facebooktwitterlinkedinyoutube

Important enabling factors for meaningful localisation in the automotive industry

Important enabling factors for meaningful localisation in the automotive industry

Dr. Martyn Davies, Africa Automotive Leader, Deloitte Africa

Manufacturing, and the automotive industry, is often seen as a gateway to inclusive economic growth. A well-developed manufacturing sector creates embedded jobs, deepens and broadens local value chains, advances technology, and supports local skills development. Because the automotive industry is such an important part of the manufacturing sector, many developing countries have incentivised domestic automotive production.

In a newly released report called Rooting SA: Strengthening the local automotive industry, Deloitte Africa unpacks important enabling factors for meaningful localisation, which would also assist in deepening automotive investment into even wider socio-economic gains.

The automotive industry in South Africa

For decades, the automotive industry has been fundamental to South Africa’s economy. In 2018, the sector directly employed around 110 000 people and contributed a total of 6.8% (4.3% manufacturing and 2.5% retail) to gross domestic product (GDP). Through policy intervention, the South African Government seeks to further entrench the auto industry through a greater set of local content targets.

Last year Cabinet approved the South African Automotive Masterplan (SAAM) 2035 alongside amendments to the Automotive Production and Development Programme (APDP), which is expected to take effect in 2021. The changes emphasise localisation, intentionally shifting focus from imported to local content. The SAAM provides a vision for the industry and aims to increase the use of locally manufactured components in domestic vehicle production from 39 to a lofty 60 percent.

Enabling meaningful localisation

However, legislation alone is not enough to unlock the full potential of the local automotive industry. Below are insights on developing meaningful localisation drawn from interviews conducted with various automotive stakeholders. Three key themes emerged, which include:

The will to improve current inefficient structures in both the public and private sectors. Such improvements include much-needed structural reforms, more efficient use of special economic zones, lower administrative burdens, prioritisation and alignment of key policies and increased transparency from OEMs.

With current production volumes around 600 000 vehicles, scale is one of the most pressing challenges facing the South African automotive industry. The industry will need to find alternative methods to stimulate demand, while the domestic economy is weak and unlikely to yield significantly more demand in the short term. This could include stimulating demand through more comprehensive regional integration, incentivising South African consumers to buy locally produced vehicles and deepening cross-industry value chains.

To grow and support local manufacturers as envisioned by the SAAM, it is crucial for the industry to understand the type of upskilling needed. In South Africa, as the skills spread is wide, blanket-approach incubation programmes are often less effective. Instead, skills training needs to be tailored for individual business’ needs. This requires developing successful localisation strategies to grow and support local suppliers sustainably based on their individual needs and aspirations.

The SAAM and the APDP amendments have highlighted the importance of meaningful localisation within the automotive industry. The reasons are clear: it can generate high-value economic activities, improve living standards and create higher-paying jobs. Of course, continuous increases in productivity are essential throughout this process.

Nonetheless legislation alone is not enough to unlock the full potential of the automotive industry. Meaningful localisation requires a shift away from a compliance-driven mindset, towards value beyond compliance thinking to address key areas and unlock the industry’s full potential.

Subscribe to the aBrHotwire Newsletter Today

Automotive Export Manual 2019