South African Business 2016 edition

OVERVIEW Automotive

OVERVIEW Automotive International investors are eyeing the South African automotive industry. A recent PwC global automotive survey revealed that South the localisation of components,” Africa’s automotive CEOs are faced with similar issues to concludes Minie. their global counterparts. Most see Government response to the fiscal deficit and debt burden, social instability and high employment as impeding business growth. Foreign investment Automotive CEOs know they need to keep up pace with technology. This year they are placing particular emphasis on data mining and analysis (83%), mobile technologies for engaging with customers (77%) and tools for boosting cybersecurity (77%). They are also attaching more importance to new battery and power technologies than CEOs in other sectors (68% versus 47%.) What is more, automotive CEOs are actively exploring the potential of robotics (53% versus 37%.) At the same time, the pace of technological change is increasing cause for concern: 55% are now worried about keeping abreast of new technologies, as opposed to 49% last year. The South African vehicle and automotive component manufacturing industry, including exports, constituted 30.2% of total manufacturing output and 7.2% of GDP in 2014. “South Africa is a production hub for the global automotive industry and therefore trade relations are important,” says Kobus Minie, PwC Automotive Industry Leader for Southern Africa. South Africa’s most important automotive trading partners are the EU, North American and certain African countries. Total South African vehicle and component exports are worth about R115.7bn to 148 countries in 2014. In 2015, local sales have been limited by interest hike rates, subdued consumer confidence, decelerating economic growth, household income under pressure and the weakening Rand. As consumer buying power declines, so new vehicle sales are likely to slow. The converse is an increase in the popularity of vehicle leasing: consumers’ spending remains constrained by the difficult economic climate and high debt levels, making leasing a definite option. Several well-known premium and volume automotive manufacturers with a significant manufacturing base in South Africa produce vehicles for the local market and the rest of the world. These OEMs are capable of producing more than 800 000 light and commercial vehicles annually. Opportunities about for giant automakers and suppliers who have already started making inroads in Africa. “There is definitely a huge opportunity for South African manufacturers to increase Chinese automotive manufacturer First Automotive Works (FAW), recently launched its R600m assembly plant in Zone 2 of the Coega Development Corporation’s (CDC) Industrial Development Zone (IDZ.) It is one of the biggest manufacturing investments by a Chinese entity in the country to date, with tangible spin-offs. Speaking at the launch, President Zuma said, “The investment of R600m into the economy will create much needed jobs and promote an improvement in the lives of many people in this area. “This investment also augurs well for South Africa’s position within the global automotive manufacturing network and proves once again that we have an attractive operating environment to host global multinational companies.” In particular, it has created the The implications are important: the creation of Chinese investor confidence in South Africa has inspired further Chinese investments in the country. Chinese manufacturers Powerway Engineering (R127m) and Powerway Photo Voltaic (R666.6m) have confirmed their investments in the IDZ , bringing SOUTH AFRICAN BUSINESS 2016 92

the total sum of Chinese investment in the IDZ to R1.394bn. The Volkswagen Group South Africa recently announced plans to invest more than 4.5-billion rand (4-million) to build new models in South Africa for local and export markets as part of its next phase of investments, as reported by TimesLive. Imperial Holdings, whose business has been hit hard by deteriorating rand values, is mulling the establishment of a Hyundai passenger car manufacturing plant in South Africa, according to IndependentOnline. “Exports will again play a key role in our strategy going forward,” said VWSA managing director Thomas Schaefer at a South African press conference. Volkswagen South Africa continues to dominate the passenger market in 2015 with a year-to-date market share of 21.4 percent. OVERVIEW “Ongoing investment in new technologies and products will ensure that Volkswagen is positioned to continue to be the dominant player in the South African passenger market‚” Schaefer said. The 4-million Volkswagen investment will comprise 9-million in production facilities‚ 4.7-million in local supplier capacity and an estimated .68-million in employee training and development, TimesLive reports. “South Africa is not a logical production location for the motor industry as only 0.6 percent of the world’s vehicle production is situated here‚” Schaefer said. “However due to the strategic location and the potential of Africa as a future market for exports‚ as well as the security that the APDP (Automotive Production and Development Programme) provides for investors‚ ongoing investments in our vehicle manufacturing base makes sense. Hence the decision by our parent company to allow us to embark on such a major new investment.” South Africa’s Automotive Production and Development Programme aims to stimulate growth in the South African auto vehicle production industry, according to the Global Alliance of SMEs. SECTOR INSIGHT • FAW invests in R600m assembly plant • VWSA to invest more than R4.5 bn • Imperial Holdings is considering building new plant 93 SOUTH AFRICAN BUSINESS 2016