The viability and sustainability of South Africa’s new-tyre manufacturing industry faces a number of threats and challenges. The industry comprises six manufacturing plants that produce about 11 million tyres a year valued at R10 billion. It employs more than 6 500 people.
But cheap tyre imports, particularly from China, were a major threat to the industry and to local jobs, said Dieter Horni, the managing director of Continental Tyre South Africa. He is also the chairman of the SA Tyre Manufacturers Conference (SATMC), representing local manufacturers.
Horni said other challenges and threats were the imposition by the National Regulator for Compulsory Specifications (NRCS) of a retrospective levy on exported tyres; quality control on imported tyres; the cost of electricity, toll fees, port fees and transport; taxes, with the introduction of another in the form of the carbon tax; labour productivity and frequent work stoppages; the huge cost of the waste tyre programme; and compliance with new broad-based black economic empowerment legislation.
In 2007, tyre manufacturers in South Africa employed about 6 900 people directly, which decreased to 5 800 people in 2009 during the global financial crisis and recession. The SATMC estimates that 6 200 people were employed by the tyre industry last year.
Horni said imported passenger car tyres, excluding tyres imported by global manufacturers with local operations, had a 33 percent share of the domestic market in 2008. This increased to 43 percent in 2010 and was expected to be about 45 percent or even 50 percent last year.
Most of these imported tyres came from eastern countries, especially China, he said.
Imports have supplied more than half of the domestic demand for truck tyres since 2010.
Horni said these imported tyres had grown their local market share as they were cheap and sometimes undervalued for import duty purposes.
The SATMC does not believe the International Trade Administration Commission (Itac) in South Africa will help local tyre manufacturers against what it believes is unfair competition.
Itac decided not to impose anti-dumping duties on tyres imported from China and to terminate its investigation into these imports. The Supreme Court of Appeal rejected an appeal by the SATMC for a review of the Itac decision.
Horni said the SATMC still communicated with Itac but “if you go against China, you have no chance”.
But Itac received an application in November last year from local tyre producer Apollo South Africa, formerly Dunlop Tyres SA, for an amendment of the duty structure for certain types of tyres and the imposition of formula-based customs duties on car, bus and truck tyres instead of the current ad valorem customs duties.
Among the reasons provided by Apollo SA for its application were the massive influx of low-priced and underinvoiced imported tyres, mainly from China.
Among the reasons for China’s low-priced tyres are that it operates a complete upstream and downstream tyre industry value chain accompanied with relatively cheap energy and low labour costs.
Apollo SA would like to see the introduction of a reference price into the duty structure to counter underinvoicing.
In an attempt to protect the industry, tyre manufacturers have established an industry forum to calculate the minimum value of materials for imported tyres, excluding labour costs, to identify suspicious imports in support of customs and the SA Revenue Service.
Horni also highlighted the impact of electricity tariff increases and outages on the industry, stressing that if a tyre plant stopped production for even 20 minutes the material in process had to be thrown away, resulting in a huge loss.
He said there were now 2 400 different electricity tariffs and questioned how anyone could manufacture on such a basis. The cheapest electricity was between 11am and 4pm but Continental Tyre SA’s factory, for instance, operated 24 hours a day, seven days a week.
He added that Continental Tyre SA was paying about R10 million a month to the Recycling and Economic Development Initiative of SA (Redisa) project, the only waste tyre plan approved so far by the Environmental Affairs Department, for the collection and recycling of waste tyres.
But at present Redisa was not able to collect its tyres and it had to find a way to get rid of them in an environmentally friendly way, he said.
Stacey Davidson, a Redisa spokeswoman, said a phased implementation did not mean that every tyre dealer had a portion of its tyres collected. It meant more dealers would have all their tyres collected as the service was rolled out.
Redisa had committed itself to publishing a geographical roll-out plan by February, indicating which areas would be serviced and by when, she said.
The tyre manufacturing industry managed to avoid a strike during negotiations over a new three-year wage agreement but Horni said production was affected by the strikes in the motor manufacturing and retail motor sectors.
Horni said the NRCS was responsible for the homologation (approval or accreditation) of tyres coming into South Africa. Now the NRCS wanted to charge the industry for tyres exported on vehicles through a levy retrospective to 2008.
He said there was no rationale for this levy because the export-destination countries had their own fee-bearing homologation processes and standards, which meant the domestic industry would be “paying double”.
The industry is holding discussions with the NRCS to try to resolve this issue.
Horni stressed that the domestic tyre manufacturing industry could not fight against cheap imports because of the cost structure in South Africa, which meant it was unable to produce ultra-cheap tyres. It was difficult for a tyre producer to be profitable when faced with these threats and challenges. The easiest way for tyre producers to convince their parent companies to invest in South Africa was by delivering good results.
Continental Tyre SA, for instance, has changed its strategy and established a retail business. It planned to invest more than R100 million in South Africa this year to expand and diversify its tyre manufacturing capacity at its plant in New Brighton in Port Elizabeth.
Its vision is that through these investments it will become a hub for speciality tyres – particularly for the underground mining industry – for the sub-Saharan African and global markets, thereby improving its profitability.
Horni said South Africa had the best infrastructure in Africa, was an excellent springboard into the continent and had skilled people who could be used in growing a business.
However, Horni warned that South African politicians and other decision makers must understand that the country would not retain its manufacturers “if they [the policymakers] are not doing the right things, which means building up the future infrastructure”.