NAACAM, recently, released The South African Automotive Supplier Industry Benchmark Report 2018. An interesting finding was the increased interest in localisation from SA-based vehicle assemblers over the past year. The period reviewed happened to be about the same time that industry stakeholders were part of a highly consultative process to shape the framework of automotive policy support for the post-2020 period, this is according to Renai Moothilal – Executive Director: NAACAM.
This is exactly the kind of value chain stimulation Trade and Industry Minister Rob Davies would have been hoping for when, earlier this year, he mentioned that the DTI is “more or less at the point where we will take a decision as to what the government programme will be. There will be some changes to the present programme, such as deepening the incentives related to component manufacturing, though it will build on the present framework.” The SA Automotive Masterplan 2035 reflects this by having a target of 60% local value addition for the sector.
The DTI’s current flagship support programme for the sector, the APDP (Automotive Production & Development Programme) and its predecessor, the MIDP (Motor Industry Development Programme), have done a great job at maintaining, and growing, a post-crisis vehicle assembly base to levels seen before the economic crash. Recent expansions and new investment by all the domestic OEMs (Original Equipment Manufacturers), including the 2018-launched ISUZU investment in Port Elizabeth, as well as the entry of assembly operations by BAIC and Mahindra, bears testament to this.
But vehicle assembly alone is not the golden egg of a state-supported automotive sector. That sits within the supply chain of locally-manufactured materials, components and sub-assemblies. It’s commonly known that economic benefits such as employment creation, new business opportunities, currency risk mitigation, technology transfer and skills development all emerge when an assembly base is supported by a deep and capable supply chain. It’s no wonder that any government looking to sponsor vehicle assembly within its borders, has its eye on ever-increasing levels of localisation.
One can contextualise this by observing the disappointment of the South Korean government over the announcement earlier this year by General Motors that it was closing its Gunsan plant. Not only does GM Korea employ nearly 16,000 workers, but it supports another 140,000 jobs in its supply chain. That alone explains the dismay of the Korean government.
The SA Automotive Masterplan has other key underpinning objectives. Certain quarters of the industry have been sceptical about the objective of doubling direct employment in the sector by 2035. This certainly won’t happen in the assembly space, given the trend towards higher plant automation levels. However, NAACAM feels the target is realistic if viewed in tandem with the other objective of achieving a 60% local value addition metric by then.
Over the period reviewed in the supplier benchmark report, the sample showed average employment levels (including both permanent and contract employees) having increased by 8.7%. More importantly, it reflected workplace productivity gains of 9.8% over the same period. Commitment of local employees, as measured by the absenteeism rate, dropped by 14.2%, outperforming other benchmark countries. Clearly, gains in localisation are proving to be positive both in the quantum and quality of work within the sector. Suppliers, in turn, need to increase their levels of investment and sub-localisation in preparation to accept greater opportunities emanating from assemblers’ demand.
If early results are indicative, it appears that South Africa can look forward to leveraging greater economic development gains post-2020 under an automotive policy framework that equally recognises the value of high-volume assembly plants, with deeply localised supply chains creating quality employment and business opportunities across all tiers of the automotive industry.