The key to growing Africa’s automotive industry and its industrial footprint lies in policy certainty. This is according to the chairperson of the African Association of Automotive Manufacturers (AAAM) and Volkswagen Group South Africa (VWSA) managing director, Thomas Schäfer.
Policies such as the South African government’s revised Automotive Production and Development Plan (APDP) will give stability and direction to the local automotive industry up until 2035. This is an attractive aspect for investors who are looking for strong industries to support in Africa.
“The [APDP] policy is in good shape. It will help the country and the industry to move to the next level,” says Schäfer. The APDP will push South African car manufacturers to use 60% local parts on all their locally-produced vehicles. It also paves the way for employment growth and increased market reach.
Policies should encourage exportation of vehicle parts
Stable policies in the African automotive sector should also encourage the exportation of vehicle components. The South African APDP allows car manufacturers to build extra parts and export all over the world. This means that manufacturers can produce more components than needed and reap additional benefits through exportation.
These types of policies mean that local manufacturers can create parts for parent companies in Europe, America and Asia. They enable industry growth and support the development of African industry through economies of scale. Africa has many valuable natural resources such as platinum, copper, rubber and oil that are fundamental to automotive parts manufacturing.
“In Africa, certain countries could be part of the automotive value chain. If we think of Africa differently, we could work together and have the numbers to support large-scale plants,” says Schäfer. “We just need a bit of flexible thinking,” he adds.
Policy certainty will support African businesses
The best way to grow the automotive industry in Africa is through policy certainty, which means that national governments need to step up to the plate. The AAAM is currently focusing on the development of automotive business and trade relations in Africa. The association also helps a number of African countries with the formulation of development policies.
Schäfer notes that Ghana has also recently drafted a policy with the help of the AAAM – and he regards this policy as “probably the best on the continent.” This is an encouraging step in the right direction for African automotive parts manufacturers. This policy will guide Ghana through one of Africa’s greatest challenges to the industry – the large-scale importation of second-hand vehicles from Japan and China. Ghana will start phasing out the importation of these vehicles as they grow their own automotive industry.
Schäfer also notes that two other African countries have the potential to support major automotive industries of their own; Nigeria and Ethiopia. However, no supporting policies exist in these countries yet. A lack of foreign currency and will to implement such policies is holding them back for the time being.
South Africa can increase local production if all players align
Although South Africa has a strong policy in the form of the APDP, Schäfer notes that industry players are not always aligned and this can slow down growth. Banks, workers’ unions, government and industry need to work together for the good of the industry. Local production is currently 0.6% of global output.
“I believe we could play a major role [in the global industry]. We have the workforce we need and wonderful resources, but we need to work together strategically and stop fiddling around with small nuts and bolts,” says Schäfer. South African vehicle exports grew to 9.8% in 2018. This growth is expected to continue if all players are on the same page and the government policies remain in place after the national elections.
Formex Industries is a metal forming and assembly company that supplies a variety of complex products to the local automotive industry and export market. The company is based in the Nelson Mandela Bay metropole, South Africa’s foremost region for automotive manufacturing and export.
Formex specialises in producing components for the catalytic converter industry, as well as metal components and assemblies for the various vehicles. Formex aims to become one of the foremost suppliers for the South African automotive industry by 2035, aligning itself with the South African Automotive Masterplan (SAAM) which takes effect in 2020.
Formex is a Level 2 B-BBEE supplier with over 80% black ownership, of which more than 40% are black women. The company is owned by Deneb Investments Limited – a subsidiary of Hosken Consolidated Investments Limited (HCI) – one of South Africa’s biggest true B-BBEE companies listed on the Johannesburg Stock Exchange (JSE).