New auto purchasing council set to fuel South Africa's local content drive

Creamer Media's Engineering News - An original equipment manufacturers (OEM) 'purchasing council', which would seek to further bolster localisation efforts in South Africa’s automotive supply chain, is being finalised, Deputy President Kgalema Motlanthe revealed on Friday.

Addressing a Motor Industry Staff Association (Misa) breakfast briefing in Johannesburg, Motlanthe said the council would seek to encourage domestic production of automobile products to contribute to job creation. Misa is affiliated to the Federation of Unions of South Africa.

He added that a draft action plan for the development of the component subsector had also been completed and should be signed off by the end of the first quarter.

The new council will research component categories and/or new technologies that could be made locally and deployed across multiple vehicle platforms and brands.

The cooperative initiative, which is in line with government’s Industrial Policy Action Plan (Ipap) and the emerging New Growth Path (NGP) framework, has reportedly been endorsed by Trade and Industry Minister Rob Davies and Economic Development Minister Ebrahim Patel and will not fall foul of competition legislation as the OEMs will refrain from sharing price-related information.

In fact, National Association of Automobile Manufacturers of South Africa director Nico Vermeulen tells Engineering News that the initiative is being pursued with the specific intention of meeting government’s stated localisation aspirations as the industry seeks to ramp up yearly output to 1,2-million units by 2020.

Component makers remain concerned that the Automotive Production Development Programme (APDP), which replaces the Motor Industry Development Programme in 2013, remains skewed in favour of the motor companies, albeit that the incentives are designed to ensure that the OEMs upscale yearly production to at least 50 000 units.

In fact, the National Association of Automotive Component and Allied Manufacturers signalled recently that it would be approaching the Department of Trade and Industry about modifications to certain aspects of the APDP, to further boost the local content aspects of the APDP.

But should the new council, which is currently chaired by General Motors of South Africa’s Evan Dold, achieve its objectives, there could be major spinoffs for the components sector, which is currently battling to remain competitive in a context of low volumes, rising input prices and a strong South African currency.

The idea would be to use the critical mass associated with multiple manufacturers to bolster the volumes of certain components or technologies, which could be used domestically, for the export programme, and even exported into global OEM supply-chains.

Government has already selected the automotive assembly and component industries as key sectors for specific support under the Ipap, and the sectors have also been specifically earmarked to support the NGP’s ambition to create five-million jobs in the South African economy by 2020.

Vermeulen says that the certainty provided by the APDP, which runs until 2020, has already stimulated component-related investments worth more than R450-million, with a company such as Volkswagen South Africa having raised local-content levels from 40% to 70%. The aspiration now is to create the conditions for far higher levels of component-related investment and employment.

The OEM purchasing council concept appears to dovetail with a bigger focus within government to leverage private, but primarily, public procurement for industrial development and job creation.

It is understood that a new public procurement system is also being developed, which will incorporate ‘fleet procurement’ arrangements for everything from buses and locomotives, through to power plants.

Changes to the preferential procurement regime to encourage local production, and a revamped industrial offsets system to stimulate further investment in local manufacturing capacity, are also envisaged.

Motlante claimed that government’s support of the sector had created favourable conditions for investment and that some R13-billion worth of the OEM investments had already been secured.

"The role of the automotive industry in South Africa the South African economy, and particularly in creating employment, has made a compelling case for government to invest significantly to support further growth in the sector," Motlanthe said.

The vehicle manufacturing sector employed 30 000 people in 2009 and the components sector 60 000, while there were estimated to be some 250 000 people employed across the full value chain, including sales and maintenance staff.

However, the Deputy President remained critical of the pace of transformation in the sector, stating that “government has consistently raised concern about the level of economic participation by historically disadvantaged individuals at ownership and management levels.

"Much still needs to be done to ensure a more representative industry," he said.