Automotive components manufacturers missed about R30 billion in sales in 2023 due to missed local content targets, and are set to miss 60% by the 2035 target as well.
This as the manufacturing sector in general faces policy, raw material, intellectual property (IP), skills shortfalls and funding challenges, participants at Nedbank’s roundtable discussion on the sector observed.
The roundtable’s theme was aimed at highlighting the importance of promoting localisation efforts and empowering businesses to foster a thriving manufacturing industry.
The National Association of Automotive Component and Allied Manufacturers (Naacam) head of policy and regulatory affairs, Beth Dealtry, said while the sector had a very clear target of 60% local content by 2035 enshrined in the Automotive Masterplan, it had in the past 15 years been hovering around the 38% to 40% mark and currently was at 39.5%.
“If you are following the modern language that says we should achieve 60% by 2035, that means we should be around the 46% to 46.5% local content already,” Dealtry said.
“Our own estimations, last year we sat at 39.5% when we were supposed to be at 46.5% and that is about R30bn of a shortfall in sales just for 2023 alone.”
Dealtry also said the irony with the lack of beneficiation capacity in the country was that the copper the sector used extensively in copper wire harnesses was mined in Botswana, shipped to China for beneficiation and imported to SA as the finished product to go into the assembly line.
She said the sector currently lacked tuning and testing facilities and had to export products to be tested at an additional cost along with tuning, which was imported at an additional cost.
“That adds to the matter of intellectual property. We are one of the IP Six globally but how do we get that into SA, nothing comes from the investment attractiveness case we make,” Dealtry said.
“Once again it is back to volumes. We often find IP licence holders won’t neccesarily engage with us, because we are small on a global scale and in the scheme of things. We need to build an ecosystem that speaks to the competitiveness of South Africa.”
Tiger Brands culinary manufacturing director, Ajay Bachulal, said because the country exported A grade quality fruit and other fresh produce, local consumers ended up buying the same products beneficiated by overseas brands, and suggested there was an opportunity in local subsidies to match the international beneficiated prices.
“We send stuff out and we spend to import the same stuff in. Why can’t the government or some industry fund the difference in price to keep it locally, and get the economy going?” asked Bachulal.
“What are we importing that we could buy locally though at a higher price, and somebody funds the difference in price and we create the volumes.
“It’s quite a big opportunity if you look at at it: trillions of rand are imported and exported, but who is doing the check to ensure we are not doing the same thing where we are selling our stuff overseas and buying it back. With the currency gains it could be a business on its own.”
The Manufacturing, Engineering and Related Services Sector Education and Training Authority (merSETA) chief financial officer, Ncedisa Mpande, said the skills gap was hard to fill because students worked to get the minimum qualifications, and then emigrate to countries paying more for their scarce skills.
“Right now the focus is to get your matric certificate, maybe get an engineering or artisan qualification and if you go to Australia they will pay you. They are working to leaving the country,” Mpande said.
“The question is that, when we train them as SETAs, how do we make them stay? Or make it attractive and competitive to stay in the country?”
Amith Singh, national manager of manufacturing at Nedbank Commercial Banking, said recent improvements such as uninterrupted power supply for the past three months and positive changes at Transnet, also indicated the potential for a resurgence in manufacturing.
“Encouragingly, manufacturing output has recently shown a surprising and welcome improvement. For example, manufacturing production increased by 5.3% in April, 2024 compared to April, 2023, while seasonally adjusted manufacturing production rose by 5.2% in April, 2024 compared to the previous month,” Singh said.
“Today, figures released by Stats SA show that manufacturing production in May, 2024 was slightly down by 0.6% compared with May, 2023, while seasonally adjusted production decreased by 0.4% in the three months ended May, 2024 compared with the previous three months. Despite this dip, there are still hopes that we will see a gradual recovery overall.”
BUSINESS REPORT