South Africa. Automotive Export Manual

Transcription

1 South Africa Automotive Export Manual 2016

2 AUTOMOTIVE EXPORT MANUAL 2016 SOUTH AFRICA PUBLICATION The Automotive Export Manual 2016 South Africa publication is an annual publication produced and compiled by the Automotive Industry Export Council (AIEC) the recognised source of South African automotive trade data. The 2016 publication, as well as the previous nine publications since 2007, provides a comprehensive guide on the export and import performance of the South African automotive industry under the previous Motor Industry Development Programme (MIDP) and current Automotive Production Development Programme (APDP). The aim of the manual is to identify and report on the major automotive export destinations, the major countries of origin, the main automotive export trade blocs, the most important automotive products being exported and imported, the top growth markets and products as well as the impact of the trade arrangements enjoyed by South Africa on automotive trade patterns. 1

3 ACKNOWLEDGEMENTS The information and analysis in this report were produced and compiled by Dr Norman Lamprecht on behalf of the Automotive Industry Export Council. The contributions and assistance by NAAMSA, NAACAM and the Department of Trade and Industry are hereby gratefully acknowledged. The data processing and editing by Dr Alet Tolmay and design and outlay of the publication by Dr Selma Schiller are also acknowledged with appreciation. AIEC P O Box Arcadia 0007 Tel: Fax: Website: 2

4 CONTENTS South Africa key performance indicators... 5 The Automotive Industry Export Council... 7 South African new vehicle market features... 9 South Africa and its automotive clusters...13 Operating environment of the South African automotive industry...18 South Africa s automotive policy regime...20 Methodology automotive export and import data...25 Exports to countries...26 Exports to regions...31 Exports of vehicles...48 Automotive components exports by country...51 Automotive components exports by product...61 Imports by country of origin...70 Imports of vehicles...72 Automotive parts and components imports...74 Main automotive trading partners...76 The automotive industry s trade balance...80 Potential opportunities via trade and co-operation arrangements...83 South African automotive industry growth prospects...87 Key motor industry contact details

5 ABBREVIATIONS AGOA AIEC AIS APDP BLNS BRICS CBU CKD COMESA CPI DTI EAC EU FDI FOB FTA GDP IDZ MERCOSUR MIDP NAACAM NAAMSA NAFTA OEM OICA SA SACU SADC SARS WTO African Growth and Opportunity Act Automotive Industry Export Council Automotive Investment Scheme Automotive Production Development Programme Botswana, Lesotho, Namibia and Swaziland Brazil, Russia, India, China and South Africa Completely Built-up Completely Knocked Down Common Market for Eastern and Southern Africa Consumer Price Index The Department of Trade and Industry East African Community European Union Foreign Direct Investment Free on Board Free Trade Agreement Gross Domestic Product Industrial Development Zone Mercado Común del Sur Common Market of South America Motor Industry Development Programme National Association of Automotive Component and Allied Manufacturers National Association of Automobile Manufacturers of South Africa North American Free Trade Area Original Equipment Manufacturer (Vehicle Manufacturer) International Organisation of Motor Vehicle Manufacturers South Africa Southern African Customs Union Southern African Development Community South African Revenue Service World Trade Organisation 4

6 SOUTH AFRICA KEY PERFORMANCE INDICATORS The following table highlights the significant social and economic contribution by the domestic automotive industry in the context of the South African economy for 2015 versus Key performance indicators 2015 vs 2014 Indicator Performance Consumer Price Index (CPI) 6,1% 4,6% South Africa s Gross Domestic Product (GDP) R3 797,1 billion R3 991,0 billion Broader automotive industry contribution to GDP 7,2% 7,5% Vehicle and component production as % of South Africa s manufacturing output 30,2% 33,5% Average monthly employment by vehicle manufacturers Automotive component sector employment Capital expenditure vehicle manufacturers R6,9 billion R6,6 billion Capital expenditure component sector R2,7 billion R2,8 billion Total South African new vehicle sales units units Total South African vehicle production units units South Africa s vehicle production as % of Africa s vehicle production 68% 64% South Africa s global vehicle production ranking 24th 21st South Africa s global vehicle production market share 0,63% 0,68% Vehicle ownership ratio per persons Total automotive export earnings R115,7 billion R151,5 billion Automotive export value as % of total South African export value 11,7% 14,6% Number of export destinations Number of export destinations with export values more than doubling year-on-year Top automotive country export destination in rand value terms Germany Germany Total South African vehicle exports units units Total value of vehicle exports R70,0 billion R101,9 billion Top vehicle export destination in volume terms UK UK Total value of automotive component exports R45,7 billion R49,6 billion Top automotive export component category in rand value terms Catalytic converters Catalytic converters Top automotive trading partner in rand value terms Germany Germany Top automotive trading region in rand value terms EU EU Top country of origin for total automotive imports in rand value terms Germany Germany Top country of origin for vehicle imports India India Source: AIEC, Econometrix, NAACAM, NAAMSA/Lightstone Auto, OICA, SARS South Africa represents a globally integrated market-oriented economy with a Gross Domestic Product (GDP) of R3 991,0 billion, at current prices, in The manufacturing sector is important to support sustainable growth in the country and it possesses the highest growth and employment multipliers of 5

7 all the country s economic sectors. The automotive industry is the biggest contributor to manufacturing output and is one of the most dynamic parts of the segment. The broader automotive industry, through its well-integrated value chain from downstream to upstream activities, contributed 7,5% to the country s GDP in The vehicle and automotive component manufacturing industries accounted for 33,5% of the country s total manufacturing output, while record automotive export earnings of R151,5 billion in 2015, up substantially by 30,9% from the R115,7 billion in 2014, comprised a significant 14,6% of South Africa s total export earnings. In contrast to many other industries, South African automotive firms have proven to be resilient against adverse economic conditions due to the high level of integration with domestic component suppliers, a stable policy framework and export diversification. Despite a number of macro-economic headwinds faced in the domestic economy, exports of automotive products constitute the major economic success in the country. In 2015 automotive exports expanded whilst domestic vehicle demand declined by 4,1% on a year-on-year basis. China s economic slowdown and the associated decline in commodity prices, together with the country s worst drought in 20 years, will continue to exact a heavy toll on the domestic economy in 2016, and automotive exports will become even more pertinent. The South African automotive industry, however, is well placed geographically to benefit from the growth in Africa and well positioned to gain momentum as the world economy recovers. For currency comparison purposes, the following table reveals the movements of the rand against the currencies of the South African automotive industry s main trading partners, namely, the EU, the US and Japan, from 2011 through to Currency indices for the rand versus major trading partners (Foreign currency: rand annual averages) Currency Euro 10,08 10,55 12,82 14,40 14,14 Index US$ 7,25 8,21 9,65 10,84 12,75 Index Japan (100 Yen) 9,12 10,29 9,87 10,26 10,53 Index Source: South African Reserve Bank The exchange rate of the rand against the US dollar has depreciated significantly during Pricing pressures exerted on vehicle manufacturers sourcing products out of Japan and Europe would have been less over the 2015 period than those sourcing products from the US or those financing their imports in US dollars. The South African Reserve Bank (SARB) is responsible for formulating and implementing monetary policy. Its primary objectives are keeping inflation within a targeted range of 3% to 6% and maintaining a stable, competitive currency. CPI for 2015 was 4,6%. The SARB s Monetary Policy Committee increased the repo rate by a further 25 basis points in November 2015 following a 25 basis points increase in July This brought the prime lending rate to 9,75% in The announcement came against the background of expected inflationary pressures due to the lagged effect of the severe drought in the country on food prices and a weakening rand exchange rate. 6

8 THE AUTOMOTIVE INDUSTRY EXPORT COUNCIL The Automotive Industry Export Council (AIEC) serves as the umbrella body for the South African automotive industry s export promotion and development activities and represents an important link between the industry and the Department of Trade and Industry (Dti). The AIEC represents the interests of seven major motor vehicle manufacturers/exporters, namely BMW, Ford, General Motors, Mercedes-Benz, Nissan, Toyota and Volkswagen as well as manufacturers/exporters of trucks and buses, and about 500 automotive component suppliers in South Africa. Importantly, the AIEC is the only means of access available to about 300 small enterprises that are not part of the main stream, in respect of trade enquiries, invitations to events and other service offerings, amongst others. Membership of the AIEC is free. The AIEC is administered by the NAAMSA offices in Pretoria and the activities and administration are coordinated by the AIEC Board. The AIEC Board of Directors consists of Mr Roger Pitot (Advisor NAACAM Chairperson), Mr Nico Vermeulen (Director NAAMSA), Dr Norman Lamprecht (Executive Manager NAAMSA) as well as two ex-officio members from the Department of Trade and Industry, Mr Mzwakhe Mbatha and Mr Adriaan Adams. Mr Roger Pitot Advisor NAACAM - Chairperson Dr Norman Lamprecht Executive Manager NAAMSA Mr Nico Vermeulen Director NAAMSA Mr Mzwakhe Mbatha Ex-officio Member DTI Mr Adriaan Adams Ex-officio Member DTI 7

9 One of the AIEC s key service offerings to stimulate export growth and deepen the export base is to facilitate participation in major automotive events abroad. National Pavilions at international events are regarded as the flagship tool utilised for the promotion of the domestic automotive industry s world class capabilities. During 2015, financial assistance under the Dti s Export Marketing and Investment Assistance (EMIA) scheme allowed automotive manufacturing exhibitors to participate in the Automechanika Middle East, United Arab Emirates (UAE) National Pavilion from 2 to 4 June 2015, as well as facilitating participation in the South African National Pavilion at Midest, France which ran from 17 to 20 November The automotive National Pavilions approved for the 2016/2017 financial year include the Automechanika Middle East National Pavilion in the UAE from 8 to 10 May 2016 ( the Automechanika Frankfurt National Pavilion in Germany from 13 to 17 September 2016 (www. automechanikafrankfurt.com), as well as the South African National Pavilion at Midest, France from 6 to 9 December 2016 ( The South African automotive events in the 2016/2017 financial year include the South African Festival of Motoring from 31 August to 4 September 2016 at the Kyalami Grand Prix Circuit and International Convention Centre, Johannesburg (www. safestivalofmotoring.com) and the South African Automotive Week from 11 to 13 October 2016 at Gallagher Estate, Johannesburg ( co.za). More information on the Automotive Industry Export Council can be accessed at The industry associations representing and providing a host of services to the manufacturing and retail side of the automotive industry in South Africa include the National Association of Automobile Manufacturers of South Africa (NAAMSA), the National Association of Automotive Component and Allied Manufacturers (NAACAM) and the Retail Motor Industry Organisation (RMI). NAAMSA represents the collective, non-competitive interests of the new vehicle manufacturing industry in South Africa and comprises 22 companies involved in the production of passenger cars and commercial vehicles which collectively employ over people. NAAMSA also represents the interests of a further 21 companies involved in the importation and distribution of new motor vehicles in South Africa. More information on NAAMSA and its activities can be accessed at NAACAM represents the interests of the automotive component manufacturers in the country. The association has 125 members, of which 100 first-tier suppliers, with 220 regional manufacturing sites, in addition to 23 associate members who provide mainly logistics, information technology and financial services to members. Employment in the component sector, including the enterprises not members of NAACAM, comprised people in More information on NAACAM, including the profiles and contact details of the major automotive component suppliers in South Africa, can be accessed at www. naacam.co.za. The RMI represents the retail motor trade side of the automotive industry, which includes members across 14 trade associations that are serviced out of six offices around the country. South Africa had a vehicle parc (number of registered vehicles) of 11,71 million at the end of December, 2015, of which 6,85 million or 58,5% comprised passenger cars. More information on the RMI can be accessed at 8

10 SOUTH AFRICAN NEW VEHICLE MARKET FEATURES South Africa produces a broad range of vehicles, including passenger cars, light commercial vehicles, medium commercial vehicles, heavy commercial vehicles, extra heavy commercial vehicles and buses. The industry in South Africa currently has one of the most competitive trading environments in the world and in 2015 offered no fewer than 55 brands and passenger car model derivatives for consumers to select from. This affords car buyers the widest choice to market-size ratio anywhere in the world. Similarly, on the light commercial vehicle side, for the same period, there were 31 brands with 625 model derivatives to choose from. The vehicle-ownership ratio in South Africa is in the order of 180 vehicles per persons. Year-on-year new vehicle sales in South Africa declined for the second successive year in 2015, with a drop of 4,1% in the overall market compared to Total sales for the year amounted to units compared to the units retailed in In 2015 the passenger car segment reflected the biggest decline with a fall of 6,0%, while there was a decrease of 3,2% in sales of trucks and buses. Light commercial vehicles showed a modest increase of 0,5% over The downturn in domestic new vehicle sales could be attributed to various factors, such as a slowdown in the economy, increases in interest rates, pressure on consumers disposable income and inflationary pressures brought on by a deteriorating rand resulting in increasing retail prices above inflation. Sales via dealer networks comprised 79,7% of sales in 2015, while the rental industry was again a major contributor and accounted for 12,5% of total new vehicle sales. The motor industry s sales-related turnover grew by only 3,6% in 2015, to reach R235 billion for the year. The outlook for 2016 is unfavourable and the underlying negative economic circumstances are likely to suppress demand for new cars and commercial vehicles. The consumer demand-sensitive new car market, which is the most responsive barometer of changes to growth in the economy, is anticipated to decline by around 9% in volume terms. New commercial vehicle sales are expected to perform slightly better with expected declines of between 3% and 5% in volume terms. Toyota SA Motors has maintained its overall market leadership in 2015 for the thirty-sixth year running, with a market share of 19,9%, followed by Volkswagen Group of SA, Ford Motor Company of Southern Africa and Associated Motor Holdings. The following graph reveals the market shares of the top 10 OEMs or importers in the country in Honda, 1,8% Renault, 3,2% BMW Group, 3,8% Mercedes-Benz, 5,3% Other, 10,5% Toyota, 19,9% Nissan, 7,8% VW/Audi, 15,9% GM, 9,5% AMH, 9,6% Ford Motor Company, 12,7% Overall new vehicle market share 2015 Source: NAAMSA/Lightstone Auto 9

11 In 2015, the Toyota Hilux sold units and was the top-selling vehicle model range overall in South Africa. The VW Vivo headed the passenger car market, ahead of its Polo stablemate. Light commercial vehicles and more affordable cars dominated South Africa s new vehicle market in Nine of 2015 s top 10 selling passenger car and light commercial vehicle models were manufactured locally. The top 10 most popular models sold in 2015 included five locally manufactured light commercial vehicle models, namely the Toyota Hilux, Ford Ranger, Nissan NP200, Chevrolet Utility and the Isuzu KB, and four locally manufactured passenger cars, namely the VW Polo Vivo, VW Polo, Toyota Corolla/Corolla Quest and the Mercedes-Benz C-Class, with the budget Toyota Etios, imported from India, being the only exception. The popularity of diesel engine models has been increasing steadily over recent years and in 2015, the market share for new diesel passenger car and light commercial vehicle sales accounted for 32,1% of total light vehicle sales, up from 30,8% in Hybrid petrol and diesel vehicle sales comprised 502 units in 2015 while electric car sales, including the Nissan Leaf, BMW i3 and BMW i8, showed a substantial increase, albeit off a low base, to 79 units in The following table reveals the split between sales of new petrol and diesel light vehicles in South Africa from 2011 through to Petrol versus diesel passenger cars and light commercial vehicles 2011 to Diesel cars & diesel light commercials Petrol cars & petrol light commercials Total cars & light commercials Diesel vehicles as % of total 24,2% 26,0% 29,6% 30,8% 32,1% Source: NAAMSA/Lightstone Auto In contrast to the challenging domestic trading environment, vehicle production remains on a firm footing and substantially higher new vehicle exports should continue to support the industry s production levels and South Africa s balance of payments through 2016 and beyond. The following table reveals the number of passenger cars and light commercial vehicles manufactured over the past five years. Production of passenger cars and light commercial vehicles 2011 to 2015 PASSENGER CARS LIGHT COMMERCIAL VEHICLES Market Exports as a % Market Exports as a % Domestic Exports Total of total Domestic Export Total of total , , , , , , , , , ,3 Source: NAAMSA/Lightstone Auto Total domestic production, largely due to increased vehicle exports, is anticipated to rise by over 4,0% in volume terms, from the units produced in 2015, to about vehicles in South Africa exported 56,7% of its light vehicle (passenger cars and light commercial vehicles) production in The performance of exports will remain a function of the performance and direction of global markets, as well as OEM policies which will continue to support South African vehicle production as long as it remains 10

12 competitive. Signs are emerging of an improvement in the global economy. Recovering sales in the US and the EU, and continued growth in Asia represent the main drivers behind global sales. Demand for vehicles in African markets, although declining in 2015 mainly due to regulatory changes in some countries, is expected to show above-average growth in future. Passenger car models manufactured in South Africa in 2015 included the following: BMW General Motors Mercedes-Benz Toyota Volkswagen 3-Series 4-door Chevrolet Spark C-Class 4-door Corolla 4-door new and previous series (designated Quest) and Fortuner Polo new and previous series (designated Vivo) Light commercial vehicle models manufactured in South Africa in 2015 included the following: Ford General Motors Nissan Toyota Ranger Chevrolet Utility and Isuzu KB NP200, NP300 Hardbody Hilux and Quantum Truck and bus volumes at units, when seen against the total industry volume of units, represent only a small percentage, which nevertheless is vital to the domestic economy, as the bulk of transport in the country is by road. A combination of macro-economic factors, which include a weak exchange rate, pressure of inflation and interest rates, as well as low business confidence levels, contributed to a decline in local truck sales during The bus market showed the biggest percentage decline when comparing the units sold in 2015 to the units sold in 2014, which represents a decrease of 10,7%, however, this does not represent a big unit volume. The biggest 2015 loser in volume terms, by 559 units, from units in 2014 to units in 2015, was the medium truck segment, indicating that small businesses are taking strain. The heavy commercial vehicle market gained a modest 2,8% up from the units in 2014 to units in 2015, while extra heavy commercial vehicle sales dropped by 3,4% from units in 2014 compared to units in 2015, declining by 475 units. With the South African economy predicted to grow by less than 1% during 2016, it is anticipated that the domestic truck market is in for another challenging year. Aspects such as fuel efficiency, uptime, payload productivity and the overall lifecycle costs of trucks are becoming more crucial for cost-conscious fleet owners. New truck and bus exports also declined by 20,5% from the units exported in 2014 to exports of units in As the main export region, African markets are experiencing significant distress, especially as oil revenue and commodity prices continue to decline. Notwithstanding this, one of the top priorities for the truck and bus sector is to continue expanding into Africa. 11

13 The following table reveals the number of medium, heavy, extra heavy commercial vehicles and buses assembled over the past five years. Assembly of medium and heavy commercial vehicles and buses 2011 to 2015 MEDIUM AND HEAVY COMMERCIALS Market Domestic Exports Total Exports as a % of total , , , , ,6 Source: NAAMSA/Lightstone Auto In 2015, the following medium, heavy and extra heavy commercial vehicle companies were represented in South Africa: Associated Motor Holdings (AMH) Bell Equipment FAW Trucks Ford Motor Company Fuso Hino JMC MarcoPolo NC2 Trucks Southern Africa Powerstar Scania Toyota Volkswagen Group SA Babcock Busmark Fiat Group Freightliner GMSA/Isuzu Trucks Iveco MAN Mercedes-Benz SA Peugeot Citroen SA Renault Trucks TATA Volvo Group Southern Africa In 2015, the following bus companies were represented in South Africa: GMSA/Isuzu Trucks MAN Scania VDL Bus & Coach Iveco Mercedes-Benz TATA Volvo Group Southern Africa Medium and heavy commercial vehicles are regarded as productive assets and essential capital inputs in the economy. Therefore, the level of protection on these vehicles has been set at 20% ad valorem, which is lower than the level on light commercial vehicles and passenger cars which attract an import duty of 25% ad valorem. Assembly operations of trucks and buses are characterised by the duty-free importation of all the drive-line components, which include the engines, transmissions, drive-axles and gearboxes. However, tyres, which are manufactured domestically, attract a 15% import duty. 12

14 SOUTH AFRICA AND ITS AUTOMOTIVE CLUSTERS 13

15 South Africa s established infrastructure and its sophisticated accounting, banking, medical and legal environments leverage the country as the ideal platform for foreign businesses to establish a presence and venture into the rest of Africa. The country is already home to the headquarters of a number of major multinationals in the industrial, energy and financial sectors. South Africa has 11 official languages but English is the preferred language of business. The country and its nine very diverse provinces are well positioned to play a leading role in harnessing the full potential of African economies. South African government policies seek, amongst others, to increase the country s role in regional development and economic integration of the African continent through industrialisation and trade. The country s increasing manufacturing competencies will increase the diverse export trade with the rest of Africa and the world. In respect of the South African automotive industry, support exists at two levels. National support, in the form of the APDP and the Automotive Supply Chain Competitiveness Initiative (ASCCI), plays an important role in addressing common industry challenges in the context of the national economy. Focus and support to the industry are provided via mechanisms that are effected at national level, such as duties, tax incentives, competitiveness issues and national engagements, amongst others. Regional support mechanisms, by contrast, offer the opportunity to address the specific needs of the industry residing in specific geographic areas, and have the advantage of leveraging the benefits of geographical proximity. South Africa s automotive industry clusters are located mainly in three provinces, namely Gauteng, KwaZulu-Natal and the Eastern Cape, although there has been some migration over provincial borders to other provinces. The provinces vary substantially in size, wealth, geography, ethnicity, population and performance. Per capita GDP is highest in Gauteng and lowest in the Eastern Cape. The OEMs are at the centre of the clusters and, along with their suppliers, are supported across the economic landscape at national, provincial and municipal levels. Gauteng Gauteng is South Africa s economic powerhouse and is regarded as the natural destination for international investors wishing to establish a springboard into Africa. The province is the smallest of the country s nine provinces but is the country s financial and industrial economic centre and home to 13,2 million or 24,0% of the country s population of 54,96 million people. Johannesburg is the provincial capital and the main point of entry for the country, as most overseas visitors enter South Africa through OR Tambo International Airport. Pretoria is the administrative capital of South Africa and houses most of the foreign embassies in the country. The province produces around a third of the national GDP, generates the highest per capita income, and accounts for 40% of South Africa s manufacturing output, construction activity and financial services. Gauteng houses three OEMs and the highest number of the country s automotive component suppliers. The Gauteng Growth and Development Agency (GGDA) is responsible for the promotion of trade and investment and project implementation in the province, and via its two automotive specific subsidiaries, the Automotive Industry Development Centre (AIDC) and the Automotive Supplier Park (ASP), provides support to the automotive industry. The Gauteng Investment Centre (GIC), housed in Sandton and managed by the GGDA, represents a one-stop business services facility to domestic and foreign investors, and provides access to investment services and support from various tiers and agencies of government. The province also hosts various national government departments, the Council for Scientific and Industrial Research (CSIR) - one of the largest scientific and technology, research and development (R&D) and implementation organisations in Africa - as well as the City Deep logistics hub - the premier container depot in the country, the largest inland port in Africa and the fifth-largest in the world. 14

16 Gauteng key automotive features 2015 Key automotive features OEMs (manufacturing plants) Medium, heavy, extra heavy commercial vehicle and bus companies Gauteng BMW SA Nissan SA Ford Motor Company of Southern Africa Associated Motor Holdings (AMH), Babcock, Busmark 2000, Fiat Group, Ford, Freightliner, Fuso, Iveco SA, JMC SA, MAN Truck & Bus, MarcoPolo, NC 2 Trucks Southern Africa, Peugeot Citroen SA, Powerstar SA, Renault Trucks, Scania, TATA Motors, VDL Bus & Coach and Volvo Group Southern Africa Number of automotive component companies 200 Motor vehicle parc as % of South Africa s total vehicle parc of 11,71 38,6% million vehicles Passenger car sales as % of total 2015 passenger car sales of ,3% units LCV sales as % of total 2015 LCV sales of units 31,2% MCV/HCV sales as % of total 2015 MCV/HCV sales of units 36,2% Light vehicle production by OEMs in the province as % of total ,9% light vehicle production of units Light vehicle exports by OEMs in the province as % of total ,3% exports of units Source: NAACAM, NAAMSA/Lightstone Auto KwaZulu-Natal KwaZulu-Natal, with its capital Mzunduzi (Pietermaritzburg) and a population of 10,9 million people, represents the second largest economy in the country after Gauteng, and is one of the country s most popular holiday destinations. Durban is South Africa s second-largest city and the country s busiest port. Richards Bay is South Africa s busiest bulk port, with at its centre, the Richards Bay Industrial Development Zone (IDZ), a purpose-built and secure industrial estate. The ports of Durban and Richards Bay handle about three-quarters of the country s tonnage. The province benefits from its diversification efforts across various sectors. Manufacturing dominated by pulp and paper, chemicals, automotive and food and beverages is the largest sector in the province, followed by finance, trade, tourism and agriculture. The King Shaka International Airport and the Dube TradePort at La Mercy provide easy access to Durban and also to international markets. The Dube TradePort has been earmarked for the development of a Special Economic Zone (SEZ) and is Africa s first purpose-built aerotropolis. It is the only facility in Africa that brings together an international airport, a cargo terminal, warehousing, offices, a retail sector, hotels, and an agricultural area. Located 30 km north of Durban, Dube TradePort is positioned between the two biggest sea ports in southern Africa and is linked to the rest of Africa by road and rail. The province, hence enjoys the strategic and competitive advantage of being a global gateway for trade into Africa and to the world. Trade and Investment KwaZulu-Natal and Tourism KwaZulu-Natal are responsible for promoting trade, investment and tourism in the province, with Durban Investment Promotion Agency (DIPA) concentrating on Durban. These institutions are supplemented by the new Durban KwaZulu-Natal Convention Bureau which has been established to promote both the city and province as top conference destinations in Africa. 15

17 KwaZulu-Natal key automotive features 2015 Key automotive features OEMs (manufacturing plants) Medium, heavy, extra heavy commercial vehicle and bus companies KwaZulu-Natal Toyota SA Motors Bell Equipment Co SA, Hino, MAN Truck & Bus and Toyota SA Motors Number of automotive component companies 80 Motor vehicle parc as % of South Africa s total vehicle parc of 11,71 13,5% million vehicles Passenger car sales as % of total 2015 passenger car sales of ,9% units LCV sales as % of total 2015 LCV sales of units 12,2% MCV/HCV sales as % of total 2015 MCV/HCV sales of units 16,3% Light vehicle production by OEMs in the province as % of total ,9% light vehicle production of units Light vehicle exports by OEMs in the province as % of total ,1% exports of units Source: NAACAM, NAAMSA/Lightstone Auto Eastern Cape With its capital Bisho, the Eastern Cape, comprising 6,9 million or 12,6% of the country s population, is well served logistically with airports situated in Port Elizabeth, East London, Mthatha and Bisho, and with ports situated in Port Elizabeth, Coega and East London. The province has been earmarked as a key growth area for economic development. The automotive sector remains the province s leading exporter. There has, however, been steady growth in sectors such as agro-processing, energy, and general manufacturing. The allocation of two of South Africa s five industrial development zones (IDZs) to the province is confirmation of the potential generated by the shipping traffic that operates between Europe, Asia and the Far East. The Coega IDZ is the largest IDZ in the country and is the main catalyst for Eastern-Cape socio-economic development and the gateway to global markets. The East London IDZ, one of the country s leading specialised industrial parks, is located in Buffalo City, the municipal area which also incorporates Bisho, the province s capital. The East London IDZ has also established an Automotive Supplier Park. Its location provides investors with connections to major markets, both domestically and across the globe. A new R2 billion state-of-the-art container terminal has been opened at the new port of Ngqura, forming part of the Coega IDZ, near Port Elizabeth. The Automotive Industry Development Centre (AIDC), the Eastern Cape Development Corporation (ECDC), the Nelson Mandela Bay Metropolitan Municipality and the Cacadu District Municipality are among the several organisations promoting the Eastern Cape as a preferred destination for trade and investment. Three Spatial Development Initiatives (SDIs) Fish River, Wild Coast and East London/Coega are also located in the Eastern Cape. 16

18 Eastern Cape key automotive features 2015 Key automotive features OEMs (manufacturing plants) Medium, heavy, extra heavy commercial vehicle and bus companies Eastern Cape Volkswagen Group SA Mercedes-Benz SA General Motors Southern Africa Ford Motor Company of Southern Africa engine plant FAW Trucks, General Motors/Isuzu, Mercedes-Benz SA and Volkswagen Group SA Number of automotive component companies 150 Motor vehicle parc as % of South Africa s total vehicle parc of 11,71 6,6% million vehicles Passenger car sales as % of total 2015 passenger car sales of ,8% units LCV sales as % of total 2015 LCV sales of units 4,7% MCV/HCV sales as % of total 2015 MCV/HCV sales of units 4,2% Light vehicle production by OEMs in the province as % of total ,9% light vehicle production of units Light vehicle exports by OEMs in the province as % of total ,8% exports of units Source: NAACAM, NAAMSA/Lightstone Auto 17

19 OPERATING ENVIRONMENT OF THE SOUTH AFRICAN AUTOMOTIVE INDUSTRY Global vehicle production in 2015 rose by 1,1% to reach a record of 90,88 million vehicles, up from the 89,78 million units produced in Nineteen countries topped the one million mark in 2015, which is regarded as an internationally significant vehicle production level. South African vehicle production increased to a record vehicles in 2015, up from the units produced in 2014 a gain of vehicles or 8,7%. The country subsequently improved its global ranking to 21st (24th in 2014) in the world with a market share of 0,68%. In respect of LCVs South Africa was ranked 14th with a market share of 1,3% in terms of global LCV production, and in respect of passenger cars the country was ranked 24th with a market share of 0,5% in terms of global passenger car production. With regards to OEMs performance globally, Toyota maintained its market leadership position in 2015 ahead of VW and GM. Global vehicle sales increased by 2,0% to 89,68 million vehicles in 2015 compared to the 87,92 million units sold in South Africa, with new vehicles sold in 2015, was ranked 22nd in the world in terms of global vehicle sales with a market share of 0,69%. Despite the decline in the pace of growth in Chinese vehicle production and sales in 2015, at 24,6 million units produced and 24,5 million units sold, China still produced and sold more vehicles than the US and Japan combined. This trend is clearly emphasising the shift from the traditional west to the emerging east in terms of vehicle production and consumption. It is the norm globally for governments to offer both financial and non-financial support to their automotive industries, with most countries offering a range of support measures to vehicle manufacturers. Governments actively attempt to attract automotive investments via policy and support measures because of the huge investment required to set up a plant, as well as in recognition of the benefits that automotive investments generate in terms of economic growth, employment, fiscal contributions, technology transfer and the multiplier effect on the broader economy. The South African automotive industry has become increasingly integrated into the global automotive environment and is now playing in the international league. The MIDP, implemented in 1995, and its successor, the APDP, implemented in 2013, represent some of the most innovative and successful programmes to retain a domestic vehicle and component manufacturing industry, which has continued to contribute positively to the South African economy and society. In South Africa, the automotive sector is the mainstay of the national industrial base. Accounting for 7,5% of GDP (breakdown 4,8% manufacturing and 2,7% retail), 33,5% of manufacturing output and 14,6% of all South African exports in 2015, the industry demonstrates what can be accomplished when constructive collaboration between stakeholders takes place. However, competitiveness remains the biggest challenge for the automotive industry in South Africa. Strong global linkages, along with supplier development and competitiveness improvements, remain critically important to support the sustainable future development of the South African automotive industry. The domestic market is generally not large enough to generate sufficient economies of scale for world-class competitiveness/production, consequently exporting needs to be viewed as a necessary step towards international competitiveness. Competitiveness improvement is the key driver to unlock growth opportunities in the domestic automotive industry, based on the shift towards vehicle manufacturing in low-cost countries. Many of the challenges confronting the South African supplier industry are a reflection of difficult conditions in the global automotive industry, characterised by a relentless focus on cost reductions and efficiency improvements. The only way to address these issues is through the extension of world-class manufacturing standards and improved competitiveness to all suppliers in South Africa. In this regard, the Automotive Supply Chain Competitiveness Initiative (ASCCI), established in December 2013, has as its ultimate objective to build a successful and sustainable domestic automotive industry by 18

20 actively developing supply chain competitiveness at a national level. The creation of ASCCI was initiated jointly by the Dti, OEMs (represented by NAAMSA), suppliers (represented by NAACAM), and organised labour (represented by NUMSA) in the industry. ASCCI is an important programme that complements the APDP in supporting this strategic manufacturing sector. Where the APDP is intended to incentivise production and investment in the domestic automotive industry, the purpose of ASCCI is to support the development of a sustainable local value chain by upgrading competitiveness and building greater levels of local value addition. One main objective is to implement the national strategic imperative of sustained and progressive competitiveness improvement, while other key focus areas of the initiative include improving component supplier operational capabilities, increasing levels of localisation and achieving increased levels of manufacturing value addition in the country. The initiative is in support of the APDP s vision to manufacture around one million vehicles per annum by 2020 and should have a positive impact on employment creation, enabling supplier capabilities and an increase in value addition, thus ensuring the long-term sustainability of the South African automotive industry. ASCCI highlights not only the need for focused interventions, but also the value of co-operation between stakeholders in the industry in making these initiatives a success. South Africa s strategic location and the potential of Africa as a future market for exports, as well as the security that the APDP provides for investors, all combine to offer an attractive proposition to global OEMs so that ongoing investments in the country s vehicle-manufacturing base continue. Furthermore, with OEMs announcing plans to manufacture new models in South Africa, it creates opportunities for multinational component suppliers to follow these investments. In line with the APDP s vision of deepening and broadening the component supply base in the country, domestic component manufacturers also stand to benefit and ASCCI may play a role in developing domestic suppliers in areas that involve technologies that are not currently available in the country. South Africa s strategic location and the potential of Africa as a future market for exports, as well as the security that the APDP provides for investors, all combine to offer an attractive proposition to global OEMs so that ongoing investments in the country s vehicle-manufacturing base continue. 19

21 SOUTH AFRICA S AUTOMOTIVE POLICY REGIME Governments need business to invest in order to realise their economic goals. On the other hand, business needs governments to provide a conducive environment for investment. This requires, inter alia, structured engagements between government and business. The partnership between government and the automotive sector in South Africa has a long and productive history. Certainty and stability in the official policy regime, over the past 20 years, have contributed to a number of noteworthy achievements by the vehicle manufacturing and associated industries, including higher levels of vehicle production and vehicle exports, massive investments by multi-national automotive companies in manufacturing facilities in South Africa, significant model rationalisation, employment stability, and an increasingly positive contribution by the industry to South Africa s balance of payments. The APDP 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 domestic component industry. At the same time, enhancing firm-level competitiveness must remain a key objective. The APDP was formulated on the basis of extensive consultation with industry stakeholders and represents a carefully structured set of provisions to support the future growth and development of the industry by balancing the interests of consumers, the broader automotive industry and government s objectives. The APDP was fully implemented by January 2013 with a view to steer the automotive industry towards producing in excess of one million vehicles per annum by 2020 with the attendant expansion of the domestic supplier base. Since the development of the original APDP framework in 2008, there have been dramatic changes in the global and domestic economy, raising a concern that there could be limitations in the programme that may lead to failure to achieve the objectives set for the industry. An early review of the programme commenced in 2014 and the recommendations on the outcome of the APDP Review were announced in November The most notable changes to the programme included that OEMs may qualify for incentives under the programme based on reduced volumes of units per plant per annum, instead of the original units per annum, as well as a freezing of catalytic converter incentives in 2017, instead of a continuing reduction. The original framework of the APDP will be outlined below, followed by a summary of the key findings and proposals of the 2014 Review. The APDP consists of four pillars that drive the programme: 1. Import Duty 2. Vehicle Assembly Allowance (VAA) (rebate mechanism) 3. Production Incentive (PI) (rebate mechanism) 4. Automotive Investment Scheme (AIS) (cash grant) The four key elements of the APDP may be described as follows: Tariffs: Import duties on vehicles and automotive components will remain at 2012 levels (25% on light vehicles and 20% on original equipment components) through to A preferential agreement will result in imported vehicles from the EU paying only 18% duty. These tariffs are meant to provide protection to justify continued domestic vehicle manufacturing. 20

22 Vehicle Assembly Allowance (VAA): This support is in the form of duty-free import credits issued to vehicle manufacturers based on 20% (2013) of the ex-factory vehicle price, reducing to 19% in 2014 and in 2015 to 18% for all light motor vehicles produced domestically. The equivalent value of this to the OEMs is the allowance multiplied by the duty rate. This represented 4% of the ex-factory vehicle price in 2013 to be reduced to 3,6% in This support is effectively providing a lower duty rate for domestic vehicle manufacturers import requirements and should provide enough encouragement for high volume vehicle production in line with the target of doubling domestic production. Production Incentive (PI): In 2013 this support started at 55% of the designated local value addition, reducing progressively by 1% annually to 50%, in the form of duty-free import credits. The equivalent value will be the incentive multiplied by the component/vehicle duty rate, so this represents 11% (on components) of value-added in 2013, and will reduce to 10% by There will be an additional amount for vulnerable products which will earn a PI of 80% in 2013 and 2014, reducing thereafter by 5% annually to 50% in Value-added has been defined in simple terms as the manufacturer s selling price less the value of non-qualifying material and components. For OEM supply, the incentive will flow through the supply chain to the OEM and, in the case of component exports or replacement parts, to the component manufacturer. The value-add support is planned to encourage increasing levels of local value addition along the automotive value chain with positive spin-offs for employment creation. A 25% standard value is regarded as local value-added on the following qualifying raw materials originating in the Southern African Customs Union (SACU) which have been beneficiated to suit automotive specifications: Aluminium Brass Leather Platinum Group Metals (PGMs) Stainless steel Steel With regard to vulnerable products, these high material content products will receive additional support to avoid a sudden and significant loss of export business. In this regard, 40% of the standard material(s) listed above and applicable to the following list of products will be regarded as local value-added: Alloy wheels Aluminium products (engine and transmission components, heat exchangers and tubes, suspension components and heat shields) Cast iron components (engine/axle/brake/transmission and related types of components) Catalytic converters Flexible couplings Leather interiors Machined brass components Steel jacks The 40% level will be reduced by 5 percentage points per annum from 1 January 2015 to reach 25% from 1 January 2017 onwards. Automotive Investment Scheme (AIS): The AIS represents the only industry support that is of physical cost to the fiscus in the form of a non-taxable cash grant. The total investment approved since inception of the AIS amounts to R28,5 billion, while the sum total of incentives approved since inception amounts to R7,8 billion. Since inception, 276 projects have been approved under the AIS, creating jobs. Effective July 2009, this investment scheme replaced the Productive Asset Allowance (PAA). The amended AIS guidelines, including the People-Carrier AIS, effective from July 2014, provide clarity on the non- 21

23 taxability of the grant, as well as on the eligibility of automotive tooling companies to apply for the same benefits as those enjoyed by component manufacturers under the scheme. The AIS provides for a nontaxable cash grant of 20% of the value of qualifying investment in productive assets by light motor vehicle manufacturers, and increased support of 25% of the value of qualifying investment in productive assets by component manufacturers and tooling companies, as approved by the Dti. In addition, by achieving certain performance objectives, companies will be able to earn an additional 5% or 10%. This support is available to encourage investments by OEMs and component manufacturers in a manner that supports productive capacity upgrading. A competitiveness improvement cost grant of 20% of qualifying costs will also be available for automotive component manufacturers. The objective of this benefit is to enhance the competitiveness of component manufacturers through the improvement of processes, products, quality standards and related skills development through the use of business development services. The grant is a function of expenditure incurred by component suppliers to improve competitiveness and must be linked to a new or replacement model of a light vehicle manufacturer. In February 2014, the Dti commissioned a review of the APDP with a mandate to make recommendations to secure optimal outcomes to the sector and economy whilst retaining long-term policy certainty for investment. The review was aimed at considering the effectiveness of current support measures for the industry, identifying shortcomings and recommending possible changes or enhancements to the programme. The final proposals were arrived at after several interactions with industry stakeholders at various levels, culminating in a consideration by Cabinet. The findings and key proposals may be summarised as follows: Findings: The 2020 target of producing 1,2 million vehicles per year is unlikely to be achieved due to a variety of reasons, such as the fact that the global economy is still recovering from the effects of the 2008/9 financial crisis. Secondly, it will also be extremely difficult to achieve significant expansion and deepening of the domestic supplier base under the prevailing conditions. Key proposals: In an effort to sustain and grow the industry whilst steering it towards the APDP vision of high volume vehicle production, the following proposals will be implemented: a) A post-apdp support framework will be developed during the course of 2016 in order to provide a certain policy environment for automotive manufacturing in South Africa after b) The volume threshold for vehicle production will be reduced from units to units per plant per annum in order to allow new entrants into the domestic industry. c) The Volume Assembly Allowance (VAA) will be offered on a sliding scale based on volume commencing at 10% for units to 18% at units from January d) A suitable capital incentive (AIS) level will be provided for new entrants at the less than per annum threshold. e) The production incentive for catalytic converters will be frozen at the 2017 level of 65% rather than continue the phase down. f) The qualification for component suppliers to earn APDP benefits will be tightened in order to avoid these being earned on non-core automotive products, and priority afforded to those products that add value in the value chain. g) Lastly, Cabinet has mandated an approach to National Treasury for higher investment support for automotive tooling as a means of encouraging further component localisation. Overall national budget constraints are noted in this context. Strategic direction: Government remains committed to the further development of the automotive industry in line with the National Industrial Policy Framework (NIPF) and the Industrial Policy Action Plan (IPAP). Long-term development of the sector will be achieved through high vehicle production volumes and associated local value addition. 22