The new 5G wireless connectivity will open up a new wave of innovation applications to the auto sector, including vehicle-to-infrastructure communication.

This entails vehicles that are connected to smart highways and traffic lights, then linked to accurate, real-time traffic updates and navigation systems, which can significantly reduce congestion and urban commute times, in addition to improving vehicle safety and deaths on our roads.

So if this shift, which is quite a profound shift from the internal-combustion engine as the core part of a vehicle, to vehicle electronics is where value-addition will increasingly take place, we must develop local capabilities in these electronic technologies and help build a local component industry that aspires to more than to simply manufacturing low-tech components. We should not build the industry of the past in a world that is changing fast.

I have got less than 1 000 electric vehicles were sold in South Africa in 2018, global sales of electric vehicles have been pretty robust, more than 1.2 million vehicles sold, and there are now more than 5 million on the roads. The growth in global electric vehicles is amongst the fastest in all passenger vehicle categories.

There is thus an opportunity to bring more of the production of electric and also hybrid vehicles to South Africa, not necessarily based on first developing a domestic market EV-infrastructure, but seeing the opportunities in developed markets globally.

South Africa is also endowed with the resources required for batteries and fuel cell technology. South Africa produces 70% of the world’s platinum and 40% of the world’s palladium. There are new investments in nickel sulphate, used in lithium ion batteries, which can be helpful.

There may also be opportunities to utilize vanadium, which is used in redox flow battery technology, for electric cars in future. At the moment it is made and the technologies are mainly about grid based storage, but there are certainly opportunities out there.

The automotive industry has a role to play in ensuring that more of these resources is beneficiated here in South Africa through opportunities in vehicle component manufacturing and support for technological innovation. So CSIR, Universities and so on, are key partners for the OEM’s.

As we ramp up production in the auto sector to realise the 2035 vision, we have to focus on greater levels of localization, which provides an opportunity for greater numbers of South African entrepreneurs and workers to benefit from this growth. It also provides an opportunity for other industries to grow with your industry. I look there to steel, brazen, glass, and aluminum, chrome, and many other sectors that can in fact provide key inputs into car making.

On Monday, I met with a number of companies from across the steel and metal fabrication value chain. The industry is hungry and says it is ready to retool to supply an increased range of products to the automotive industry, and I would encourage OEMs and component manufacturers to work with the metals industry on localising inputs.

The third focus is to improve the levels of investment in the economy and help to achieve the target set by the President in SONA last year.

Of course you’ve been a large source of investment. In the last five years, more than R35 billion has been invested by the Automotive Industry and this included investment by existing OEMs to upgrade facilities and retool for new models, but also as greenfields investment such as the construction of South Africa’s first new light vehicle manufacturing facility in over 40 years in the Coega SEZ in the Eastern Cape.

During last year’s inaugural Investment Conference, the automotive industry pledged R50 billion in new investment over the next five years.

The next Investment Conference takes place between 5 and 7 November this year, which provides an opportunity for support industries to highlight additional investments that will flow from the OEM investments; and showcase examples of implementation of those pledges.

To support the industry in unlocking investment opportunity, our agency Invest SA is being upgraded to be a stronger one-stop shop to unblock obstacles to investment projects getting off the ground.

The IDC is also being refocused to provide a greater level of investment promotion services, particularly in being the partner in the AfCFTA and utilizing our opportunities.

The 4th focus is to promote economic inclusion.

One of my priorities is around transformation of the automotive sector.
This national project is not just a nice to have or a tick box exercise, but an imperative to the success and the sustainability of the industry.

Our ambition is to grow the South African automotive sector through the acceleration of employment of black South Africans, upskilling of employees, empowerment of dealerships and authorised repair facilities, and substantially increasing the contribution of black-owned automotive component manufacturers within the automotive supply chain.  But it also about getting young people into the supply chain. Young black South Africans and young white South Africans bringing the energy, the know-how, the drive that sits among young people and help them to create this economy that we envision.

Let me emphasise the point as I talk to transformation, it is based on a bedrock of a deep commitment to non-racialism. Every white South African belongs to this country. This is your and our country and in order to create a stable democracy we need to work together to transform ownership structures and economic opportunity so that in fact there is a space for all of us.

I acknowledge that many of our local OEMs have included transformation in their own business strategies, but the current pace is unbearably slow and it needs to be accelerated. So we need to do things together.

I will soon engage industry leaders on the establishment and finalisation of the Automotive Transformation Fund, which is a key instrument to bring new industrialists into the sector.

We need to change our market structure, both through industrial funding to new groups and through competition policy. You know that last month we promulgated new sections in the Competition Act that will do many things. But one of the things that it will do is to enable greater cooperation and coordination by larger players without falling foul of the competition and if indeed it is an increase in exports and an increase in economic inclusion.

The efforts of government and the private sector can unlock financial support of over R40 billion for black industrialists across the economy as a whole, utilizing so many different tools and ready to work with OEM’s in the Auto-Sector on the proposed equity-equivalence investment programme to broaden the base of economic participation and to improve worker participation in company decision making.

Germany and Japan show the example, better, newer, more innovative inclusion programmes after the Second World War took those countries to the cutting edge of vehicle manufacturing in the 20th and 21st century. The adversarial model of industrial relations that we see is not appropriate to the new conditions of global competition and we need to develop new ways of ensuring fairness in wages and working conditions together with deeper partnerships between management and workers and trade unions in the sector.

And of course it is women’s month, we should commit to improve participation of women in the economy and within the Auto Industry, its ecosystem, its workers, technicians, managers, and directors.

The 5th focus is promoting more equitable spatial and industrial development.

A pillar of our industrial policy is to develop new investment clusters through special economic zones and the revitalisation of industrial sites.

These are well-positioned to become supplier development parks and also the location of greenfields investments, including the auto-sector.

The Coega, East London and Dube Trade Port Special Economic Zones have each supported investment in the automotive sector. We are now working on a proposal to develop an SEZ in Tshwane which will be focused on the automotive supply industry specifically. It will be large, something the size of about 200 soccer fields added together.  It will be series of phases of its development and it is intended to support improved competitiveness and further encourage localization in South African assembly of cars.

The 6th focus area is to improve the capability of the state, of government, of public entities.

This means being more responsive to the needs of industry, moving faster in making decisions and carrying out our functions, coordinating better between departments and agencies and creating a business-encouraging environment in which more investment and more job creation can take place.

Part of a smart state is partnering with domestic businesses to invest more in innovation and R&D, as new techniques, new products and new distribution platforms can move South Africa up the value-chain and enhance job creation.

We will use private sector expertise to strengthen the implementation capability of government; in many cases we will look to the private sector to bring in and carry the costs of experts to facilitate better implementation. We have to work together. If we need to improve our coops let’s put our joint resources together and say how can we re-engineer workflow. I mean you are in the job of workflow, so see how we can bring global best practice to improve the way the state works.

I have spoken of these six areas, with partnership and technological innovation as key cross-cutters.

They are not separate programmes: it’s in the combination of these six, in their reinforcing that we can achieve what we seek to do. So partnership above all is important, technology will reshape but in the end partnership enables us to deal with the trade challenges, acknowledging challenges with production challenges.

We need those partnerships between government and the private sector, between industry more broadly – its suppliers, its customers, critically between labour and business, and through these joint efforts we can support the local auto industry to grow and continue to be dynamic.

We want a big auto industry in South Africa with an ecosystem of small, medium and large players able to reach the scale of production necessary to make us a serious global player.

It is not simply government edict that creates. It is when your market is large enough to develop the Eco-system of component manufacturing, of R&D and so on that you really have a solid foundation to grow.

I want to address the question of large businesses: big is not bad – large local component companies present opportunities to build globally-active corporations headquartered in South Africa.

We ask domestic and multinational corporations to work with us through higher levels of investment in factories, technologies, new products and SME development; through promoting decent working conditions with skills enhancement; and through expanding exports and their presence on the African continent.

The role of the state is important in creating an enabling environment for entrepreneurs and workers to create wealth; in investing in sources of growth such as infrastructure, skills and technologies; and in ensuring that the fruits of economic activity is fairly distributed across society.

In conclusion, our love affair with cars will influence how cars will evolve in future. You know and all of us may have started as young people on our first car that the most exasperating car trouble is when the engine won’t start and the payments won’t stop.

I want to conclude with the famous quote by Henry Ford which presented a vision and based on that vision an entire industry was re-tooled and changed so much of the 20th century. He said:

“I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one — and enjoy with his family the blessing of hours of pleasure in God’s great open spaces”.
HENRY FORD, My Life and Work

Powerfully put. Look how that vision changed the world and created for you your employment, your economic opportunity and for all of us the ability to bring the large numbers of people in urban spaces to connect the world in such powerful ways.

You have a lot of work to do to build on that legacy to position our country. I wish the Conference every success and I thank you for this opportunity to share these thoughts with you!

Thank you very much.