R220 billion South African industry on the line

South Africa risks missing out on an automotive export boom as the country’s local manufacturing industry lacks the necessary skills, infrastructure, and policy to capitalise on the opportunity. 

The automotive manufacturing sector in South Africa is one of the most important industries in the local economy, generating R2.7 trillion in exports in the past thirty years. 

The industry generates approximately R220 billion to the fiscus per annum or just under 5% of the nation’s gross domestic product.

South Africa is home to seven legacy Original Equipment Manufacturers (OEMs) – Toyota, BMW, Mercedes-Benz, Nissan, Ford, Isuzu, and VW. These industry stalwarts have maintained a significant presence in the country for decades.

More recently, brands like BAIC and Mahindra have established local manufacturing facilities. Foton and Stellantis are poised to further bolster the industry with their planned new factories.

While some of the vehicles produced locally are sold to the domestic market, the majority, approximately 80%, are exported to regions such as Europe and the Middle East.

According to Naamsa, The Automotive Business Council, South Africa’s automotive exports from 1995 to 2023 generated an estimated value of R1.75 trillion. 

Coupled with component exports valued at R959 billion, the industry’s total economic impact reaches a staggering R2.7 trillion.

Exports to other African countries are set to soar in the coming years, BDO South Africa, Partner and Automotive and Manufacturing Specialist, Siyabonga Mthembu said. 

With a new vehicle market currently around 1.3 million units annually, expectations are that this figure could rise to between 3 and 5 million by 2035. 

The African Continental Free Trade Agreement (AfCFTA) is a significant enabler in this regard, particularly as it pertains to South Africa’s automotive sector. 

For South Africa to capitalise on this opportunity, it must address shortcomings in the areas of skills development, infrastructure, and government collaboration. 

“Without targeted action in these areas, we risk missing out on the tremendous potential that Africa holds for automotive growth and industrialisation,” Mthembu said. 

South Africa’s automotive sector is globally competitive, largely thanks to the skill level of our workforce. However, the skills required to operate and maintain today’s advanced, automated production lines are vastly different from those needed a decade ago. 

To address this, Mthembu said the country needs to reinvigorate technical training in schools and prioritise vocational education to consistently upskill its workforce. 

There has been a shift toward academic degrees at the expense of artisanal and technical skills, which are the backbone of any manufacturing economy. 

Another major hurdle preventing South Africa from capitalising on growing demand for its vehicle exports is its poor infrastructure, particularly rail and ports. 

 At present, much of the demand for affordable vehicles in Africa is met by imports from more advanced economies. Mthembu said South Africa has the chance to disrupt this pattern of events and meet continental demand for cheap vehicles. 

One of South Africa’s key advantages in the automotive space has been the stability of our policy environment.

The South African Automotive Master Plan, which extends to 2035, provides a clear roadmap for the sector’s growth, with a focus on expanding into the African market and embracing new energy vehicles.

That said, this framework has failed to keep up with the changing nature of the automotive market and the vehicles consumers are demanding. 

While the objectives of the Master Plan remain sound, the method of how they can be achieved needs to be reviewed to to ensure they are still relevant and effective. 

While mobility is a key driver of economic freedom and opportunity in Africa, South Africa faces a significant challenge in providing affordable mobility solutions. 

With the cost of living rising and incomes stagnating, the demand for affordable vehicles – whether two-wheelers or small cars – is growing rapidly. Studies show that by 2030, 51% of all mobility in Africa will be two-wheelers.

At present, South Africa is not producing enough affordable vehicles to meet this demand.

The automotive sector is at a crossroads with numerous challenges, from skills shortages to infrastructure bottlenecks. However, it also has a tremendous opportunity to lead the continent into a new era of industrialisation and growth. 

Mthembu said the African automotive market is poised for expansion, and South Africa must position itself to be at the forefront of this transformation.