South Africa’s automotive sector is one of the world’s most dynamic. Notwithstanding the current domestic demand, there are still several factors that influence its position as a globally competitive automotive investment destination. For now.
As things stand, South Africa offers the benefits of First World manufacturing and retail standards in the automotive space, definite emerging-market reach and a critical opportunity to scale at a secondary supplier level. What’s important here is that if we don't continually interrogate what gives us this position, then we stand the very real risk of becoming a sector that plays a diminished role in our economy and society.
This is not alarmist. Rather it is realisation that there is much to be done to close the gaps that exist in our current automotive environment to promote growth for the sector as a whole. If we are to manage our competitiveness within the context of our distance to major export markets, the volatility of the local currency and the investment required in infrastructure to support the adoption of electrification and digitalisation, we still have a lot to do.
We benefit from a strong relationship with the government. This is an advantage that must be capitalised on to support a more robust partnership that unlocks even greater value from a promising automotive sector. For example, to spark interest for investment into electrification, we need to publicly demonstrate the positive socio-economic impact of this innovation and how mobility is viewed today. This also means we must realign existing policy frameworks with what’s needed to drive progress in terms of growth and development for the sector.
Given this, there are a number of areas that the local automotive market must address to remain competitive over the next five to 10 years and beyond.
Mobility v motoring
The adaptation of the entire automotive sector as to how customers consume mobility is one of the most important considerations for the future of the industry.
The South African market is not divorced from this reality, but instead requires some level of structural shift so that we have a more defined business model supporting the sharing and hailing of vehicles, have properly considered the policy environment and infrastructure impact of electrification and, lastly, clear efforts to change and evolve current financing or ownership models.
The automotive sector remains one of South Africa’s most important economic contributors, delivering around 7.5percent of GDP and 12percent of South Africa’s manufacturing exports.
Along with this is the primary and secondary industry impact on suppliers and partners within the supply chain, the positive influence on job creation and the contribution to the fiscus through taxation.
If we are to continue this contribution into the future, we need to consider the investment needed in future technology and infrastructure.
High-level technology such as artificial intelligence (AI) in the automotive industry can be implemented only if we invest ahead of the curve and ensure a solid and sustainable business case.
To enable AI, we need to improve on our current infrastructure and invest in the construction of smart infrastructure. This would include the creation of consistent and clear road markings, a smart electric grid and the increased use of sensor networks.
We also need to make use of existing infrastructure that can either speak to the digitalisation of the automotive industry or for other projects.
Either way, this will stimulate job creation for the secondary industries and new skills as we create business opportunities for local suppliers.
Policy certainty is critical at a macro-economic point of view - especially when we consider the impact of uncertainty on consumer buying behaviour. This must be addressed. Indeed, the secondary impact of uncertainty on currency volatility and an overall appetite to invest undermines competitiveness.
Industry-specific policies should also be addressed.
This includes the following:
- Efforts to review and address current fuel quality standards (and the associated impact on the vehicle product life cycle introductions).
- Tax differentiation on electric vehicles, and a review of the ad valorem framework and minimising the rising tax burden on these customers.
- Deliberate steps to drive progress around innovation.
Currently, the Department of Trade and Industry has programmes that facilitate technology adoption and innovation, such as the Automotive Industry Development Centre at the CSIR and the Automotive Investment Scheme. However, new technologies and innovation are also not prioritised in policy formulation and implementation process.
What’s key to this is that South African automotive industry competitiveness into the future is that it requires us to be significantly more deliberate in how we enable the environment in which we operate and with this, how we then are able to bring supporting products to market.
To keep South Africa’s automotive industry on a sustainable growth path, industrial policy has to be complemented with a technology environment that drives progress towards future growth.
To move forward, we must move away from thinking that electrification, AI or digitalisation are intrusive disruptive technologies. To change policy, engage stakeholders, suppliers and retail partners, we must prove that these technologies will drive progress in the country.
In the time of change, one thing is clear - the demand for vehicles on the African continent represents huge opportunities in terms of consumption of mobility.
Trevor Hill is head of Audi SA.
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT