Crucial South African industry under siege

South Africa’s automotive industry is facing a perfect storm of threats, including United States tariffs, the potential loss of a US trade agreement, and local pressures.

Business Leadership South Africa (BLSA) CEO Busi Mavuso warned in her latest newsletter that South Africa must act now to forestall the impact of tariffs on its vehicle manufacturing sector.

Mavuso’s warning comes after United States President Donald Trump announced severe reciprocal tariffs on nearly 60 countries, including South Africa, earlier in April.

Following significant market fallout, the United States President decided to pause these tariffs for 90 days.

However, Trump maintained a 10% baseline rate for those countries and imposed a 25% tariff on vehicle imports from around the world to the United States.

“Now, the sector is facing a 25% tariff on foreign-made vehicles and components, as well as the 30% tariff on South African imports that was suspended for 90 days,” Mavuso said.

She warned that these tariffs are set to significantly hurt the local automotive sector, as the United States is the fastest-growing region for South Africa’s vehicle exports.

Therefore, the Trump administration’s tariffs will significantly impact particular models that are exported to the United States.

“South Africa’s automotive industry is the industrial backbone of our economy. It is responsible for 60% of our manufactured goods exports and is the single largest domestic manufacturing sector,” Mavuso said.

She further pointed out that the local automotive sector faced challenges even before the Trump administration’s tariff policies.

The sector has been faced with increased competition from imports and weak domestic demand, with the tariffs set to deal a further blow. 

For example, Chinese cars have rapidly increased in popularity in South Africa over the past few years, with brands from the Asian country working their way into the top ten most sold.

This has left many car brands manufactured locally on the back foot as they scramble to respond to lower local demand.

Now, Trump’s tariffs mean that the local industry will also be faced with lower global demand, as the United States is a crucial market for local automotive manufacturers.

AGOA on thin ice

Mavuso pointed out that the local automotive industry now faces a further challenge in the global market – the potential loss of the African Growth and Opportunity Act (AGOA).

The AGOA is a United States trade program that allows eligible sub-Saharan African countries to export a range of products to the world’s largest economy duty-free. 

South Africa has participated in the program since its inception in 2000 and is one of its largest beneficiaries. 

South Africa’s trade with the United States is made easier through the AGOA, which removes approximately 6,800 US tariffs to promote Sub-Saharan African exports to the United States.

The program has facilitated significant exports of South African goods, including automobiles, agricultural products, and industrial goods like chemicals and steel.

Mavuso said South Africa’s vehicle exports to the United States have benefited from the duty-free access to the United States market enabled by the AGOA. 

“The US was the destination of 6.5% of vehicles exported from South Africa last year, but that figure had grown 22% from the year before,” she said. 

“The tariffs will have a significant impact on particular models that are exported there, in some cases dealing major blows to the factories and towns where they are produced, with ripple effects throughout the value chains that link to them.”

Furthermore, many experts have warned that South Africa risks losing its access to the AGOA.

The trade agreement was initially enacted for eight years but has been extended multiple times. The most recent extension, in 2015, is set to last until September 2025.

Even before Trump’s re-election, many suspected that South Africa might lose its AGOA access.

This is because, technically, South Africa is a middle-income country and was therefore not intended to be part of the AGOA, as the Act is specifically aimed at low-income countries.

However, concerns about South Africa’s continued inclusion heightened soon after Trump’s return to the White House, as the United States President has been severely critical of the country in recent months.

In particular, Trump has spoken out against specific government policies and legislation in the country, especially the new Expropriation Act.

Several African countries and the United States will hold talks in June or July on the AGOA. 

However, Trade Minister Parks Tau has already warned that it will be “difficult” to save the AGOA, especially in light of Trump’s tariffs, dealing another potential blow to the local automotive sector.

Local problems

Aside from Trump’s tariffs and the potential loss of access to the AGOA, South Africa’s automotive industry is also being hamstrung by local pressures.

Lower local demand is a significant pressing factor on car sales, but a significant blow to the country’s manufacturing sector is set to heighten this pressure on the automotive industry.

Earlier this year, South Africa’s largest long steel maker, ArcelorMittal South Africa, announced plans to wind down its long steel business in the country.

While there has been some back-and-forth between the government and ArcelorMittal since the announcement, no solution has been found to keep the business open.

This means South Africa’s manufacturing sector is set to shed thousands of jobs and faces critical gaps in the supply chain.

In January, Rand York Casting CEO Justin Corbett warned that the closure of ArcelorMittal’s business is devastating to the local steel industry and the country as a whole.

“We expect in the short-term to lose an additional 50,000 jobs in South Africa and, in the medium-term, at least 100,000 jobs,” he said. 

He explained that ArcelorMittal is the most complex steelmaker in South Africa in terms of its capabilities.

As much as 32% of the steel produced in South Africa, or approximately 450,000 tonnes of steel, is unique to ArcelorMittal and is not made by other mills in the country.

This will have far-reaching consequences for other steel producers in South Africa and affect other industries.

For example, when it comes to the high-tech products required in the mining or automotive sectors, Corbett said the only producer capable of producing them is ArcelorMittal.

This is why the job losses linked to ArcelorMittal’s wind-down are expected to be so high.

Corbett explained that he expects an immediate impact of between 30,000 and 50,000 jobs being lost as various supply chains, subcategories, and divisions of the fabrication companies close down.

South Africa’s options

Despite these significant threats, Mavuso outlined some solutions that could save South Africa’s automotive industry.

“Of course, South Africa is in the same position as many other countries facing United States tariffs. But if we are to forestall the impact on our industrial base, we must act,” she warned.

Firstly, she said South Africa must act by trying to engage United States leaders to shift course. 

“US foreign policy, through AGOA, has long reflected an understanding of the strategic importance of growing Africa’s economies and building them as source markets for US consumers,” she said.

“South African vehicles are only 0.1% of those sold in the US, but it helps diversify exposure to Chinese manufacturing, which is an increasingly important priority for the US government.” 

In addition, by ensuring the United States is a significant market for South Africa’s products, the United States becomes a strategic priority for the South African government. 

“If the US were closed to South African goods, South Africa’s wider geopolitical interests would shift to other strategic relationships, to the cost of US influence,” she pointed out. 

“The Trump administration has said it wants to negotiate. We must take it up and aim to clear trade barriers for the benefit of both our economies.”

Secondly, she urged the country to reassess the South African Automotive Industry Masterplan tabled in 2018.

This Master Plan provides an industry roadmap to 2035, focusing on building African markets and diversifying into electric vehicles. 

Mavuso said it is time to revisit the plan to assess how it can cope with the United States’ tariff shock and ensure it is geared for the world South Africa now finds itself in. 

“The plan has ambitious targets, including growing the industry by 60%, increasing local content, and significantly increasing employment,” she said. “These are fine targets, but the world for which the plan was set up has changed.”

Thirdly, Mavuso said it is now more important than ever to focus on the rest of Africa, and to do so, South Africa must ensure the African Continental Free Trade Agreement is fully implemented for vehicles. 

The African continent purchases approximately 1.3 million new vehicles per year, a figure that is expected to grow significantly.

“Our manufacturing must focus on brands and vehicle types that are suited for the continent, which has much to gain from lower-cost mobility solutions,” Mavuso explained. 

“We need to ensure supply chains adapt for these outputs and our skilling system delivers people with the right skills.” 

The Automotive Industry Masterplan already envisages South Africa as a manufacturing hub for the continent, but she said such long-term plans need to be dynamic and adapt to the changing environment. 

“Business clearly recognises the importance of the vehicle manufacturing sector,” she said. 

“It has critical spillover effects into the rest of the economy, supporting industrial capacity that enables many other producers. It is a major employer and export revenue earner.” 

“It is, within a general theme of deindustrialisation over the last three decades, the one exception. It is also a fine example of how business and government can work together to develop industry.”