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Fiscal support for SA to produce electric vehicles to be revealed in October

The new Volvo C40 fully electric car in Cape Town. South Africa is looking at a new set of incentives to spur the production of New Energy Vehicles. Photo: Supplied

The new Volvo C40 fully electric car in Cape Town. South Africa is looking at a new set of incentives to spur the production of New Energy Vehicles. Photo: Supplied

Published Sep 1, 2023

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The government is set to unveil fiscal measures to support companies producing electrics vehicles in October, David Masondo, the deputy minister of Finance, said yesterday.

He was speaking at the National Association of Automotive Component and Allied Manufacturers (Naacam) Show.

This as the the government eyes greater localisation to create jobs amid the challenges of new skills being required due to technological advances such as artificial intelligence.

“However, whatever the proposals on a new set of incentives to spur the production of NEVs (New Energy Vehicles), we should bear in mind that this comes at a time when the fiscus is particularly stretched, making it difficult to put resources towards every priority,” he said .

The measures to support the growth of NEVs should aim to complement the extensive policy support the government has already provided in previous decades, through preferential market partnerships such as African Growth and Opportunity Act; the EU-SA Economic Partnership Agreement; and the Automotive Production and Development Programme (APDP).

“We would like to see targeted investment into specific components for New Energy Vehicles - especially in the battery and other high-value power electronics systems.

“South Africa and the African regional base can effectively serve as the hub for New Energy vehicle grade materials and components beneficiation. However, this requires OEMs to commit to the necessary investments across the supply chain, he said, adding that the finance minister would, in October’s mini budget, unveil the fiscal support for the industry.

Masondo also said the component sector as part of the wider automotive sector was a mainstay of South Africa’s industrial economy.

“The auto sector in South Africa contributed 4.9% to GDP (gross domestic prodcut) in 2023. Component-related investment alone in 2023 was R4.5bn. And I am told you made an investment pledge this morning of R5.2 billion,” he said.

Masondo said localisation levels in South Africa had been weak for several years and were currently around 38%. Competitor economies such as Thailand, Turkey, and Mexico had around 60% or higher localisation levels.

“The ambition to reach 60% localisation rates by 2035, under SA Automotive Masterplan (APDP) 2035, is crucial to realising the economic benefits the government expects out of the support it gives the automotive sector,” he said.

Department of Trade, Industry and Competition (Dtic) Minister Ebrahim Patel said the growth of the component sector was an explicit aim of the APDP.

“It is not a by-product, it is not a nice to have,” Patel said

The minister said the components sector in South Africa consisted of a diverse group of various tier-level automotive suppliers.

"As the industry itself notes, out of roughly 200 first tier suppliers in South Africa, about 75% are foreign multinational companies. The South African-owned companies are represented at tier 2 and tier 3 levels," he said.

"Our efforts at transformation are an important element of this growing of particularly tier 2 and tier 3 base of the country. Suppliers at tier 2 and 3 build the richness of our supply base, the resilience of that base," he said.

Dtic said the APDP target by 2035 was to secure second and third tier suppliers, of which 25% (130) targeted must be black-owned of what was a very low base currently.

The minister said Naacam had been a very important partner to OEMs and the government. He said the journey of localising the elements was about where value was captured in the making of a vehicle.

"With all being the market for the consumption of vehicles, in economics we try to find ways in which a demand creates a supply base. The more we can localise, the more components we can bring into the local supply chain the greater the value is captured in the local economy," said Patel.

He paid tribute to the people under the bonnet and the makers of the bonnet itself, saying the components manufacturers' performance and contribution to the economy was one of the most fundamental arguments for incentives in South Africa offers the auto industry.

"Strip away the components manufacturers and the economic argument for the APDP is weaker and poorer. The component manufacturing capability of a country is an important indication of the industrial depth of a domestic auto-sector and draws in workers on a large scale, enabling local manufacturers to have opportunities to participate in this great enterprise that constitutes the making of the modern car," he said.

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