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Big investments coming to the auto sector in 2021

Major Chinese heavy truck manufacturer among the companies set to invest in SA.
No news yet about which manufacturer from the East is going to be producing heavy commercial vehicles in SA this year. Image: Shutterstock

The National Association of Automobile Manufacturers of South Africa (Naamsa) is anticipating another very good year of capital investment commitments by automotive original equipment manufacturers (OEMs) in South Africa in 2021.

Naamsa CEO Mikel Mabasa said on Tuesday it is anticipating that a number of automotive OEMs will definitely be considering some capital investment projects in South Africa this year, including a Chinese heavy commercial vehicle manufacturer.

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“I don’t want to steal their thunder but there is a major Chinese company, which is going to produce and manufacture heavy commercial vehicles in the country this year.

“We are hoping that those announcements will be finalised and when they are ready, we can allow them to make those announcements,” he said.

Record year

Mabasa’s comments follow Naamsa this week releasing its quarterly review of business conditions in the new vehicle manufacturing industry, which revealed that total capital expenditure by the major vehicle manufacturers reached its highest level on record at R9.2 billion in 2020.

“The continued high levels of capital expenditure are due to investment projects by manufacturers in terms of the Automotive Production and Development Programme [APDP], which are normally spread over multiple years and linked to higher levels of production for export markets,” he said.

Mabasa said it is difficult to speculate how 2021 will pan out in terms of capital investments by automotive OEMs and how the total investment by the industry this year will compare with the record investment year in 2020.

However, he said the industry had started 2021 “very powerfully” from an investment perspective, particularly in view of the very difficult economic conditions and climate South Africa finds itself in.

This is a reference to the announcement earlier this month that R20.13 billion is to be invested in South Africa by the Ford Motor Company and its suppliers for the production of the new Ranger and a bakkie for Volkswagen at Ford’s assembly plant in Silverton in Pretoria and the adjacent Tshwane Automotive Special Economic Zone (SEZ) and Toyota South Africa Motors (TSAM) announcing the investment of almost R3 billion in South Africa for the production of the new Corolla Cross sport utility vehicle (SUV) at its manufacturing plant in Prospecton in Durban.

Read:

Of the R20.13 billion to be invested by Ford and its suppliers:

  • $686 million or R10.3 billion provides for extensive upgrades to the assembly plant in Silverton, including increases in the plant’s installed capacity from about 168 000 to 200 000 vehicles a year and to drive significant improvements in production efficiency and vehicle quality.
  • A further $365 million or R5.5 billion investment by Ford in tooling at its major supply factories.
  • Investments of R4.33 billion by 12 automotive component suppliers, including existing and new suppliers in the country dedicated to producing components for the new Ranger and Volkswagen Amarok product, in facilities and to set up their businesses adjacent to the Silverton plant.

The TSAM investment is a significant milestone for the company because it will be the first time its plant manufactures a hybrid drivetrain vehicle.

Other investment activity

It was also reported that Minister of International Relations and Cooperation Dr Naledi Pandor said during the State of the Nation Address debate in Parliament last week that Isuzu, Tata Motors, Mahindra Motherson Sumi and Toyota have expanded their investments in South Africa.

Mabasa said on Tuesday there are more OEMs, other than those mentioned in Parliament, that are definitely considering some capital investment projects this year.

“South Africa is still in recession currently and the fact that all these automakers compellingly presented to South Africa very serious investments, is confirmation that this year will see a renewed investment climate from the automotive industry,” he said.

Naamsa’s quarterly business review said annual capital investment by independent vehicle importers at their head offices and dedicated dealerships increased to R52.4 million in 2020 from R11.8 million in 2019.

The review said the number of people employed in the vehicle manufacturing industry increased by 218 jobs to 30 162 jobs in the last week of December 2020 from the 29 944 industry headcount at the end of September 2020.

Total employment by independent vehicle importers increased by 163 jobs to 5 579 jobs at end-December 2020 from a headcount of 5 416 at end-September 2020.

Confidence

Turning to the Naamsa CEO’s Confidence Index, the review said despite a much improved performance during the fourth quarter of 2020, the CEOs generally regarded the prevailing domestic automotive industry business conditions during the fourth quarter as still unsatisfactory compared to the corresponding quarter of 2019.

The new vehicle market in South Africa recorded its lowest aggregate sales total in 18 years in 2020 because of the impact of the Covid-19 lockdown.

However, the review said the sentiment expressed by the Naamsa CEOs related to automotive business conditions over the next six months “is one of cautious optimism”.

“A rebound in the domestic as well as global GDP growth rates is generally anticipated for 2021, which bodes well for improved domestic new vehicle sales and production, from a very low-based Covid-19-affected 2020.

“In general, the CEOs across all vehicle manufacturing segments, as well as the CEOs of the independent vehicle importers, are fairly positive that domestic new vehicle market performance indicators and market conditions are likely to improve over the next six months,” it said.

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This should be welcomed, but the article contains little perspective on what the manufacturers get out of this. To what extent are they subsidised and what tax breaks and exemptions do they receive?

Please inform us about the incentive schemes. The tax rebates, the protection of a 30% import tariff, special deals on rates and taxes, no BEE requirements and subsidies from the Treasury.

If this government simply gave the same benefits to all local businesses we would not have an unemployment and Debt/GDP problem. They are overtaxing existing businesses to incentivise new “investors”. It is quite clear why this industry is able to expand and show a profit. This industry enjoys exemption from the core ANC economic transformation policies like BEE and redistributive rates and taxes, which kills the rest of the economy.

The investments in the auto sector, in the context of zero growth in mining exploration and the contraction in industrialization, proves that South Africa cannot afford the ANC any longer.

Sensei I normally enjoy your balanced and thoughtful comments, but feel that I need to respond to this one above. Recently NADA has actually started lobbying government to reduce import tax on vehicles, since the high duties impact car sales negatively (42% of an imported cars price ticket goes to different taxes, according to their press release). Also, your ‘no BEE requirements’ is simply incorrect. The same laws and requirements apply to car and components manufacturers as do to any other business in SA. The large components manufacturing conglomerate I work for has a high BEE score as a KPI, on our management’s annual incentive program. Furthermore we pay the same taxes as would any other business. The only benefit we have is the “APDP” program where some support is received on locally manufactured components. This assists local manufacturers to be more competitive (our labour component and lower volumes when compared to international competitors are problematic).In this way a lot of employment opportunities are protected and even created which is good for SA.

I asked for information, and you supplied it. I thank you for your comment and I accept the facts that you provided.

What are the discounts on excise duties on exports?
Are the BEE requirements valid for downstream service providers only, or are the parent companies like Mercedes, BMW, Ford and Toyota also required to adhere to BEE requirements?
Is there an import duty on imported vehicles?
Do companies that operate in Special Economic Zones enjoy special financial, labour, and tax proiviledges?

I guess any investment is better than no investment. CANCer – please apply same passion and incentives to other sectors of economy e.g. mining, industrial and manufacturing…

Surprised the Chinese will put up with our labour laws. Suspect they have some exemptions or special arrangements. They tried SA soon after 1994 and didn’t last.

Before anyone gets too excited, I suspect the plant will probably be manned by robots and Chinese workers.

End of comments.

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