Employment in South Africa's automotive manufacturing industry was envisaged to double to about 240 000 by 2035. Photo: AP
PRETORIA – Employment in South Africa's automotive manufacturing industry was envisaged to double to about 240 000 by 2035, vehicle production to increase from 600 000 to almost 1.4 million units, and local content to improve from 39 to 60 percent in terms of a new master plan agreed between the industry and the government.

The plan has also set a challenging empowerment target for the industry to achieve of at least a Level 4 broad-based black economic empowerment (BBBEE) status from 2021 to qualify for certain government incentives.

The envisaged increase in production would mean South Africa's global vehicle production ranking would increase from 0.62 to 1 percent of total vehicle production and, with much of this production exported, improve the industry's contribution to the country's trade balance.

Trade and industry minister Rob Davies on Friday highlighted the importance of the automotive industry through its 6.9 percent contribution to GDP. It accounts for 30.1 percent of manufacturing output and 13.9 percent of total exports, the employment of 110 000 people in vehicle and component production and R8.2 billion in annual investments.

Davies said the automotive masterplan would build on and would have a huge amount of continuity with the existing Automotive Production and Development Programme that runs to 2020.

No change in import tariffs are envisaged.

But Davies indicated South Africa had already signalled to the EU that they wanted to negotiate the establishment of a single tariff regime with the EU and address the anomaly of sub 1000cc vehicles not being subject to import tariffs, while no discount at all was provided for electric vehicles.

Davies said the biggest change was to support the drive to increase the level of local content.

The volume assembly allowance will be replaced by the volume assembly localisation allowance (Vala), which would have a new formula that removed all imported components and content and provide an incentive based on local content.

“The Vala will basically mean that if the status quo were to remain and if nothing were to change in the level of local content, then the payments (incentives) would be decreasing,” Davies said.

The existing volume assembly allowance continues unchanged until 2020, when the Vala is implemented.

Davies said there was a five-year phase-in to Vala to allow the industry to make the necessary investments and protect existing original equipment manufacturer model investments in South Africa.

“This is a stretch target, but it is an essential part of deepening local content and moving towards the target of 60percent local content,” he said.

The cash grant for capital investments in terms of the Automotive Investment Scheme has been retained, but reduces by 5percent if non-South African tooling and machinery gets used.

Duane Newman, a director of Cova Advisory & Associates, said that the targets the government was setting were very ambitious from where they currently were in terms of both local content and BBBEE levels.

Andrew Kirby, the president of the National Association of Automobile Manufacturers of South Africa, welcomed the announcement of the new plan, stressing that it would enable vehicle manufacturers and their suppliers to plan strategically for the future and finalise investment decisions with confidence and certainty.

Ugo Frigerio, the president of the National Association of Automotive Component and Allied Manufacturers, said that there was sufficient focus within the amended policy levers to move the domestic supplier base on an upward trajectory in terms of localisation, new ventures and employment creation.

BUSINESS REPORT