Acknowledgements. AIEC P O Box Arcadia 0007 Tel: Fax: Website:

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2 Acknowledgements The information and analysis in this report was produced and compiled by Dr Norman Lamprecht on behalf of the Automotive Industry Export Council. The contributions and assistance by NAAMSA and NAACAM are hereby gratefully acknowledged. The data processing and editing by Dr Alet Tolmay, design and outlay of the publication by Dr Selma Schiller and photography by Mr Paul Parsons are also acknowledged with appreciation. AIEC P O Box Arcadia 0007 Tel: Fax: Website: 1

3 Contents Foreword... 4 The Automotive Industry Export Council (AIEC)... 5 South Africa the country... 7 South Africa comparative advantages... 9 South African automotive policy evolution Motor Industry Development Programme (MIDP) the track record The South African automotive industry operating environment Automotive clusters Made in South Africa Automotive industry trade balance Automotive exports and imports methodology to regions to countries of vehicles Automotive components exports by country Automotive components exports by product Imports by country of origin Imports of vehicles Parts and components imports Main automotive trading partners Trade and investment opportunities Types of co-operation General information South African automotive industry opportunities and challenges Key motor industry addresses

4 Abbreviations AGOA AIEC APDP BRICS CBU CKD COMESA CPI DTI EAC EU FDI FTA GDP IDZ MERCOSUR MIDP NAACAM NAAMSA NAFTA OEM PPI SADC SARS African Growth and Opportunity Act Automotive Industry Export Council Automotive Production Development Programme Brazil, Russia, India, China and South Africa Completely Built Up Completely Knocked Down Common Market for Eastern and Southern Africa Consumer Price Index The Department of Trade and Industry East African Community European Union Foreign Direct Investment Free Trade Agreement Gross Domestic Product Industrial Development Zone Mercado Común del Sur - Common Market of South America Motor Industry Development Programme National Association of Automotive Component and Allied Manufacturers National Association of Automobile Manufacturers of South Africa North American Free Trade Area Original Equipment Manufacturer (Vehicle Manufacturer) Producer Price Index Southern African Development Community South African Revenue Service 3

5 Foreword The Automotive Export Manual 2013 South Africa publication is an annual publication produced and compiled by the Automotive Industry Export Council (AIEC) the key source of South African automotive trade data. The 2013 as well as previous publications since 2006 represent a comprehensive guide on the export and import performance of the South African automotive industry under the Motor Industry Development Programme (MIDP). The aim of the manual is to identify and prioritise the major automotive export destinations, the major countries of origin, the main automotive export trade blocs, the most important automotive products exported and imported, the top growth markets and products as well as the impact of the trade arrangements enjoyed by South Africa. Under the Automotive Production Development Programme (APDP), which commenced on 1 January 2013, the South African automotive industry is entering a new era of volume-driven production support. The APDP intends to elevate the domestic automotive industry to a higher level. Vision 2020 objectives include 1,2 million units produced per annum by 2020 and an associated broadening and deepening of the component production basket in South Africa. However, past success sets the bar for the future and this publication acknowledges the track record of the MIDP over the past 17 years up to The MIDP has been recognised as a successful and innovative national strategy to develop automotive manufacturing and open up a domestic market in the new environment of globalisation. The MIDP s main achievement was the move from short production runs and a transition from an uncompetitive, inward looking industry, to an internationally competitive industry, integrated into global manufacturing. The industry s performance during 2012 reflects industry exports increasing by R4,7 billion or 5,7% to R86,9 billion from R82,2 billion in Furthermore, with the export value to 65 of the 152 countries the industry exported to more than doubling from 2011 to 2012, it has set the scene for 2013 and beyond. Global economic developments, however, remain an important factor impacting on the domestic automotive industry s performance going forward. Along with most of the world, South Africa is watching developments in the Eurozone with apprehension. The macro global environment at present is one of slower growth and higher risks. From a country perspective the need therefore remains to constantly reassess the balance of risks given recent developments. The South African government, however, remains committed to fast tracking the growth and development of the domestic automotive industry which it regards as strategically significant. 4

6 The Automotive Industry Export Council (AIEC) The AIEC is operated from the NAAMSA offices in Pretoria and the activities and administration are coordinated by the AIEC Board. The AIEC Board of Directors consists of Mr Roger Pitot (Executive Director NAACAM Chairperson), Mr Nico Vermeulen (Director NAAM- SA), Dr Norman Lamprecht (Executive Manager NAAMSA) as well as two ex-officio members from the Department of Trade and Industry, Mr Mzwakhe Mbatha and Mr Jacob Moatshe. Export Councils are the prime delivery vehicles that stimulate export growth and deepen the export base. This format was initiated by Trade and Investment South Africa in a number of key sectors, and is also aimed at assisting Small Medium and Micro Enterprises (SMMEs) and Black Economic Empowerment (BEE) companies to enter the export market successfully. The AIEC was established at the end of The purpose was to provide a cost effective administered central body to assist companies in the automotive sector that are currently exporting, may be interested in exporting in future, or may become capable of exporting in future. The end result of the AIEC activities will be to broaden the export base by bringing in more companies that export directly in their own right or by being suppliers to exporting companies. In addition, the objective is to increase the value of exports of automotive products. The AIEC represents the interests of eight motor vehicle exporters/manufacturers, namely BMW, Ford, General Motors, Mercedes-Benz, Nissan, Renault, Toyota and Volkswagen as well as exporters/manufacturers of trucks and buses, and about 400 component suppliers in South Africa. Mr Roger Pitot Executive Director NAACAM Dr Norman Lamprecht Executive Manager NAAMSA Mr Nico Vermeulen Director NAAMSA 5

7 Vision The vision of the AIEC is to ensure improved international competitiveness and, for the automotive sector as the leading manufacturing sector in South Africa, to upgrade its own export value chain as well as cross cutting value chains to make a bigger contribution to the economic growth and employment levels of the country. General Most countries hosting automotive production provide substantial support to their industries, recognizing the benefits of the sector to a country s economy. Key policy considerations have been the level of protection and pace of liberalization, the degree of support for exports, the extent to which the state intervenes to limit entry and rationalize the industry as well as policies regarding foreign versus local ownership. Against the background of subdued growth in the domestic economy and an uncertain and challenging global economic outlook, the South African automotive industry performed well over the past three years. As a commodity-rich trading country, South Africa is directly affected by the state of the global economy. The overall global economy remains delicately poised but offers both threats and opportunities as several emerging economies are diversifying their markets. To mitigate the risk, South African automotive trade also has to expand with other markets. Fortunately, there are increasingly positive signs that, with the exception of Europe, economic conditions are improving in important regions, including North America, Asia, Australia and Africa. Continuous efforts to grow the South African automotive industry s export business are imperative, especially in view of the vision of doubling vehicle production in the country to 1,2 million units by The South African domestic market is generally not large enough to generate sufficient economies of scale for world-class competitiveness/production; consequently exporting needs to be viewed as a necessary step towards international competitiveness. Failure to rise to the challenge by finding new markets and products could result in stagnation of exports. The current global economic environment is dominated by intense competition for export markets, investment and technology. This makes it important to gain and maintain access to these markets. Customer/Stakeholder Portfolio The customers and stakeholders of the AIEC are all the domestic automotive industry stakeholders as well as Dti Head Office, Dti foreign economic representatives, and global players abroad. The needs of members are primarily twofold, namely: (i) research and information, and (ii) practical assistance with exhibitions and missions. These needs form the basis for the assistance provided. More information on the Automotive Industry Export Council can be accessed at co.za. 6

8 South Africa The Country South Africa consists of nine provinces, namely Western Cape, Eastern Cape, Northern Cape, North West, Free State, KwaZulu-Natal, Gauteng, Mpumalanga and Limpopo, each with its own premier, executive council and legislature. The administrative capital is Pretoria in Gauteng, the legislative capital is Cape Town in the Western Cape and the judicial capital is Bloemfontein in the Free State. The country has a population of 51,77 million people with 11 official languages. While most South Africans can communicate in more than one language, English is the most commonly spoken and the language of official business and commerce. The country occupies the southernmost part of the African continent and shares boundaries with Namibia, Botswana, Zimbabwe, Mozambique, Swaziland and Lesotho. South Africa is the African continent s industrial and financial super-power. The strength of the South African economy is evident in its diversity of sectors and industries. With strong mining and manufacturing exports and a flourishing tourism sector, the country s well-developed infrastructure, sophisticated financial sector and vibrant services sector without doubt make the country a natural springboard to the southern African region and the continent at large. South Africa offers investors well-established infrastructure to support imports, exports and business transactions. The massive investments in new rail, road, ports and water capacity will not only improve access to South Africa s mineral resources and industrial heartland, but also enhance the links to the rest of the continent to both generate and benefit from the region s growth potential. With a new world order characterised by stagnant European economies, subdued American growth and the growing power of the developing world, the country s pattern of foreign trade has changed dramatically in recent years. Asia is now South Africa s largest trading bloc by far but developments in the EU, which remains a significant trading partner, have a direct and measurable impact on South African exports to the region. During 2012 South Africa has been mirroring sluggish global economic growth and growth prospects for the economy for 2013 has been revised downwards. Key Macro Indicators 2012: South Africa 2012 GDP R3 251,4 Automotive industry s contribution to GDP 7% GDP Growth rate 2,5% GDP per capita (current prices) R CPI (annual average) 5,6% PPI manufacturing (annual average) 4,9% Total South African export value R717,9 billion Main export destinations China, USA, Japan, Germany and India Total South African import value R835,6 billion Main countries of origin : imports China, Germany, Saudi Arabia, USA and Japan Automotive exports as % of total SA exports 12,1% Automotive imports as % of total SA imports 16,3% Source: AIEC, South African Reserve Bank, South African Revenue Service (SARS) 7

9 With the largest economy in Africa, South Africa is a key investment location, both for the market opportunities that lie within its borders and for the ability to use the country as a gateway to the rest of the continent. Several global companies have accordingly chosen to locate their African headquarters in South Africa and have used the capabilities developed in the country to expand in the region. South Africa therefore serves as a platform to access the broader African opportunity which underpins the choice of the country as a gateway into the continent. 8

10 South Africa Comparative Advantages South Africa has a substantial resource base to support an economy that generates a third of sub-saharan GDP. Mining is the country s largest industrial sector followed by manufacturing, oil and gas, chemicals, agriculture and tourism. The country s major strengths include its physical and economic infrastructures, natural mineral and metal resources, a growing manufacturing and services sector and a strong tourism industry. South Africa is regarded as one of the most diversified exporters in the world and its increasing trade liberalisation is contributing significantly to the country s growth and future prosperity. The country is ideally positioned for easy access to the countries of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC), which consist of 15 countries with a total population of 268 million. The country s inclusion in the BRICS economies substantiates its reputation as a globally competitive destination for foreign investment. The country is able to function as a hub for commercial traffic emanating from and destined for Europe, Asia, the Americas as well as the east and west coasts of Africa. South Africa is uniquely positioned to service and connect these global markets supported amply by the quality of its institutions, strong intellectual property protection and accountability of private institutions, and a stable and well regulated financial sector. The country s main comparative as well as automotive industry s main competitive advantages include the following: Infrastructure South Africa, as the most developed country on the continent, offers infrastructure and services to unlock the region s frontiers. The country s infrastructure is impressive. Its road, rail, harbour, power grid and communications facilities support the continent s largest, most sophisticated economy and includes the following Eskom, South Africa s electricity parastatal, which generates 45% of the electricity used in Africa. 80% of Africa s rail infrastructure. Sasol s oil-from-coal technology provides South Africa with nearly 40% of its petrol as well as natural gas to the continent. Transnet National Ports Authority is the largest port authority on the continent and manages South Africa s eight commercial ports at Richards Bay, Durban, East London, Port Elizabeth, Mossel Bay, Cape Town, Saldanha and Ngqura. Spoornet, a division of Transnet, runs the biggest rail service in Africa. Largely electrified, the network extends into neighbouring countries offering a logistical launch pad into the continent. Three major international airports in Johannesburg, Cape Town and Durban and a further seven domestic airports. South African Airways (SAA) is the largest airline in Africa with OR Tambo International Airport in Johannesburg the largest air cargo port in Africa. 9

11 OR Tambo International Airport has been expanded to take the biggest new generation aircraft and handles about 24 million passengers per year. The country s banks dominate the financial services sector in sub-saharan Africa, holding the first five positions in regional rankings. Leader of information and communication technology development in Africa with a telecommunications network that is 99% digital, and includes the latest in fixed-line, wireless and satellite communication. There are more phones, computers and IT skills in South Africa than in the rest of the continent. The success of the South African automotive industry is vitally dependent on first-class logistics. In this regard Transnet s seven year Market Demand Strategy (MDS), unveiled on 12 April 2012, of a R300 billion infrastructure investment programme is aimed at unlocking South Africa s economic potential. Transnet s MDS is largely aimed at building freight capacity to support South Africa s economic growth and position the country as a regional hub for sub-saharan Africa. The objective is to create capacity to meet demand and stimulate the economic development of South Africa and the region. Raw material availability South Africa is one of the world s richest countries in mineral reserves and production. It is the world s leading producer of platinum, palladium, rhodium, chrome, manganese, vanadium, vermiculite, uranium, lead, copper, ferro-chromium and alumino-silicates. Only two strategic minerals namely, crude oil and bauxite, are not available in the country. The mining and minerals sector remains a vital part of the economy. It accounts for a third of merchandise exports and provides employment for nearly people. South Africa has a high level of technical expertise, comprehensive research and development activities and boasts world-class primary processing facilities for gold, platinum, carbon steel, stainless steel and aluminium. The automotive industry has enormous potential for the consumption of steel, aluminium, chrome and platinum group metals. Platinum group metals, including platinum, rhodium and palladium, are essential elements in catalytic converters, which makes the country a strategic supplier of these products. South Africa currently supplies in the order of 12% of the global demand for catalytic converters. The country is also home to over 70% of the world s chromium, which is an essential ingredient in the stainless steel used to house the catalyst and to produce modern auto exhausts. This resource base produces in excess of 50% of the world s ferrochrome and has prompted the development of Columbus Stainless, one of the largest and most modern integrated stainless steel works in the world. Emerging market cost advantages South Africa has a mixed First and Third world economy offering cost advantages in many a- reas. In terms of the cost of living index, South Africa is ranked as one of the lowest cost countries in the world to live in. Average labour costs are also lower than developed nations and on par with many developing nations. In the past, South Africa s competitive advantage derived only from specialisation and not from economies of scale. The new government incentives and foreign investment flow enable South African manufacturers to progressively develop the various South African manufacturing sectors. 10

12 First world production testing South Africa s unique range of vehicle operating conditions coupled with some sophisticated research and development resources are recognized around the world for providing competitive vehicle testing and development opportunities. Operating conditions include varying and readily accessible climate conditions, altitudes and road surfaces from high-speed circuits, off-road tracks, deserts to cold mountains. Accelerated durability testing can be carried out at all times of the year, all within easy reach of laboratories and testing services available at some of the lowest prices in the world. Flexible production capability Globally, flexibility is considered an essential competitive advantage for fast model changes and for successful niche marketing, both of which require an ability to use the same platform to produce low volumes in a particular model derivative. The South African automotive industry has retained its capability where single production facilities manufacture a range of quality products at competitive prices to satisfy the domestic and export markets. Given this flexibility, South Africa has a unique competitive advantage when it comes to low volumes and hence the ability to produce short production runs more competitively compared to many other countries where production is set up for long, high-production runs. These advantages are often compelling in terms of creating multidirectional trade, as South Africa has limited domestic demand to warrant economic production of a broad range of models per OEM. Government support South Africa has created a business environment conducive to both foreign and domestic investment. Political stability, fiscal discipline and sound monetary policy have been the order of the day over the past two decades. Foreign direct investment (FDI) plays an important role in the development of South Africa and government tilted its support measures towards FDI in productive sectors that offer local value addition and job creation, such as the automotive sector. There are a wide range of investment incentives available to South African-based companies, foreign or domestically owned. Incentives are administered by the Dti and are uniform throughout the country. Incentives are generally in the form of tax holidays, rebates and accelerated depreciation while cash grants, relocation grants and other incentives are available under prescribed circumstances. The automotive industry is regarded as a strategic South African asset. The Motor Industry Development Programme (MIDP) was implemented with effect from 1 September, 1995 to reshape the future direction of the South African automotive and associated industries. The MIDP was established to entrench the outward orientation of the industry, thereby restructuring it to achieve global competitiveness, whilst at the same time maintaining its employment and output contributions to the South African economy. The programme ended on 31 December 2012 and was succeeded by the Automotive Production Development Programme (APDP), with effect from 1st January, The aim of the APDP is to double vehicle production in South Africa by 2020 to 1.2 million vehicles, pushing the country s automotive industry up to an anticipated global market share of over 1%. The increase in market share would trigger additional interest and investment and generate additional export business. The APDP will seek to shift the emphasis away from an export focus to one that emphasises value addition and scale in the production of vehicles. In addition the programme is intended to be supportive of the further development of world-class automo- 11

13 tive component manufacturing. The APDP would incentivise automotive-related production, investment and large-scale vehicle manufacturing, while the investment incentive will also be accessible to more companies than was the case under the MIDP. The programme will reflect a quantum leap in terms of processes, technologies and the scale on which the domestic industry has operated. The APDP focus is to ensure the sector has a greater impact on the economy and on national employment levels by increasing local component manufacturing and sourcing more of the semi-finished goods in the domestic market. The APDP consists of 4 pillars that will drive the programme: 1. Import Duty 2. Vehicle Assembly Allowance (VAA) (rebate mechanism) 3. Production Incentive (PI) (rebate mechanism) 4. Automotive Investment Scheme (AIS) (cash grant) The four key elements of the APDP may be described as follows: Tariffs: Import duties on vehicles and components will remain at 2012 levels (25% on light vehicles and 20% on original equipment components) through to A preferential agreement will result in imported vehicles from the EU paying only 18% duty. These tariffs are meant to provide just enough protection to justify continued local vehicle manufacturing. Vehicle Assembly Allowance (VAA): This support will be in the form of duty-free import credits issued to vehicle manufacturers based on 20% of the ex-factory vehicle price in 2013, reducing to 19% in 2014 and in 2015 to 18% of the value of light motor vehicles produced domestically. The equivalent value of this to the OEMs will be the allowance multiplied by the duty rate, so 4% of the ex-factory vehicle price in 2013 reducing to 3.6% in This support is effectively providing a lower duty rate for local vehicle manufacturers and should provide enough encouragement for high volume vehicle production in line with the target of doubling production. Production Incentive (PI): From 2013 this support will start at 55% reducing progressively by 1% annually to 50% of value added, also in the form of duty-free import credits, and will replace the current export based scheme. The equivalent value will be the incentive multiplied by the component duty rate, so 11% of value added in 2013, reducing to 10% by There will be an additional amount for vulnerable products which will earn a PI of 80% in 2013 and 2014, reducing thereafter by 5% annually to 50% in Value added has been defined in simple terms as the manufacturer s selling price less the value of non-qualifying material and components. The incentive will flow through the supply chain to the end producer, which will be the OEM or, in the case of component exports or replacement parts, the component manufacturer. The value-add support is planned to encourage increasing levels of local value addition along the automotive value chain with positive spin-offs for employment creation. A 25% Standard Value is regarded as local value added on the following qualifying raw materials originating in the Southern African Customs Union (SACU) which have been beneficiated to suit automotive specifications Aluminium Brass Leather 12

14 Platinum Group Metals (PGMs) Raw automotive glass Stainless steel Steel With regard to vulnerable products, 40% of the standard material listed above and applicable to the products listed below will be regarded as local Alloy wheels Aluminium products (engine and transmission components, heat exchangers and tubes therefore, suspension components and heat shields) Cast iron components (engine/axle/brake/transmission and related types of components) Catalytic converters Flexible couplings Leather interiors Machined brass components Steel jacks The percentage will be reduced by 5 percentage points per annum from 1 January 2015 to 25% from 1 January 2017 onwards. Automotive Investment Scheme (AIS): Effective from July 2009, this assistance replaced the Productive Asset Allowance (PAA) and will amount to a cash grant of 20% (taxable) of qualifying investment paid over to OEMs and component manufacturers over a three year period. In addition, by achieving certain performance objectives, companies will be able to earn an additional 5% or 10%. This support will be available to encourage investments by OEMs and component manufacturers in a manner that supports equipment upgrading. The APDP applies to light vehicles (passenger cars and light commercial vehicles) only. In terms of support to the medium and heavy commercial vehicle (MCV/HCV) sector, including the country s truck, bus, capital equipment and agricultural vehicle industries, government acknowledges that the sector has not received adequate policy attention. A support package similar to the APDP to stimulate production of heavier commercial vehicles of more than kg of gross mass has also been recommended to leverage opportunities within this segment. There is the potential to enhance bus production in South Africa, as well as the production of other MHCVs, through leveraging opportunities, such as the roll-out of the bus rapid transit system and the growing demand for MHCVs in areas such as infrastructure, construction, mining and, possibly, agriculture. The rationale behind this review is the fact that the MHCV sector is labour intensive in terms of assembly, while a more active sector could also broaden South Africa s component manufacturing industry. It is believed that this could be an opportunity for the component sector to grow its base and create additional jobs. In the interim, components produced for the Heavy Vehicle sector will receive the same benefits as light vehicle components. The recommendations on vehicle incentives for the MCV/HCV sector will be finalised in

15 South African Automotive Policy Evolution Governments all around the world are actively attempting to promote their countries by attracting automotive investments via policy and support measures in recognition of the benefits that automotive investments generate in terms of economic growth, development and technology transfer. In the context of the South African automotive industry, the distinctive feature of industrial policy affecting the sector is the effective array of selective policies that were adopted. A cause effect relationship exists between government developmental automotive policy and the operations and market structure that apply to the domestic automotive industry. The overall regulatory regime in South Africa is therefore very important in determining the actions of the domestic automotive firms and the evolution of the automotive policy regime in South Africa has had a decisive impact on the actions of the firms. The origins of South Africa s inward-focused automotive industry developmental path can be traced back to the introduction of tariffs during the early part of the 20th century. High tariffs were placed on CBUs, which, when combined with a rapidly growing market, acted as a magnet to a large number of initially foreign OEMs, which established assembly plants in the domestic market. These operations were very small in international terms with correspondingly high unit costs. Production was aimed solely at the domestic market and South African assembly plants were kept isolated from the global production networks of the parent companies except as markets for completely knocked down (CKD) packs. The initial phase of automotive industry protection, lasting until 1961, was one of classic import substitution, favouring simple assembly for the domestic market. High protective tariffs on imported vehicles fostered the development of an industry of small plants producing a relatively wide variety of models in small volumes at high cost and with low local content. The automotive sector was seen to have both growth potential and synergies with other economic sectors and recommendations were made to develop the automotive industry in South Africa. Between 1961 and 1989, five distinct phases of government support for the industry were identified. They featured continued domestic market protection and a variety of incentives and requirements for increased local content. The South African-based OEMs had to adapt and respond to the mass-based local content requirements to avoid paying excise penalties on their domestic operations. Unintended consequences of the programmes resulted in the domestic industry building the heaviest cars in the world. Phase VI, introduced in 1989, signalled a major policy shift through the promotion of automotive exports. The principal changes were a provision permitting exports to be counted towards local content and a substantial reduction in local content requirements. The protected environment led to a proliferation of vehicle models being produced and the resulting low volumes per model were a significant cost-raising factor. were also minimal. The local content programmes may be summarised as follows: Phase I ( ) of the local content programme was introduced with the objective to increase local content in mass from 15 to 40%. The ad valorem duty on imported motor cars was set at 35% plus an additional percentage up to a maximum of 100%, depending on the value and the weight of the car. The level of excise rebates on motor cars varied between 15% (for a local content of between 25% and 30% by weight) and 75% (for a local content of more than 70%). Components generally attracted a duty of 20% ad valorem. Phase II ( ) of the local content programme was introduced to increase the nominal local content in mass from 45% in 1964 to 55% in This was equivalent to a 50% net local content, as redefined when calculating the actual or true South African content. 14

16 At the beginning of 1971, Phase III ( ) of the local content programme was introduced with a minimum net local content of 52%, which was set to increase to 66% on 1 January Phase IV ( ) of the local content programme comprised a two-year standstill phase. This was to assist industry in consolidating its position after the severe narrowing of profit margins during the previous three years. Worldwide inflation and the oil crisis were accompanied by price increases in steel and other materials. The rapid increases in costs, as well as the large investments required by Phase III, which had to be undertaken in conditions of rising costs of capital, resulted in serious financing and cash-flow difficulties for the industry. The sales duty on motor vehicles introduced in 1969 at a rate of 5% was raised to 10% in 1970 and to 12.5% in Phase V ( ) of the local content programme was introduced with a minimum net local content of 66% by mass, in respect of motor cars, and 50% by mass, in respect of light goods vehicles and minibuses. In 1989, Phase VI ( ) of the local content programme was introduced and involved a radical change in the calculation of local content based on value as opposed to mass. Phase VI encouraged local OEMs to increase local content from an industry average estimated at 55% at the inception of the programme to 75% (including exports) by Local content was defined as the ex-works price less foreign currency used, including profit and overheads. were allowed and accounted for as part of the local content value. The import duty on aftermarket parts and components for motor vehicles was increased to 50% ad valorem and on passenger cars to 100% ad valorem, whether or not assembled. An excise duty of 40% on the value of locally assembled vehicles applied, of which up to 37,5% was rebated based on the local content level. The figure below reveals a visual historic timeline of government automotive policy intervention and industry actions in the domestic market. Source: ITAC, Lamprecht 15

17 An import duty on cars was set at 15% ad valorem and on aftermarket components at 20% ad valorem in Ford, in 1924, and General Motors, in 1926, were the first wholly-owned subsidiaries of overseas parent companies to establish a manufacturing presence in the domestic market. The coastal allocation allowed for the easy importation of components. Production grew from units in 1924 and peaked at passenger cars and commercial vehicles before World War II in The growth in the market led to a third assembly plant, National Motor Assemblers Ltd, in Johannesburg in The import and assembly of vehicles came to a standstill during World War II and was resumed again in After World War II, government targeted the automotive sector as an economic growth area. In 1947 the import duties were increased to 25% and 30% ad valorem on cars where the higher duty applied to the higher valued cars. During this period sales doubled in 1947 and reached units in A high rate of imports led to problems with the balance of payments and import control was instituted through the granting of monetary quotas. The boom in sales and the import control measures led to the establishment of another four assembly plants in the country. Sales averaged units per annum between 1950 and 1954 due to the import control quotas and increased to units per annum when the quota was increased. In 1957 with the elimination of control measures, sales increased to units for the first time ever. In 1960 South Africa produced vehicles, more than any other developing country. A distinctive feature to the development of the South African automotive industry relates to the imposition of sanctions, which resulted in disinvestment by the two largest North American OEMs, General Motors and Ford, the early pioneers in South Africa, with both firms selling their holdings to domestic parties. At the same time two new Japanese entrants, who came to have a dominant share of the market, Toyota, and to a lesser extent Nissan, started to assemble vehicles in South Africa under franchise. Not all OEMs responded in this way to the sanctions environment and the two German assemblers, Volkswagen and BMW continued to operate in South Africa through wholly owned subsidiaries whilst another German assembler, Mercedes- Benz, maintained its 50% equity in Mercedes-Benz South Africa. Apart from this direct German equity in the OEM industry, there was very little foreign presence in the industry through to the early 1990s. In October 1992 a Motor Industry Task Group (MITG) was appointed to make recommendations for encouraging the automotive industry to become more productive, increasingly internationally competitive and a provider of stable employment, as the future viability of the industry under Phase VI was in doubt. Furthermore, the burden placed on consumers by the industry had to be reduced. On 1 January 1994 there was a reduction of the import duty on passenger cars from 100% to 80% ad valorem, while the payment of a 15% surcharge on passenger cars and 5% on commercial vehicles was exempted. On 1 January 1995 there was a further reduction of the import duty on passenger cars to 75% ad valorem. 16

18 Motor Industry Development Programme (MIDP) The Track Record The MIDP, implemented on 1 September 1995, was the next and major stage in government intervention. The programme took account of the international realities facing the motor industry in South Africa at the time, namely trade liberalization, globalization of markets against the background of rapid technological change, rising customer expectations and markets which were becoming increasingly demanding and fast moving in terms of fashions and trends. The MIDP was a sector-specific part of government s new industrial policy intended to rapidly increase the international competitiveness of the domestic automotive industry and to facilitate the increased exports of CBUs and automotive components. The programme continued the direction of Phase VI and entrenched the principle of export complementation. However, it went a step further by abolishing local content requirements and introducing a tariff phase down. The critical component of the MIDP was the introduction of an export import complementation incentive scheme, which meant that, for firms to gain competitive access into the small domestic market, they could augment their volumes through exports, either directly or indirectly, through their value chain. Moreover, by reducing the incentives over time, the MIDP represented a moving frontier. Initiatives such as the investment incentive in the form of the Productive Asset Allowance (PAA), implemented in 2000, provided incentives for capital goods imports, which were targeted at export markets and which favoured economies of scale. The MIDP was aimed at the development of an internationally more competitive and growing automotive industry with the following national objectives - to provide high quality and affordable vehicles and components to the domestic and international markets; to provide sustainable employment through increased production; to make a greater contribution to the economic growth of the country by increasing production and achieving an improved sectoral trade balance. These national objectives were to be achieved by - encouraging a phased integration into the global automotive industry; increasing the volume and scale of production by the expansion of exports and gradual rationalisation of models produced domestically; encouraging the modernisation and upgrading of the automotive industry in order to promote higher productivity and facilitate the global integration process. The major policy instruments to achieve these objectives have been - a gradual and continuous reduction in tariff protection so as to expose the industry to greater international competition; 17

19 the encouragement of higher volumes and a greater degree of specialisation by allowing exporting firms to earn rebates of automotive import duties; the introduction of a range of incentives, which were designed to upgrade the capacity of the industry in all spheres. The technical parameters of the MIDP from 1995 through 2012 are reflected in the following table. Technical parameters of the MIDP ( ) Value of export performance Ratio of exports vs. imports Year CBU duty % CKD duty % DFA % CBUs % Components % Qualifying PGM value % HCV & tooling & components vs. CBU LV Vehicle & tooling & components vs. HCV & tooling & components CBU LV vs. CBU LV, HCV & Tooling & components PAA/AIS % :75 100: :75 100: , :75 100: :75 100: ,5 37, :75 100: :70 100: ,5 32, :70 100: :65 100: :60 100: :60 100: :60 100: :60 100: :60 100: :60 100: :60 100: :60 100: :60 100: :60 100: *LVs passenger cars and light commercial vehicles, MCV/HCVs medium and heavy commercial vehicles, CKD completely knocked-down kits also defined as original equipment components, DFA Duty Free Allowance, PAA Productive Asset Allowance, AIS Automotive Investment Scheme Source: ITAC, Dti The main elements of the MIDP, therefore, were falling protection and export assistance derived from the ability to offset import duties. The phased reduction in tariffs combined with the encouragement of exports was aimed at achieving a greater level of specialisation and economies of scale, and support for improved productivity was aimed at improving the competitiveness of the domestic motor vehicle industry. It is important to note that the tariff phase down was ta- 18

20 king place at a faster rate than those dictated by South Africa s obligation to the World Trade Organisation (WTO), which are 50% ad valorem on CBUs and 30% ad valorem on components. The MIDP has to a large extent achieved its stated objectives and in general its contribution to the domestic automotive industry has been regarded as positive. The programme was not intended to be a miracle solution but an interventionist programme to guide a small, ineffective industry s integration into the global automotive environment. The MIDP facilitated the outward orientation of the domestic automotive industry through its various policy mechanisms. Various external factors impacting on the business operations of the South African automotive industry and its role-players, however, fell outside of the MIDP s control. These included global developments such as the global financial crisis in 2008/2009, logistics costs, raw material prices, currency movements as well as administrative prices impacting on the cost of doing business in South Africa. However, the notion of providing long-term policy certainty, to enhance investor confidence and to bid for long-term export contracts, contributed to ensuring that the domestic automotive industry remained in consideration for export-oriented, investment decisions. Since the introduction of the MIDP significant structural changes have taken place in the South African automotive industry. The sector has grown in stature to become the leading manufacturing sector in the country s economy. The production of vehicle models has been rationalized significantly to achieve economies of scale benefits in the domestic and export markets. Consequently, the complexity in the component sector has also been reduced. have fuelled the growth of the South African automotive industry and supplying automotive components and completely built-up units (CBUs) to the world has grown from virtually no exports before 1995 to become a major South African industrial activity. The surge in exports of CBUs and a diverse range of components to demanding world markets is indicative of the domestic industry s improved international competitiveness. In this regard, linkages with multinational companies, mainly to obtain project funding or the relevant licence or technology agreements to manufacture and export, were imperative and the export growth had been accommodated by major investments in best practice assets and state-of-the-art equipment, skills upgrading, productivity gains and upgrading of the whole automotive value chain. Other industries, due to their strong linkages with the automotive industry, also benefited from the growth in the automotive sector over the past 17 years. Input industries included aluminium, chemicals, electronics, leather and textiles, platinum group metals, plastics, rubber, steel, machinery and equipment, as well as service industries such as engineering, logistics, tooling and others such as financial, wholesale, retail and advertising. 19

21 The key performance indicators under the MIDP may be illustrated as follows MIDP key performance indicators: 1995 vs Activity Capital expenditure by the OEMs R847 million R4,7 billion Export value (vehicles and components) R4,2 billion R86,9 billion Total vehicles exported (units) Top vehicle export destinations 1. China 2. Zimbabwe 3. Malawi 1. USA 2. UK 3. Algeria Top automotive components exported 1. Stitched leather seat parts 2. Catalytic converters 3. Tyres 1. Catalytic converters 2. Engine parts 3. Silencers / exhaust pipes Top vehicle countries of origin: imports 1. Germany 2. Japan 3. UK 1. Germany 2. India 3. Japan Productivity (Average number of vehicles produced per employee) 10,0 18,5 Automotive industry contribution to GDP 6,5% 7,0% Number of passenger car model derivatives Export destinations for vehicles and components Total vehicles produced (units) Total new vehicle sales (units) Number of model platforms Models with production volumes > units 0 5 Other key performance data may be summarised as follows - Total nominal export value of vehicles and automotive components between 1995 and 2012 R772,2 billion Total number of vehicles exported between 1995 and units Total nominal capital expenditure by the OEMs between 1995 and 2012 R48,6 billion Total nominal expenditure on training by the OEMs between 1995 and 2012 R1,85 billion A compounded annual growth rate of 19,5% in nominal rand value terms for completely built-up vehicles (CBUs) and automotive component exports has been achieved since 1995, through to Total automotive industry exports (CBUs and components) in rand value terms increased more than twenty fold from the R4,2 billion in 1995 to R86,9 billion in The way forward for the South African automotive industry has been indicated clearly under the APDP. There is certainty through to 2020, which will assist long-term strategic planning, while the programme encourages OEMs to produce at least units per year, thus bringing reasonable economies of scale. As was the case under the MIDP, those companies able to abide by the business rules of the new policy regime the quickest will be able to reap the benefits first. 20

22 The South African Automotive Industry Operating Environment Developing countries, increasingly integrated into the global automotive value chain of global role-players, not only have to cope and incorporate the direct impact of the major global trends on their operations, but also have to compete with each other for sourcing and outsourcing opportunities. It is within this fast changing environment that many developing countries, such as South Africa, are seeking to create for themselves a role as producer of vehicles and automotive components. When the domestic market is not large enough to absorb the production, the focus is on exports. The South Africa automotive industry possesses unique qualities and a natural ability to add value to global strategies of parent companies and multinationals. The wealth of experience brought about by the presence of all the major European, American, Japanese and other Asian motor vehicle manufacturers is something the industry has capitalsed on. South Africa s attractiveness as an investment destination of choice and production base for products to be exported to global markets is increasing. There is a high level of linked dependency in the automotive supply chain where one company depends on the success of others in the chain to reach common goals of securing global manufacturing contracts and then delivering on vehicle demand. In this environment it becomes critical for supply chain partners to engage in more strategic collaboration, where all elements of the supply chain become aligned and function as a single system with synchronized processes across supply partner organisations. Ever growing complexity is being added daily with the numbers of vehicle models from OEMs growing to satisfy sophisticated customer demands and increase market place advantage. The success of integrated supply chain collaboration, management and control is a modern day imperative and a strategic competitive tool. The key trends that affect the automotive industry are increased customer demands and variety of models and specifications, decreasing number of car producers, individualization, and implementation of new technologies and changing relationships between OEMs and suppliers. The automotive industry must be able to handle industry-wide factors such as social contributions, taxes, currency volatility, market competition, and difficulties in passing raw material costs to the end consumer, amongst others. Despite everything, the automotive industry must continue to meet society s demands, which require considerable research and development expenditure. As in the other leading automotive manufacturing countries, public authorities are important partners. At a national level NAAMSA and NAACAM are constantly involved in collective discussions on issues affecting the automotive industry. In 2012, world vehicle production grew by 5,3% to 84,1 million vehicles, a new record. In 2011 the Toyota Group lost the first place it had held since 2006 to General Motors mainly due to the earthquake that affected Japan and seriously disrupted motor vehicle production. The Volkswagen Group, which has a major presence in emerging economies, has also overtaken the Japanese manufacturer. Production levels in Western Europe declined by 9,2% from 2011 to 2012 but reflected an upturn in NAFTA of 17,2% and Japan of 18,4%. The countries in the EU that are suffering from debt problems have seen their automotive markets collapse. The crisis has affected the entire automotive value chain, both upstream including suppliers and downstream including vehicle transport and maintenance. In emerging countries or regions which are currently the main areas for growth in the automotive industry, the market share rose from 16% in 2000 to 54% in The rapid rise of the automotive sector in the East has 21

23 resulted in a dramatic change of the world order, which has seen the major share of automotive manufacturing move from the West to the East. Beyond China, the world s leading automotive market since 2009, growth was observed in various emerging countries. Market opportunities for South Africa grew healthily with automotive exports more than doubling from 2011 to 2012 to China, Russia and Thailand in line with vehicle production in these countries expanding over this period. 22

24 Automotive Clusters South Africa s constitution established nine provinces and each province has its own premier, cabinet and legislature. The provinces vary substantially in size, wealth, geography, ethnicity, population and performance. Metropolitan, district and local governments provide services and collect payments for local utilities and taxes. There are 283 municipalities focusing on growing local economies and providing infrastructure and services. South Africa s vehicle manufacturing industry is concentrated in three of the country s nine provinces, namely Gauteng, the Eastern Cape and KwaZulu-Natal, and in close proximity to its suppliers. However, increasingly some automotive development is also taking place in the Western Cape and North West provinces. Provincial and local governments have trade, investment and tourism offices to promote economic activity in each region, many of which have their own Industrial Development Zones (IDZs) and development programmes. Gauteng Gauteng is the economic engine of South Africa. It is the smallest of the country s nine provinces but is the country s financial and industrial economic centre. The province is the financial-services capital of Africa with more than 70 foreign banks having their head offices in the province, as do at least the same number of South African banks, stockbrokers and insurance giants. It produces about one third of National GDP, generates the highest per capita income and accounts for 40% of South Africa s manufacturing output, construction and financial services. Johannesburg is the provincial capital and the main point of entry for the country. Pretoria is the administrative capital of South Africa and Soweto is the country s largest black city. The City of Tshwane has now become the largest metropolitan municipality in South Africa, comprising an area of 6 368km² and a population of just over 2,5 million. This makes the City of Tshwane the third largest city in the world in terms of land mass, after New York and Yokohama in Tokyo. Main contributors to provincial GDP are finance, manufacturing and trade, although agriculture and food processing are also important in the country s most densely populated province. A recent new feature of the province includes the new Gautrain, a rapid transit system which connects Pretoria, Johannesburg and the OR Tambo International Airport. The Council for Scientific and Industrial Research (CSIR), housed in the province, is one of the largest scientific and technology, research and development (R&D) and implementation organizations in Africa. Gauteng is also home to the City Deep logistics hub which is part of its comprehensive rail network. This terminal is the premier container depot in the country, the largest inland port in Africa and the fifth-largest in the world. Gauteng houses the majority of automotive suppliers. The Gauteng Growth and Development Agency, via its two automotive specific subsidiaries, the Automotive Industry Development Centre (AIDC) and the Automotive Supplier Park (ASP) provide support to the automotive industry and are charged with promotion of trade and investment and project implementation to bolster all areas of economic activity. A Gauteng Special Economic Zone (SEZ) focuses on the development of hi-tech industries. The province also hosts the National Government Departments. Johannesburg, Ekurhuleni, Tshwane and other local and district administrations are also active in promoting investment and tourism. 23

25 Gauteng key features 2012 Capital Gauteng Johannesburg Population (% of SA total of 51,77 million) 12,27 million (23,7%) GDP contribution as % of SA total GDP of R3 251 billion 33,5% OEMs (manufacturing plants) BMW SA Nissan SA/Renault SA Ford Motor Company of Southern Africa incorporating the assembly of Mazda Medium, heavy, extra heavy commercial vehicle and bus companies Babcock, Fiat Group Automobiles SA, Freightliner, Fuso, Iveco SA, Isuzu Truck SA, MAN Truck & Bus (SA), Marcopolo SA, NC2 Trucks, Peugeot Citroen SA, Powerstar, Renault Trucks, Scania SA, Tata Trucks, UD Trucks Southern Africa, VDL Bus & Coach and Volvo Trucks Number of automotive component companies 150 Motor vehicle parc as % of SA total vehicle parc of 10,6 million vehicles Passenger car sales as % of total 2012 NAAMSA sales 38,8% 36,4% LCV sales as % of total 2012 NAAMSA sales 31,5% MCV/HCV sales as % of total 2012 NAAMSA sales 37,3% Light vehicle exports by OEMs in the province as % of total 2012 exports Source: NAAMSA/RGT Smart, NAACAM, Statistics SA 29,6% Eastern Cape The Eastern Cape has a sound manufacturing base, primarily in the automotive sector. Finance, government services and manufacturing are the leading sectors in the Eastern Cape economy. The province is well served logistically, with airports situated in Port Elizabeth, East London, Mthatha and Bisho and serviced by ports in Port Elizabeth, Coega and East London. The allocation of two of South Africa s five industrial development zones (IDZs) to the province is confirmation of the potential that is offered by the shipping traffic that operates between Europe, Asia and the Far East. The Coega IDZ is the largest IDZ in the country and is the main catalyst for Eastern-Cape socio-economic development and the gateway to global markets. Its focus is on investment promotion, infrastructure development, leasing of land, buildings and ICT systems, human capital development and project management. It has the necessary support for industrial investment projects including tax relief for businesses that invest in the zone a reduction in corporate income tax rate and support for employment and training expenses. It offers prime investment space, abundant opportunities, world-class infrastructure, access to various investment incentives and support as well as complementary back-of-port facilities and infrastructure to the Port of Ngqura. The East London IDZ has also established an Automotive Supplier Park. The Automotive Industry Development Centre, the Eastern Cape Development Corporation, the Nelson Mandela Bay Metropolitan Municipality and the Cacadu District Municipality are 24

26 among the several organisations promoting the Eastern Cape as a preferred destination for trade and investment. Three Spatial Development Initiatives (SDIs) Fish River, Wild Coast and East London/Coega are also located in the Eastern Cape. Eastern Cape key features 2012 Automotive clusters Eastern Cape Capital Bisho Population (% of SA total of 51,77 million) 6,56 million (12,7%) GDP contribution as % of SA total GDP of R3 251 billion 7,6% OEMs (manufacturing plants) Volkswagen Group SA Mercedes-Benz SA General Motors SA Ford Motor Company of Southern Africa engine plant Medium, heavy, extra heavy commercial vehicle and bus companies General Motors, Mercedes-Benz SA and Volkswagen Group SA Number of automotive component companies 100 Motor vehicle parc as % of SA total vehicle parc of 10,6 million vehicles Passenger car sales as % of total 2012 NAAMSA sales 6,7% 4,4% LCV sales as % of total 2012 NAAMSA sales 5,0% MCV/HCV sales as % of total 2012 NAAMSA sales 4,8% Light vehicle exports by OEMs in the province as % of total 2012 exports Source: NAAMSA/RGT Smart, NAACAM, Statistics SA 38,4% KwaZulu-Natal KwaZulu-Natal represents the second largest economy in the country after Gauteng and with two of Africa s busiest ports and world-class road and rail infrastructure, the province enjoys the strategic and competitive advantage of being a global gateway for trade into Africa and to the world. Its strategic location and highly developed industrial sector ensures a competitive edge for both local and foreign investors and unique advantages for exporters. Durban is South Africa s second largest city and busiest port and attracts many events to its International Conference Centre. Manufacturing dominated by pulp and paper, chemicals and food and beverages is the largest sector, followed by finance, trade, tourism and agriculture. Provincial and local government infrastructural investment over recent years has provided impetus to economic growth in the province. Durban is the 42nd largest port in world, the leader in cargo handling logistics and the busiest multi-service harbour in Africa. It handles 81% of Africa s exports and imports. Richards Bay, originally developed as a coal exporting port, is now South Africa s busiest bulk port and the centrepiece of the Richards Bay IDZ and Spatial Development Initiative (SDI). Richards Bay and Durban ports handle about 75% of the country s tonnage. The new King Shaka international airport at La Mercy is fully operational and provides easy access to Durban. Trade and Investment KwaZulu-Natal, Tourism KwaZulu-Natal, the Durban Investment and Promotion Agency and the Durban Automotive Cluster promote the province s trade and in- 25

27 vestment opportunities supplemented by the new Durban KwaZulu-Natal Convention Bureau established to promote the city and province as top conference destinations in Africa. KwaZulu Natal key features 2012 Automotive clusters KwaZulu-Natal Capital Mzunduzi (Pietermaritzburg) Population (% of SA total of 51,77 million) 10,27 million (19,8%) GDP contribution as % of SA total GDP of R3 251 billion OEMs (manufacturing plants) Medium, heavy, extra heavy commercial vehicle and bus companies 16,1% Toyota SA Motors Bell Equipment Co SA, Hino, MAN Truck & Bus (SA) and Toyota SA Motors Number of automotive component companies 80 Motor vehicle parc as % of SA total vehicle parc of 10,6 million vehicles Passenger car sales as % of total 2012 NAAMSA sales 13,6% 12,8% LCV sales as % of total 2012 NAAMSA sales 12,1% MCV/HCV sales as % of total 2012 NAAMSA sales 16,1% Light vehicle exports by OEMs in the province as % of total 2012 exports 32,0% Source: NAAMSA/RGT Smart, NAACAM, Statistics SA 26

28 Made in South Africa South African companies are increasingly exposed to global market pressures. This forces the companies to continuously improve their business processes and strategically implement and design processes which can help improve product quality, reduce costs and enhance delivery performance. The South African automotive industry, as everywhere else in the world, is strongly influenced by the OEMs. The industry s structure and evolutionary path are therefore closely aligned with OEM strategies in both domestic and global markets. The increasing orientation of OEMs towards exports has thus fundamentally changed the structure of their own operations as well as those of the automotive component industry. Key decisions about South Africa s automotive business are made in Europe, the USA and Japan. South Africa s participation in the World Trade Organisation (WTO), its competitive advantages and its special relationships with the EU and other trading regions have facilitated the industry s integration into the global sourcing strategies of the multinational automotive corporations. Essentially the essence of the MIDP was to encourage the OEMs in South Africa to specialize in one or two high volume models on behalf of parent companies, obtain economies of scale benefits via exports and in turn import those models not manufactured in the country to complement their domestic model mixes. This approach also assisted the component suppliers in obtaining higher volumes. Consequently the Made in South Africa products during 2012 included the following: Passenger cars (2012): BMW Mercedes-Benz Nissan Renault Toyota Volkswagen 3-Series 4-door C-Class 4-door Livina/Grand Livina Sandero Corolla 4-door and Fortuner Polo new and previous series Light commercial vehicles (2012): Ford Mazda General Motors Nissan Toyota Ranger BT-50 Chev Utility and Isuzu KB Hardbody, NP300, NP200 Hilux 27

29 28

30 The automotive industry has enjoyed sustained growth in both domestic sales and exports since the downturn in In 2012 South African interest rates had been the lowest in 38 years, debt servicing costs for households were low, sufficient credit had been available to service demand for new cars and new car prices had been in negative territory in real terms for over two years with prices increasing by less than 3% on an annual basis. The popularity of diesel engine models has been increasing and in 2012 the market share for new diesel light vehicle (passenger car and light commercial vehicle) sales accounted for 27,3% of total light vehicle sales, up from the 25,8% in Toyota SA Motors has maintained its market leadership position in South Africa for 33 consecutive years since In 2012 Toyota SA Motors had an overall market share of 19,4% followed by Volkswagen Group of SA with 17,4%, Associated Motor Holdings with 13,6%, General Motors SA with 11,2% and Nissan SA with 8,0%. Production of passenger car and light commercial vehicles 1995 to 2012 PASSENGER CARS LIGHT COMMERCIAL VEHICLES Market Market as a % of Domestic Total total Domestic Export Total as a % of total , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,4 2013* , ,0 * projected figures Source: NAAMSA In addition to the above light vehicles, the following Medium, heavy and extra heavy commercial vehicle companies are represented in South Africa (2012): Babcock Fiat Nissan Peugeot 29

31 Freightliner Fuso General Motors Hino Isuzu Iveco MAN Mercedes-Benz NC2 Trucks Powerstar Renault Trucks Scania Tata Toyota UD Trucks Volkswagen Volvo Trucks Buses: General Motors Iveco MAN Mercedes-Benz Scania Tata VDL Bus & Coach Volvo Medium and heavy commercial vehicles are regarded as productive assets and major cost drivers to the entire economy and therefore the level of protection on these vehicles has been set at 20% ad valorem, which is much lower than the level on light commercial vehicles and passenger cars. Assembly operations are characterized by the duty-free importation of all the drive line components, which include the engines, transmissions, drive-axles and gearboxes. Tyres, which are manufactured domestically, are excluded and attract a 15% import duty. MCV/HCV sales are indicative of activity in spending on construction and infrastructure projects. Numerous major infrastructural developments are planned by government over the next number of years and industry remains optimistic about the positive effect this will have on the South African truck market. The physical transfer of goods exported by a country is a reflection of economic competitiveness. The demand for freight transport is therefore closely linked to the economy and its interactions with other countries. 30

32 Assembly of medium and heavy commercial vehicles and buses 1995 to 2012 MEDIUM AND HEAVY COMMERCIALS Market Domestic Total as a % of total ,3` , , , , , , , , , , , , , , , , ,7 2013* ,2 * projected figures Source: NAAMSA Automotive parts and accessories A diverse range of original equipment components, parts and accessories are manufactured by about 400 automotive component suppliers, including 120 first tier suppliers, in the country. The profiles and contact details of the major automotive component suppliers in South Africa can be accessed in the NAACAM Directory at 31

33 Automotive Industry Trade Balance The automotive industry continued to increase its share of the South African trade balance reiterating its status as the leading manufacturing sector in the country. The dynamics of the South African automotive market have changed since the implementation of the MIDP in 1995, with increased imports affecting the country s trade balance on the one hand, but increases in exports resulting in automotive exports comprising 12,1% of South Africa s total exports in The export sector is the engine of South Africa s growth into the global economy and in this regard the automotive industry is a contributor par excellence. Automotive exports have been growing by a compounded annual rate of 19,5% since 1995 up to South African automotive sector s contribution to total South African exports and imports: 1995 to 2012 Year Total SA (R billion) Total Automotive exports (R billion) Automotive exports as a % of total SA exports Total SA Imports (R billion) Total Automotive imports (R billion) Automotive imports as a % of total SA imports ,1 4,2 4,1% 101,1 16,4 16,2% ,4 5,1 4,4% 116,9 19,2 16,4% ,5 6,6 5,0% 129,8 17,2 13,3% ,0 10,1 6,9% 144,0 19,9 13,8% ,6 14,8 8,9% 147,4 22,8 15,5% ,4 20,0 9,5% 188,1 29,7 15,8% ,3 30,0 13,9% 215,4 38,0 17,6% ,1 40,1 12,8% 274,5 50,2 18,3% ,1 40,7 14,9% 257,0 49,8 19,4% ,1 39,2 13,4% 304,7 58,0 19,0% ,1 45,3 13,8% 349,2 72,5 20,8% ,0 54,7 13,9% 462,6 88,5 19,1% ,3 67,6 13,8% 561,2 102,2 18,2% ,0 94,2 14,4% 727,6 108,9 15,0% ,9 61,0 11,9% 541,2 79,9 14,8% ,0 69,5 11,8% 585,2 100,2 17,1% ,1 82,2 11,5% 729,0 120,8 16,6% ,9 86,9 12,1% 835,6 136,1 16,3% Source: AIEC, SARS The South African automotive industry s trade deficit has widened to R49,2 billion in 2012 compared to the R38,6 billion in On the import side the strength of imports of aftermarket parts and the weakness of the Rand affected the trade balance in 2012 while on the export side the rising deficit could also be attributed to the drop in exports to the EU, the automotive industry s main trading partner, due to the weakness of the EU automotive markets. The overall picture in respect of the domestic automotive industry s trade balance under the MIDP reflects that exports have increased very rapidly but that imports have expanded rapidly as well. Since 32

34 the introduction of the MIDP, until 2007, automotive component exports remained the key driver behind the automotive industry s trade balance. In 2008, owing to the record vehicle exports of units, the vehicle export value exceeded the automotive component export value for the first time and this trend continued into The following table reveals the details in respect of the domestic automotive industry s trade balance from 1995 through to Trade balance for the automotive industry: Year Imports (R billion) (R billion) Net forex usage (R billion) ,4 4,2 (12,2) ,2 5,1 (14,1) ,2 6,6 (10,6) ,9 10,1 (9,8) ,8 14,8 (8,0) ,7 20,0 (9,7) ,0 30,0 (8,0) ,2 40,1 (10,1) ,8 40,7 (9,1) ,0 39,2 (18,8) ,5 45,3 (27,2) ,5 54,7 (33,8) ,2 67,6 (34,6) ,9 94,2 (14,7) ,9 61,0 (18,9) ,2 69,5 (30,7) ,8 82,2 (38,6) ,1 86,9 (49,2) ,1 86,9 (49,2) EU 62,6 34,0 (28,6) NAFTA 10,7 20,9 10,2 AFRICA (incl. SADC) 0,2 17,8 17,6 MERCOSUR 4,5 1,5 (3,0) OTHER REGIONS 58,1 12,7 (45,4) ,1 86,9 (49,2) CBUs 49, 6 50,0 0,4 Original equipment components Aftermarket components 51,4 35,1 36,9 (49,6) Source: AIEC 33

35 Despite the significant increase in exports of CBUs and automotive components in recent years, the South African automotive industry has remained a net user of foreign exchange. This was as a result of the importation of products not manufactured in the relatively small domestic market. Capital-intensive components such as engines, gearboxes and interior electronic components are mainly imported and the remainder sourced in the domestic market. The industry s reliance on global designs, technologically sophisticated plant and machinery and high-value automotive components contributes to the large outflow of foreign exchange. In addition, the importation of replacement parts has increased substantially in recent years to support the increased vehicle imports. A key strategy of the OEMs operating in South Africa is to expand market share. The OEMs seek to achieve this through a combination of domestic production and vehicle imports. The MIDP encourages the OEMs to import models not manufactured in the country and concentrate on the production of relatively high-volume models. In rationalising the vehicles and components it manufactures, to achieve higher volumes from a much smaller range of products, industry also has to rely on increasing imports to fill the domestic supply gaps. The following table reveals the movements of the rand against the currencies of the South African automotive industry s main automotive trading partners under the MIDP, which remained the EU, the US and Japan. Currency indices for Rand versus major trading partners (Foreign currency: Rand - annual averages) Currency Euro Index Index US ($) Index Index Japan (100 Yen) Index Index Source: South African Reserve Bank The South African Reserve Bank is responsible for formulating and implementing monetary policy. Its primary objectives are keeping inflation within a targeted rate of 3 to 6% and maintaining a stable, competitive currency. The Bank is opposed to intervention to manipulate the exchange rate. The global recession in 2008 affected South Africa as well, but sound fiscal and monetary policies minimised the impact on the domestic economy. As a result, inflation and interest rates dropped substantially in 2010 and the Rand gained in strength although the currency depreciated in 2011 and 2012 again. From an import as well as export perspective, currency deviations impact on the automotive industry s domestic operations. The industrial sector, however, has not reaped the full benefits of the currency depreciation on the export side due to weak global demand. Moreover, currency depreciation was not limited to South Africa, but across emerging markets, thus further strengthening their export competitiveness as well. 34

36 Automotive and Imports Methodology The data in the publication is reflected for SACU (Southern African Customs Union), the oldest customs union in the world. The Customs Union Agreement, signed in 1910, was later replaced with the SACU Agreement of 1969 and, more recently, with the SACU Agreement of The aim of the customs union is to maintain the free interchange of goods between member countries, as well as to provide for a common external tariff and a common excise tariff within the customs union. Member countries include Botswana, Lesotho, Namibia, South Africa and Swaziland. The data in the Automotive Export Manual 2013 South Africa publication is processed based on the detailed Customs and Excise statistics for products eligible under the MIDP, obtained from the South African Revenue Services (SARS). The Customs and Excise export values reflect free on board (FOB) values in nominal terms. The export values of the latest year (2012) were used to rank the countries in order of priority, from the most to the least important export country destination. The same principle was applied so as to prioritise the export data regarding regions, vehicles and component categories. Approximately 211 country export destinations are listed by SARS. For purposes of relevance one million rand (R1 million) was used in the Automotive Export Manual 2013 South Africa publication as a measure to determine the top 152 South African country export destinations. For ease of reference and for comparisons the data with respect to the component categories, where applicable, were placed in alphabetical order. Percentages were rounded off. The main purpose of this publication is to discern and highlight export and import trends, to prioritise export country destinations, to prioritise countries of origin, to identify opportunities via potential growth country and region destinations as well as to identify growth in products exported to specific country destinations. The publication also serves as a guide to track the export and import performance of the South African automotive industry under the MIDP over recent years. Due to certain limitations Customs and Excise statistics cannot always distinguish between automotive components eligible in terms of the MIDP and non-midp components and certain categories, such as automotive tooling, may contain a small percentage of non-midp components. 35

37 to Regions South Africa has escalated the importance of trading with new poles of economic growth over recent years. Due to changes in the balance of power it is becoming an imperative to diversify trade and investment with new emerging markets offering vast opportunities and rapid growth while still actively maintaining and expanding its relations with traditional trading partners. Trade with Europe is waning due to the ongoing debt crisis. The EU, however, still remains South Africa s largest trading bloc worldwide, absorbing some 25% of the country s total exports. Globally, major automotive manufacturing regions include the North American Free Trade Area (NAFTA), Western Europe, Japan, Asia-Pacific, Eastern Europe, South America and South Africa. The Triad economies of North America, Europe and Japan comprised 41,98 million or 49,9% of global vehicle production of 84,1 million in The demand side for vehicles, which is declining in the mature Triad markets, is problematic since supply is exceeding demand. Hence, the rush for cost savings by the OEMs is a priority area. The offensive strategies of a few dominant OEMs to win market share, in an intensely competitive global environment, impact significantly on the developments of the automotive component suppliers in the supply side. Developing countries and regions, providing lower cost manufacturing and huge growth potential for both the global automotive supply and demand sides, are increasingly important focus areas. A case in point is the BRICS countries which are increasing their global market shares as reflected by the vehicle production gains from 2011 to 2012 of 12,1% in the case of Russia, 5,5% in the case of India, 4,4% in the case of China and 1,3% in case of South Africa with Brazil reflecting a decline of 1,9%. The BRICS countries, with 29,5 million units, comprised a global market share of 35,1% in Cross-border business involves customs duties as just one of the barriers being encountered. However, a myriad of other compliance and protectionist instruments, such as specific tariffs, antidumping measures, and a plethora of non-tariff barriers for products and different types of company behaviour have arisen as significant and often insurmountable barriers to trade, especially for developing country firms. In many countries the automotive sector enjoys iconic status but this is generally only possible behind high tariff and non-tariff barriers. In addition, logistical costs, raw material prices, currency volatility and global developments, amongst others, place further burdens on delivering products to the marketplace. Globally, more countries are entering into bilateral and multilateral trade agreements, and, as a result, the challenge for the South African automotive industry is how to accommodate its policy regime in such agreements without affecting the integrity of the programme. 36

38 European Union Europe remained the South African automotive industry s most important trading partner, accounting for R96,6 billion or 43,4% of the country s total automotive imports and exports of R222,9 billion in Developments in the EU therefore have a direct and measurable impact on the automotive industry s overall performance. Furthermore, the escalating crisis in the Eurozone and its spill-over effects not only affects the export-oriented enterprises in the South African automotive industry but the EU is also an important destination for several of the domestic automotive industry s main trading partners. Hence, with the effects of the Eurozone crisis spilling over to numerous countries across the globe, the opportunities for diversification of export markets and product mix are also becoming increasingly limited. South Africa s trade relations with the EU are governed by the Trade, Development and Cooperation Agreement (TDCA). The main objective of the TDCA is to create a free-trade area between South Africa and the European Union (EU) over a 12-year period, thereby removing 90% of all trade barriers. The EU and South Africa will, in terms of the agreement, open their markets to each other at a different pace. The EU-SA Free Trade Agreement on trade, development and co-operation became effective on 1 January The agreement was based on preferential rates of import duties for certain products having been deemed to originate in the partner country. South Africa would have granted duty-free status to 86% of its EU imports by 1 January 2012, while the EU have provided duty-free status to 95% of South Africa s exports since 1 January Initially the EU consisted of just six countries: Belgium, Germany, France, Italy, Luxembourg and the Netherlands. Denmark, Ireland and the United Kingdom joined in 1973, Greece in 1981, Spain and Portugal in 1986 and Austria, Finland and Sweden in In May 2004, the biggest ever enlargement took place with ten countries joining: Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and Slovakia. On 1 January 2007 the EU welcomed its 26th and 27th members, Bulgaria and Romania. The Czech Republic, Poland, Slovakia and Romania are significant to the automotive sector. The new countries will also be bound by the current free trade agreement. Passenger cars into the EU normally attract an import duty of 10% while original equipment components an import duty of 3% and aftermarket automotive parts an import duty of 4,5%. Effectively from 1 January 2000, when the SA-EU Free Trade agreement was signed, the applied tariffs for automotive components into the EU were reduced by 50% below normal EU duty rates, which provided South Africa with a competitive advantage against competing countries. On 1 January 2002 the EU improved the preference extended to South Africa under its General System of Preference (GSP) to 3,5%. This meant that South African passenger car exports into the EU only attracted a 6,5% import duty while original equipment components as well as aftermarket automotive components could be exported duty-free. The impact of these preferences was evident in the component and vehicle export data to the EU which increased significantly from R10,9 billion in 1999, before the introduction of the free trade agreement, to R13,1 billion in 2000, to R18,1 billion in 2001 and to R21,5 billion in On 1 January 2006 the EU decided to exclude South Africa s automotive sector from the Generalised System of Preference (GSP) due to the sector exceeding a certain maximum level of exports into the EU. As a result passenger cars attracted a 10% import duty while original equipment components were levied with a 1,5% duty and aftermarket parts with a 2,25% duty 37

39 impacting negatively on the export competitiveness of South African automotive exporters. However, as from 15 December 2006 with the finalisation of the automotive part of the SA-EU Free Trade Agreement, the import duty on automotive components was reduced to duty-free on 15 December 2006 while the 10% import duty on passenger cars was reduced to 3,5% on 15 December 2006, to 1,5% on 1 January 2007 and fell away completely in January South African commercial vehicle exports to the EU were already duty-free and unaffected by the agreement. South Africa returned the compliment with a 7% preference to the EU on passenger cars and light commercial vehicles and an 8% preference on medium and heavy commercial vehicles and buses. Original equipment components will get no preference but a large number of aftermarket automotive parts will qualify for lower import duties. In order to qualify for zero tariffs into the EU, South African vehicles and components must contain at least 60% local content. The definition of local content includes South African raw materials, labour, parts, transport, manufacturing costs and profit margins, as well as the value of components and subcomponents originally sourced from Europe. Over the period 2006 to 2008 South African passenger car and automotive components exports to the EU subsequently reflected a significant increase from R27,3 billion to R40,7 billion. In 2012 total automotive exports (vehicles and components) to the EU amounted to R34,0 billion or 39,1% of South Africa s total automotive exports of R86,9 billion. to the 12 new member countries forming part of the expanded EU comprised R3,41 billion or 10,0% of the R34,0 billion export value in 2012 compared to the R3,89 billion or 10,1% of the R38,6 billion export value to the EU in Total automotive exports to the EU declined by 11,8% or R4,5 billion from 2011 to 2012 due to the economic recession experienced in the Eurozone countries affecting vehicle sales and production in the region. 38

40 to the European Union (EU) 1995 and 2008 to 2012 Component TOTAL (R million) 2 502, , , , ,7 TOTAL (average Euro million) , , , , ,7 Air conditioners 0,8 0,2 2,7 4,4 17,7 22,1 Alarm systems 6,3 61,3 31,6 41,0 35,0 29,6 Automotive tooling 48,1 144,4 85,0 56,7 104,0 160,6 Axles 0,3 164,2 7,2 34,8 125,7 92,5 Batteries 43,6 65,9 46,0 20,8 35,5 28,7 Body parts / panels 20,3 57,8 44,4 28,2 25,8 22,1 Brake parts 10,5 86,2 51,6 31,9 37,4 21,7 Car radios 0,4 1,0 6,5 11,0 30,0 36,1 Catalytic converters 377, , , , , ,9 Clutches / shaft couplings 4,2 100,2 119,1 198,0 143,8 140,1 Engines 2,1 363,9 27,3 17,6 6,1 16,3 Engine parts 47, ,3 746,9 728,1 741,0 834,0 Filters 7,1 159,6 186,5 143,0 165,3 131,7 Gaskets 1,1 44,9 37,8 31,5 29,6 34,2 Gauges / instrument parts 3,7 164,8 50,6 38,1 45,2 42,9 Gear boxes 0,2 29,4 31,6 7,0 68,8 14,8 Glass 15,3 278,6 365,0 284,1 256,0 210,6 Ignition starting equipment 7,3 126,4 66,9 35,5 22,2 15,4 Jacks 5,8 37,8 66,2 20,4 14,2 22,8 Lighting equipment 1,8 139,9 101,3 137,7 139,2 131,4 Radiators and parts 33,0 564,9 365,4 489,2 642,3 577,3 Road wheels / parts 114,2 624,3 332,5 323,3 401,4 251,5 Seats 5,2 0,1 0,2 0,3 0,6 0,3 Seat belts 0,3 3,1 1,7 0,5 1,1 0,7 Seat parts / leather 979, , , , , ,4 Shock absorbers / suspension parts 17,2 175,1 230,6 296,6 373,8 366,5 Silencers / exhausts 71, , , , , ,8 Springs 10,9 24,6 21,4 21,3 21,5 7,8 Steering wheels / columns / boxes 0,1 149,2 123,8 131,0 110,0 123,9 Transmission shafts / cranks 20,6 454,1 190,1 159,6 230,5 247,0 Tyres 70,3 741,2 496,8 381,3 624,3 392,5 Wiring harnesses 41,9 196,8 76,2 40,4 61,1 63,9 Other parts 517, ,1 742,5 714, , ,0 Light vehicles 15, , , , , ,2 Medium / Heavy vehicles 0,8 419,8 31,2 69,6 64,2 4,4 Source: AIEC, SARS 39

41 Top Export Destinations in the EU with Export Value

42 NAFTA (North American Free Trade Area) The North American Free Trade Area consists of the USA, Canada and Mexico and was South Africa s second largest trading region comprising R31,6 billion or 14,2% of total automotive trade of R222,9 billion in The USA was the South African industry s top automotive export destination in South Africa is a beneficiary of the USA s Generalised System of Preference (GSP), which was instituted on 1 January 1976 and grants duty-free status to some goods. Since 2001 trade with the USA had significantly been increased by the African Growth and Opportunity Act (AGOA), which was an extension of the GSP and allows duty-free access of additional products into the USA. The African Growth and Opportunity Act (AGOA) represents a non-reciprocal gesture by the USA aimed at liberalizing trade and assisting the growth and development of sub-saharan African countries by extending duty free and quota free access into the USA market in respect of a broad range of products. The effective commencement date of the duty free access provisions in terms of AGOA was 1 January 2001 until 30 September 2008, which was subsequently extended until 30 September AGOA provides three important benefits to sub-saharan African exporters. Firstly, it extends the duty-free treatment under the GSP programme to September Secondly, AGOA eliminates most of the limitations of the GSP programme for sub-saharan African countries. Thirdly, AGOA expands the product coverage of the GSP programme exclusively for products of sub-saharan Africa. Under AGOA 98% of South African exports to the US enter the country without tariffs or quotas. A major portion of the country s exports to the US are manufactured goods, like vehicles, which have assisted to enhance manufacturing in the domestic market. The cornerstone of AGOA is the expansion of development and trade with Africa, providing diverse opportunities to grow and integrate the continent into the global economy. South Africa, together with 39 other African countries, has been designated as an eligible country in terms of the Act. In October, 2011 President Barack Obama signed a presidential proclamation adding Niger, Ivory Coast and Guinea to the 37 countries already eligible for AGOA benefits. AGOA builds on existing USA trade programmes and extends the products previously only available under the Generalized System of Preferences programme (GSP) by an additional items. The exported products must be of South African origin as defined in the rules of origin provisions. Various automotive components and, importantly, motor cars as well as motor vehicles for the transportation of persons and of goods now qualify for a duty-free and quota-free access into the USA. Duty rates into the USA normally range from 2,5% to 25% in respect of various types of vehicles. The elimination of tariffs enhances South Africa s potential to compete against the same products not accorded similar tariff benefits in the relevant countries. The value of total automotive exports from South Africa to the US increased by a significant 145% from R1,96 billion in 2000 to R4,8 billion in 2001 when AGOA was implemented. AGOA, however, is not just a one-way benefit programme but a mutually beneficial initiative for both the US and South Africa as economic benefits also accrue to the US as a result of the trade arrangement. Under AGOA, trade in automotive products between the United States and South Africa has grown substantially in recent years as American consumers benefit from the reduced import duties while imports of vehicles, original equipment components as well as replacement parts into South Africa have also increased substantially. The trade balance in automotive products, however, remains substantially in favour of South Africa. The United States has become one of South Africa s biggest automotive export destinations and constitutes South Africa s second largest automotive trading partner. 41

43 In respect of Africa s regional integration agenda, South Africa remains important for the development of the region. Since South Africa is a catalyst for the future growth and development in sub-saharan Africa, any reduction in trade in automotive products could have negative implications for growth and development in the Southern African region. Increased trade between South Africa and the US, in the longer term, will create improved opportunities and demand for US technical expertise, credit and markets and will also focus on incremental trade and investment opportunities between the two countries. The interests of American automotive corporations are well represented in South Africa. Ford Motor Company and General Motors are long established, leading automotive producing corporations in South Africa. Moreover, most of the top American automotive parts suppliers are represented in South Africa, including Johnson Controls, Lear, TRW Automotive, Tenneco, Federal Mogul, Delphi, Visteon, and ArvinMeritor, amongst others. All of these companies have built strong business links between their South African operations and other international stakeholders, including the United States of America. These established business links enhance the potential for mutually beneficial trade between the United States of America and South Africa. In 2012 exports to NAFTA at R20,90 billion remained at a similar level to the R20,91 billion exported in The USA, with units was the top destination for South African manufactured vehicles in 2012 comprising of the left hand drive BMW 3-series and Mercedes-Benz C-Class model exports to the USA. 42

44 to NAFTA 1995 and 2008 to 2012 Component TOTAL (R million) 173, , , , , ,7 TOTAL (average US$) 47, ,7 1904, , , ,8 Air conditioners 0, ,3 0,2 0,1 Alarm systems 1,0 4,8 2,7 2,6 1,9 2,8 Automotive tooling 23,3 40,7 41,7 38,1 77,4 36,9 Axles - 144,2 19,6 41,6 119,3 80,9 Batteries 0, ,3 Body parts / panels 2,0 12,8 4,0 1,2 3,0 3,4 Brake parts 1,3 0,8 0,2 1,0 1,6 3,7 Car radios - 0, Catalytic converters 0, , , , , ,1 Clutches / shaft couplings 4,3 12,1 8,6 10,3 14,6 19,9 Engines 2,7 2,3 3,5 2,1 44,2 13,4 Engine parts 5,4 310,0 345,8 370,8 807,0 791,9 Filters - 35,3 18,9 37,5 20,1 39,5 Gaskets 0,1 3,2 1,8 2,1 1,5 1,9 Gauges / instrument parts 5,2 29,7 21,1 17,9 50,4 54,1 Gear boxes - 20,3 5,7 25,3 31,0 41,4 Glass 23,9 12,0 9,3 3,8 1,3 0,5 Ignition starting equipment - 23,0 1,5 3,7 2,9 10,2 Jacks 4,8 33,0 18,8 28,8 39,4 34,0 Lighting equipment 0,2 60,0 22,5 37,4 19,7 12,9 Radiators and parts 29,8 193,2 111,1 146,1 199,9 20,0 Road wheels / parts 19,1 14,0 5,0 3,5 13,3 5,7 Seats - 2,0 0,6 0,2 0,4 4,8 Seat belts - 0,4 0,1 0,1 0,3 - Seat parts / leather 0,9 113,1 28,6 15,4 16,0 16,7 Shock absorbers / suspension parts 0,9 0,8 3,7 1,4 9,0 22,5 Silencers / exhausts 2,7 187,7 95,3 178,4 221,9 257,8 Springs 1,6 0,1 2,3 0,2 0,5 0,8 Steering wheels / columns / boxes - 115,6 31,6 21,9 27,5 31,7 Transmission shafts / cranks 5,3 19,2 13,8 8,9 20,4 28,0 Tyres 1,0 143,3 54,9 27,0 106,7 128,9 Wiring harnesses - 0,8 1,6 2,6 5,1 7,4 Other parts 33,4 54,5 427,4 162,2 339,6 880,3 Light vehicles 1, , , , , ,8 Medium / Heavy vehicles 2,7 44,7-37,1 116,1 3,4 Source: AIEC, SARS 43

45 Top Export Destinations in NAFTA with Export Value

46 Africa Africa is the second fastest growing continent in the world, after Asia, and offers the highest return on investment of any region. Africa s challenge is to move off an economic growth path built on consumption and commodity exports onto a more sustainable developmental path based on industrialisation. Africa s on-going initiatives to advance regional integration and infrastructural development are vital in this respect. With a potential of one billion consumers, Africa s ascension into one of the fastest growing economies has created massive demand for infrastructure, goods and services. The International Monetary Fund (IMF) predicts that over the next 5 years Africa will surpass Asia and seven African nations will be in the top 10 fastest growing economies. These include Ethiopia, Mozambique, Tanzania, Republic of Congo, Ghana, Zambia and Nigeria. The continent is touted as the investment destination of the decade. It is estimated that Africa s GDP could be US$2,6 trillion by There exists significant business opportunities across the continent driven by an insatiable demand for Africa s resources, a rapidly growing population with an unprecedented rise in consumer demand, and the related infrastructural development. South Africa continues to actively participate in African processes and continues to work together with other African countries in pursuing the development of the continent along the lines of the New Partnership for Africa s Development (Nepad), including the pursuit of an economically integrated Africa. The vision of Nepad is for a self-reliant, innovative and enterprising Africa by way of building export capacity for African companies, attracting new investments from around the world and growing inter-african trade to facilitate faster economic growth on the African continent. South Africa, as the economic powerhouse of the continent, needs to play a major role in this regard. South Africa represented the biggest domestic market for vehicles in Africa and accounted for 76% of the continent s vehicle production in Africa remained South Africa s main export region for commercial vehicles after 1995, while it was also the main destination for exports of South African manufactured passenger cars and light commercial vehicles between 1995 and 1997, during the period when the industry had to adjust structurally under the MIDP. Due to the limited levels of vehicle production on the rest of the continent, a diverse range of automotive components are exported by South Africa to the majority of countries in Africa but the bulk of exports consist of aftermarket replacement parts. Total automotive exports to Africa increased by a significant 53,6% or R6,21 billion to R17,8 billion in 2012 from the R11,6 billion in 2011, mainly due to an increase in light vehicle exports to Algeria and Nigeria as part of Toyota s Innovative Multipurpose Vehicle programme focusing on Europe and Africa. CBU exports to 41 African countries increased from units in 2011 to units in

47 to Africa 1995 and 2008 to 2012 Component TOTAL (R million) 1 137, , , , , ,9 Air conditioners 3,8 19,6 11,4 10,7 12,6 18,6 Alarm systems 2,6 15,9 13,2 22,3 14,7 21,4 Automotive tooling 60,2 97,9 107,7 88,5 99,7 314,8 Axles 0,9 20,8 31,2 13,7 20,9 42,9 Batteries 7,9 92,0 119,4 94,3 106,3 146,7 Body parts / panels 6,3 45,3 16,9 26,2 23,6 80,8 Brake parts 7,0 28,0 40,3 49,1 33,6 54,4 Car radios 4,8 11,4 7,8 8,6 5,8 9,9 Catalytic converters 1,7 30,0 27,8 29,2 63,8 90,2 Clutches / shaft couplings 4,8 14,3 18,3 16,2 20,9 31,9 Engines 4,3 78,9 78,6 97,8 104,7 194,2 Engine parts 24,6 205,7 245,5 181,2 182,5 339,5 Filters 2,5 81,7 94,8 99,1 110,4 162,4 Gaskets 3,1 41,7 35,5 35,0 33,1 59,1 Gauges / instrument parts 6,5 217,0 147,8 126,1 164,6 210,5 Gear boxes 0,3 17,4 17,0 16,7 19,3 31,6 Glass 1,4 10,8 12,9 10,8 11,9 13,4 Ignition starting equipment 4,9 65,1 48,1 37,1 61,1 73,3 Jacks 1,9 10,3 7,8 7,8 14,3 15,0 Lighting equipment 4,1 52,1 18,7 22,7 25,6 34,5 Radiators and parts 1,0 9,0 15,3 16,4 22,2 32,4 Road wheels / parts 3,8 25,2 24,7 21,0 21,3 70,8 Seats 0,1 3,4 2,5 2,9 2,0 3,7 Seat belts - 0,7 0,8 1,2 1,5 1,5 Seat parts / leather 0,4 3,7 3,4 3,4 10,0 2,4 Shock absorbers / suspension parts 6,1 9,6 17,4 19,3 31,7 33,1 Silencers / exhausts 0,6 6,5 6,4 6,4 4,6 8,7 Springs 0,8 3,0 2,2 2,2 4,7 6,8 Steering wheels / columns / boxes 1,7 6,6 7,1 7,3 5,9 11,0 Transmission shafts / cranks 10,1 179,1 159,8 172,6 219,7 267,2 Tyres 118,5 596,8 615,4 583,4 685,6 810,8 Wiring harnesses 0,2 5,3 5,9 2,9 2,8 12,3 Other parts 243, , , , , ,2 Light vehicles 293, , , , , ,2 Medium / Heavy vehicles 304, ,0 871,1 765,2 761, ,7 Source: AIEC, SARS 46

48 Top Export Destinations in Africa with Export Value

49 Southern African Development Community (SADC) Sub-Saharan growth remains positive on the back of increased investment flows, rising consumer spending and the coming on stream of new mineral exports in a number of countries within the region. The sub-saharan region is projected to grow by 5,6% in 2013 according to the World Bank. The region however is very sensitive to developments in the USA and especially Europe. The countries most affected would be those with bigger exposure to the world economy, such as South Africa. The slowdown in developed countries would dampen demand for goods and also result in a reduced growth in developing countries. The biggest threat for the region to sustain good growth would be a further slowdown of the world economy. South Africa s participation in the Southern African Development Community (SADC), comprising 15 sub-saharan African countries, allows access to a market of approximately 268 million people and a regional GDP of US$471 billion. SADC operates as a Free Trade Area. The 15 SADC countries include Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. South Africa joined the SADC in August The SADC Protocol on Trade was signed on 24 August 1996 and came into force on 25 January The SADC FTA was launched in 2008 when 85% of tariff lines became duty free. The remaining 15% of tariff lines were deemed sensitive and were accorded a longer liberalisation time frame up to 2012, except for Mozambique, which would complete its tariff phase down with respect to imports from South Africa by Eleven members implemented the Protocol in September 2000 after ratification. Currently Angola, Seychelles and the Democratic Republic of Congo remain outside the agreement. To date all signatories except for Zimbabwe have translated their commitments into domestic enabling legislation. Angola has not yet made an offer or implemented the SADC Trade Protocol while the Democratic Republic of Congo and Seychelles, even though members of SADC, are not party to the SADC Trade Protocol. The intention is that the agreement encourages economies of scale, creating competitive SADCwide industries and thereby increasing intra-regional trade and enhancing foreign investment in the region. Given the high level of competition for foreign direct investment among emerging markets, South Africa has placed greater importance on forming strong economic trading blocs to gain access to key markets. The SADC agreement consists of general objectives rather than specific obligations. The key policy objective is to strengthen trade and development linkages between South Africa and other SADC countries. By 2012 about 98% of SADC merchandise trade would be subject to zero tariffs. The phase-down offers are country-specific on the principle of reciprocity, for example, tariff preferences will be extended only to member states that have submitted their instruments of implementation. In 2012, automotive exports (vehicles and components) to the SADC amounted to nearly R9,5 billion and comprised 10,9% of South Africa s total automotive exports of R86,9 billion. Several SADC countries have consistently remained amongst the South African automotive industry s top export destinations since The SADC remained the main export region for the country s commercial vehicles over the past decade as well as a major destination for passenger cars and automotive components, especially during the 1990s when license agreements restricted multinational exports to sub-saharan Africa. Since no vehicles are produced in the SADC region, except for South Africa, a wide range of automotive components are exported from South Africa to the region but the bulk of exports consist of aftermarket replacement parts. 48

50 to the Southern African Development Community (SADC) 1995 and 2008 to 2012 Component TOTAL (R million) 1 001, , , , , ,4 Air conditioners 3,8 18,3 10,5 3,9 11,8 16,2 Alarm systems 1,7 9,8 10,1 12,3 10,4 14,5 Automotive tooling 55,3 56,2 71,7 44,9 68,3 145,3 Axles 0,9 19,2 28,2 12,9 19,5 40,8 Batteries 7,3 87,4 118,2 92,9 105,2 145,5 Body parts / panels 6,2 44,1 15,2 21,9 21,7 74,2 Brake parts 5,8 20,1 26,8 24,5 28,3 43,5 Car radios 4,7 9,0 6,0 7,1 5,4 6,6 Catalytic converters 1,5 20,4 12,9 18,4 57,4 75,6 Clutches / shaft couplings 2,8 12,9 15,2 14,1 17,1 25,3 Engines 4,2 72,3 74,1 86,2 79,6 161,6 Engine parts 22,0 151,7 198,2 157,3 152,8 277,2 Filters 2,3 64,2 75,6 88,9 101,4 144,5 Gaskets 3,0 35,4 27,4 29,4 26,7 48,1 Gauges / instrument parts 6,2 134,4 87,4 83,8 112,5 159,4 Gear boxes 0,3 16,1 14,2 14,2 18,6 28,2 Glass 1,3 8,4 9,7 8,9 9,6 10,4 Ignition starting equipment 3,9 53,0 39,3 33,4 55,7 67,0 Jacks 1,9 8,5 7,0 6,1 11,1 12,6 Lighting equipment 3,8 39,9 13,2 19,4 20,6 26,0 Radiators and parts 0,8 7,0 13,3 14,1 18,8 27,9 Road wheels / parts 3,3 19,7 22,6 19,8 20,3 66,2 Seats 0,1 2,4 2,0 2,5 1,9 3,2 Seat belts - 0,6 0,6 1,0 1,4 1,2 Seat parts / leather 0,4 3,0 2,6 3,3 1,4 2,2 Shock absorbers / suspension parts 5,3 9,3 15,1 17,8 30,8 31,4 Silencers / exhausts 0,5 5,6 6,0 5,2 3,9 7,5 Springs 0,7 2,8 1,7 1,8 4,5 4,4 Steering wheels / columns / boxes 1,6 5,8 5,9 5,6 5,3 9,2 Transmission shafts / cranks 9,6 117,3 101,2 111,9 153,2 198,5 Tyres 97,7 443,7 440,5 432,5 450,5 596,2 Wiring harnesses 0,2 4,5 5,1 2,2 2,3 10,8 Other parts 171,9 914, , , , ,6 Light vehicles 273, , , , , ,1 Medium / Heavy vehicles 297, ,6 777,6 742,7 734, ,5 Source: AIEC, SARS 49

51 Top Export Destinations in SADC with Export Value

52 Mercosur (Mercado Común del Sur - Common Market of South America) Mercosur was created by Argentina, Brazil, Paraguay and Uruguay in 2001, with Mexico and Venezuela recently being accepted, to join Bolivia and Chile as associate members. The commercial free trade agreement negotiations between Mercosur and South Africa began formally with the signing of a Framework Agreement in December Until December 2002 the parties opted to negotiate an Agreement on Fixed Tariff Preferences as an intermediate stage towards the free trade agreement. Since June 2003 the negotiations were expanded to include the other countries under the Southern African Customs Union (SACU). A preferential trade agreement (PTA) between SACU and Mercosur was signed in December The aim of the agreement was to strengthen existing relations, promote the expansion of trade, and establish the conditions for the creation of a free trade agreement between Mercosur and SACU. The previously concluded Framework Agreement for the Creation of a Free Trade Area between Mercosur and the Republic of South Africa provides for actions aimed at increasing trade, including the mutual granting of tariff preferences. The understanding also makes provision for, amongst others, additional protocols on the automotive sector and customs cooperation, as well as further negotiations to broaden and deepen the Agreement, including further exchanges of trade preferences. Discussions are continuing on issues such as rules of origin, sanitary and phyto-sanitary regulations, customs procedures and additional products and future negotiations may involve the granting and winning of tariff concessions in respect of automotive products. During 2011 Brazil increased the tax on industrialized products to the vast automobile industry by 30 percentage points for manufacturers who fail to meet stricter local content rules. To avoid the higher tax, car manufacturers must meet at least six of 11 requirements. These include the use of at least 65% of local/regional steel and 80% of automotive parts content. In addition, car and truck manufacturers must invest in R&D to the equivalent of 0,5% of gross income. The new system would remain in force until at least December The tax rise will be felt the most by manufacturers without plants in Brazil, or those that only assemble vehicles in the country with many imported parts. South African automotive exports to Brazil have subsequently declined by 36,3% from the R933 million in 2011 to R595 million in Trade with Mercosur remains relatively small in the context of South Africa s overall trade regime and in respect of automotive exports (vehicles and components) comprised only R1,5 billion or 1,7% of South Africa s total automotive exports of R86,9 billion in The bulk of exports was destined for Argentina and Brazil and consisted of a limited range of products. 51

53 to Mercosur 1995 and 2008 to 2012 Component TOTAL (R million) 146,7 841,8 746,1 972,1 998, ,2 Air conditioners - - 0, ,1 Alarm systems - - 0,1 0,1 3,9 3,8 Automotive tooling 114,8 6,1 116,9 2,9 6,3 52,7 Axles - 0,4 0,4-0,3 0,2 Body parts / panels - - 2,8 1,5-0,9 Brake parts 0,7 1,4 0, ,0 Catalytic converters 0,8 30,9 3,8 13,5 9,6 129,7 Clutches / shaft couplings 1,1 0,2 1,9 35,3 2,1 2,6 Engines - 510,0 362,2 603,8 532,7 248,9 Engine parts 8,5 98,8 120,6 82,8 57,6 216,8 Filters 0,1 2,3 2,9 2,2 3,1 2,7 Gaskets - 1,3 1,1 2,3 1,3 0,3 Gauges / instrument parts - 8,2 5,5 3,3 1,7 3,8 Gear boxes - 0, ,1 Glass - 1,4 1,1 0,7 1,4 0,2 Ignition / starting equipment - 0, ,1 Jacks - 0,3 0,2-0,7 0,1 Lighting equipment - 0,1-3,8 4,3 2,6 Radiators and parts - 58,9 26,1 56,4 52,0 52,7 Road wheels / parts 0,1 0, ,3 Seat parts / leather - 0,4 0,2 0,3 0,1 0,9 Seat belts ,2 Seats - - 0, Shock absorbers / suspension parts - 1, ,1 Silencers / exhausts - 25,0 14,5 12,1 12,5 12,7 Steering wheels / columns / boxes - 6,3 2,3 6,3 5,0 0,8 Springs ,9 Transmission shafts / cranks 6,5 58,0 28,5 35,3 36,8 71,0 Tyres 1,3 15,0 39,6 90,5 221,7 114,8 Wiring harnesses - 0,4 0,7 0,2 1,8 1,0 Other parts 12,4 9,7 11,6 17,5 40,7 475,1 Light vehicles 0,4 3,3 1,7 0,5 1,8 47,1 Medium / Heavy vehicles - 0,6-0,8 1,4 - Source: AIEC, SARS 52

54 Top Export Destinations in Mercosur with Export Value

55 to Countries The reach in respect of the number of destinations of total automotive exports (vehicles and automotive components) from South Africa is increasing. The number of export destinations for values in excess of R1 million has increased from 62 in 1995 to 130 in 2011 and to 152 in The following table reveals that 18 countries recorded an export value in excess of R1 billion in 2012, while 60 countries recorded an export value in excess of R100 million. The main destinations for South African vehicles and automotive components remain first-world markets. Diversification into new emerging markets, however, is a continuing trend and underlines the automotive industry s competitiveness drive and a widening of the country s traditional trading base. New trade and business links in Africa, Asia, the Middle East, South America and, importantly, the new emerging automotive giants, China and India, are being forged. For conversion to other currencies, please refer to the currency table on page p 34. Total automotive export value and ranking by country 2012 vs Country 2012 R million 2012 Ranking 2011 R million 2011 Ranking United States , ,6 2 Germany , ,9 1 United Kingdom 3 540, ,0 4 Japan 3 163, ,5 3 Belgium 2 692, ,5 10 Algeria 2 653, ,6 5 Zambia 2 283, ,5 12 Australia 2 201, ,0 9 Nigeria 2 138, ,3 13 France 1 864, ,3 7 Zimbabwe 1 845, ,1 11 Spain 1 595, ,2 6 Mozambique 1 580, ,5 16 Poland 1 156, ,2 8 Angola 1 138, ,5 26 China 1 129, ,3 35 Czech Republic 1 056, ,7 17 Democratic Republic of Congo 1 047, , COUNTRIES ABOVE R1 BILLION Russia 940, ,8 32 Netherlands 933, ,8 14 Ghana 925, ,5 24 Thailand 872, ,9 29 Argentina 786, ,9 62 Kenya 644, ,

56 Turkey 641, ,4 25 Hungary 607, ,9 20 Brazil 594, ,1 18 Mexico 565, ,6 21 Canada 465, ,1 15 Tanzania 457, ,6 30 Italy 430, ,1 31 India 421, ,2 27 Malawi 367, ,9 33 Sweden 277, ,2 28 Gabon 276, ,4 42 Taiwan 275, ,7 36 Hong Kong, China 259, ,7 39 United Arab Emirates 256, ,3 51 Korea Republic South 219, ,4 19 Afghanistan 212, ,7 43 Mauritius 201, ,0 49 Bulgaria 186, ,6 86 Egypt 184, ,6 54 Austria 183, ,0 41 Romania 182, ,0 47 New Zealand 177, ,0 48 Uganda 174, ,0 45 Estonia 165, ,8 46 Malaysia 165, ,5 38 Norway 149, ,5 52 Madagascar 149, ,6 57 Ireland 141, ,0 34 Singapore 137, ,9 63 Ivory Coast 133, ,2 74 Georgia 130, ,1 95 Ethiopia 121, ,8 56 Chile 117, ,7 91 Trinidad & Tobago 115, ,0 96 Djibouti 100, ,5 67 Honduras 100,0 60 9, COUNTRIES ABOVE R100 MILLION Gibraltar 97, ,1 55 Switzerland 97, ,5 53 Finland 95, ,1 37 Venezuela 93, ,0 50 Senegal 89, ,8 72 Sierra Leone 85, ,5 60 Qatar 75, ,1 76 Portugal 72, ,3 44 Rwanda 67, ,8 65 Panama 66,2 70 1,

57 Oman 65,4 71 8,2 100 Saudi Arabia 64, ,3 83 Mauritania 63, ,4 61 Indonesia 62, ,2 58 Liberia 57, ,2 78 Tunisia 56, ,6 82 Haiti 55, Reunion 55, ,4 68 Mali 52, ,7 66 Guadeloupe 48, ,2 73 Greece 46, ,4 40 Central African Republic 43,1 82 2,5 116 Guinea 42, ,8 75 Burkina Faso 38, ,5 77 Republic of Congo 35, ,3 85 Denmark 30, ,0 70 Slovenia 29, ,2 89 Costa Rica 28,7 88 0,9 - Kuwait 27, ,2 59 French Guiana 27, ,0 81 Guatemala 25,9 91 0,1 - Seychelles 25, ,1 80 Morocco 24, ,3 64 Martinique 23, ,8 84 Jamaica 22,6 95 4,4 104 Cameroon 22, ,3 94 El Salvador 20, Eritrea 20,5 98 3,2 110 Dominican Republic 20,1 99 2,3 118 Jordan 19, ,7 92 Ukraine 18, ,6 87 Israel 17, ,5 88 Sudan 17, ,6 93 Somalia 15, Surinam 10, Philippines 10, ,0 79 Nicaragua 10, Lithuania 9, ,2 - Cyprus 8, ,8 69 Barbados 8, ,3 - St Helena 8, ,3 107 Croatia 8, ,1 - Libya 8, ,1 128 Peru 7, ,2 102 Benin 7, ,0 113 Bahrain 6, ,4 124 Colombia 6, ,

58 Togo 6, ,3 117 Neth Antilles 6, Serbia and Montenegro 5, Iceland 5, ,0 112 Cuba 5, Brunei 4, Lebanon 4, ,8 119 Belize 4, Mayotte 4, ,7 115 Burundi 4, ,5 98 Iraq 4, ,8 114 Uruguay 4, ,4 123 Gambia 3, ,2 109 Pakistan 3, ,2 108 Niger 3, ,7 120 Armenia 3, Cayman Is 3, Comoros 2, ,6 121 Azerbaijan 2, Antiqua 2, Myanmar 2, ,3 - Bahamas 2, Guinea-Bissau 2, ,1 129 Equatorial Guinea 2, ,5 103 St Lucia 2, East Timor 1, Marshall Is 1, Grenada 1, Kazakhstan 1, ,5 106 Iran 1, Chad 1, ,6 101 Cambodia 1, Fiji 1, Luxembourg 1, ,4 71 Aruba 1, Source: AIEC, SARS 152 COUNTRIES ABOVE R1 MILLION From 2011 to 2012 the total export values more than doubled to 65 countries, which include: Angola, China, Russia, Thailand, Argentina, United Arab Emirates, Bulgaria, Egypt, Singapore, Ivory Coast, Georgia, Chile, Trinidad & Tobago, Djibouti, Honduras, Senegal, Qatar, Panama, Oman, Saudi Arabia, Liberia, Tunisia, Haiti, Central African Republic, Republic of Congo, Slovenia, Costa Rica, Guatemala, Jamaica, El Salvador, Eritrea, Dominican Republic, Somalia, Surinam, Nicaragua, Lithuania, Barbados, St Helena, Croatia, Libya, Benin, Bahrain, Togo, Neth Antilles, Serbia & Montenegro, Cuba, Brunei, Lebanon, Belize, Uruguay, Armenia, Cayman Is, Azerbaijan, Antiqua, Myanmar, Bahamas, Guinea-Bissau, St Lucia, East Timor, Marshall Is, Grenada, Iran, Cambodia, Fiji, and Aruba. 57

59 of Vehicles The South African automotive industry exported left and right hand drive vehicles to 87 destinations in In 2012 the completely built-up vehicle (CBU) exports from South Africa comprised or 55,1% passenger cars, or 44,5% light commercial vehicles and or 0,4% medium and heavy commercial vehicles and buses. Light commercial vehicle exports increased by a significant 47,0% or units from the units in 2011 to units in Passenger car exports as a percentage of passenger car production totaled 55,7% in 2012 compared to the 3,7% in Toyota SA, with its Innovative/International Multipurpose Vehicle programme and Corolla sedan, remained the leading exporter in Prior to 1995, many OEMs exhibited majority domestic ownership while today all OEMs are wholly foreign-owned. This structural shift has enabled manufacturing changes in favour of fewer models, with much higher volumes achieved through exports. The MIDP s import/export complementation scheme has been regarded as the cornerstone in achieving the integration of South African operations into the procurement chains of global automotive companies. The motivation for parent companies in adding plants in developing countries increases the competitiveness of their global operations. From 1995 to 1997, the Southern African Development Community (SADC) was the main destination for CBU exports, while a single consignment by Volkswagen Group of SA to China in 1995 comprised 40 percent of the export value during that year. Between 1998 and 2001 the European Union (EU), and in particular Germany, became the main export destination as the successful implementation of export projects by the German-based OEMs had broken ground for the higher volume models. When the Japanese and USA-based OEMs subsequently joined with export programmes, Japan, the USA, the UK and Australia became the main destinations for South African manufactured vehicles in Opportunities presented by the AGOA, which was implemented on 1 January 2001 by the US, provided impetus for the automotive sector s drive to the US market and BMW in particular seized the opportunity to export left-hand drive 3-series models to the US followed later by Mercedes-Benz with its C-Class models. The free trade agreement with the EU, the expansion of the EU by 10 new member countries since 1 May 2004 as well as Toyota SA Motors Innovative/International Multipurpose Vehicle programme since 2006 contributed towards the EU s increasing future significance as an export region for South African manufactured vehicles. The attainment of higher model volumes through growing exports and the phasing out of local production of low volume models was an important objective of the MIDP because greater volumes are required if the component sector is to be able to reduce unit costs in order to compete with imported products. The average volumes of passenger cars and light commercial vehicles per model produced by the OEMs have increased from units in 1995 to units in 2012, however the local content has remained stable. During 2012, five models achieved production volumes in excess of units of which one model achieved a production volume in excess of units. A key challenge that remains is to raise local content, particularly in the vehicles being exported in large volumes. Apart from creating additional jobs, higher local content would lend stability to the industry and substantially reduce logistics costs. 58

60 Light vehicles (passenger cars and light commercial vehicles) exports 2008 to 2012 Country TOTAL (R billion) 48,3 32,2 37,9 42,3 48,7 RANKING OF EXPORTERS Number 1 to Number 5 Toyota VW BMW MBSA GM Toyota BMW MBSA VW Ford VW Toyota MBSA BMW Ford Toyota VW BMW MBSA Nissan Toyota VW MBSA BMW Ford TOTAL (units) USA UK Algeria Japan Nigeria Australia France Germany Russia China Other EU NAFTA AFRICA Source: AIEC, NAAMSA/RGT Smart, SARS of medium and heavy commercial vehicles and buses, in relation to passenger cars and light commercial vehicles, have been relatively insignificant in terms of volumes under the MIDP. The main export destinations have consistently been South Africa s neighbouring countries in the SADC region between 1995 up to

61 Medium, heavy commercial vehicles and buses exports 2008 to TOTAL (R billion) 1,1 0,9 0,9 1,0 1,3 TOTAL (units) RANKING OF EXPORTERS Number 1 to Number 5 Scania Nissan Diesel Volvo GM Iveco Nissan Diesel Iveco Scania MAN Renault Trucks UD Trucks* MAN Scania Iveco GMSA UD Trucks* MAN Scania Powerstar Iveco UD Trucks* Scania MAN Iveco VW Zambia Zimbabwe Mozambique Kenya Tanzania Malawi Angola Australia UK Other AFRICA Source: AIEC, NAAMSA/RGT Smart, SARS *Nissan Diesel now UD Trucks 60

62 Automotive Components by Country Automotive component exports declined by R1,95 billion or 5% to R36,87 billion in 2012, from the R38,82 billion in The focus of exporters tends to be on high value domestically beneficiated automotive components that consume as little transport and space as possible. Catalytic converters remained the main component exported under the MIDP and the decline in automotive component exports from 2011 to 2012 could largely be attributed to the R3,29 billion or 16,8% decline in catalytic converter exports. The main purpose of catalytic converters is to reduce harmful emissions from vehicles owing to increasingly stringent emission legislation in Europe and the USA. South Africa supplies approximately 12% of the global market for these converters. Continuous effort to grow the South African automotive industry s export business is imperative. A successful platform to showcase and promote the South African automotive industry s world-class capabilities is participation by means of National Pavilions at major world events as well as inward and outward trade missions. The industry participated in the Automechanika Middle East in Dubai, United Arab Emirates (UAE), Automechanika Frankfurt in Germany and the Midest event in Paris, France during 2012 with National Pavilions. During 2013 financial assistance under Trade and Investment South Africa s Export Marketing and Investment Assistance Scheme (EMIA) will again be provided to exhibitors to attend National Pavilions at the Automechanika Middle East event in Dubai, UAE from 11 to 13 June, 2013, the Johannesburg International Motor Show in South Africa from 16 to 27 October, 2013 and the Midest event in Paris, France from 19 to 23 November, The following table reveals the automotive component export ranking by component category from 2008 through to

63 Automotive component export ranking by component category 1995 and 2008 to 2012 COUNTRY % of 2012 TOTAL 2012 Ranking TOTAL (R million) % Catalytic converters ,3% 1 Engine parts ,8% 2 Silencers / exhausts ,7% 3 Stitched leather seat parts ,7% 4 Tyres ,1% 5 Radiators and parts ,6% 6 Automotive tooling ,1% 7 Transmission shafts / cranks ,1% 8 Engines ,5% 9 Road wheels and parts ,3% 10 Shock absorbers / suspension parts Gauges / instruments / parts ,2% ,1% 12 Filters ,0% 13 Axles ,7% 14 Automotive glass ,6% 15 Clutches / shaft couplings Lighting / signalling / wiping equipment Steering wheels / columns / boxes ,6% ,5% ,5% 18 Batteries ,5% 19 Body parts / panels ,4% 20 Ignition / starting equipment ,3% 21 Jacks ,3% 22 Gaskets ,3% 23 Gear boxes ,3% 24 Brake parts ,3% 25 Wiring harnesses ,2% 26 Alarm systems ,2% 27 Car radios ,1% 28 Air conditioners ,1% 29 Springs ,1% 30 Seat belts Seats Other parts ,5% Source: AIEC, SARS 62

64 The following table reveals that the main destinations for automotive component exports remain first world markets, although emerging markets are starting to feature as export destinations indicating progress in the South African component manufacturers ability to compete globally. Automotive component export value and ranking by country 2012 vs Country % of 2012 TOTAL 2012 R million 2012 Ranking 2011 R million 2011 Ranking TOTAL , ,2 Germany 31,2% , ,4 1 USA 10,7% 3 939, ,7 2 UK 5,4% 2 004, ,5 3 Belgium 4,3% 1 571, ,9 5 Zambia 3,6% 1 314, ,4 11 Spain 3,5% 1 291, ,6 4 Czech Republic 2,6% 964, ,6 10 Netherlands 2,5% 924, ,1 7 Zimbabwe 2,5% 905, ,4 12 Poland 2,4% 885, ,2 6 Thailand 2,4% 871, ,6 19 Mozambique 2,1% 788, ,7 13 Argentina 2,1% 786, ,2 40 Democratic Republic of Congo 2,1% 786, ,7 15 Brazil 1,6% 594, ,0 9 Mexico 1,5% 564, ,6 14 Hungary 1,3% 469, ,2 22 Canada 1,3% 464, ,0 20 France 1,2% 454, ,2 8 Australia 1,2% 446, ,7 17 India 1,1% 421, ,5 18 Japan 1,1% 420, ,3 16 Turkey 0,9% 342, ,5 21 Angola 0,9% 319, ,3 28 China 0,8% 287, ,3 23 Tanzania 0,6% 238, ,5 26 Korea Republic South 0,6% 219, ,3 24 Italy 0,6% 218, ,2 25 Algeria 0,6% 211, ,8 29 Kenya 0,5% 198, ,4 27 Ghana 0,5% 187, ,0 31 Bulgaria 0,5% 186, ,6 66 Egypt 0,5% 184, ,9 36 Malawi 0,4% 151, ,3 33 United Arab Emirates 0,4% 150, ,4 34 Romania 0,3% 108, ,6 37 Source: AIEC, SARS 63

65 The following tables reveal the automotive component export details for the 36 export destinations recording an export value above R100 million or 0,3% of the total automotive component export value of R36,9 billion in (1) Country 1 Catalytic converters R6 571,0 6 Shock absorbers R365,6 11 Steering wheels R113,7 16 Automotive tooling R22,4 2 Seat parts leather R1 278,4 7 Tyres R182,7 12 Lighting equipment R104,2 17 Glass R17,1 Germany R11 499,6 million 3 Engine parts R579,2 8 Transmission shafts R173,9 13 Filters R93,6 18 Body parts & panels R16,8 4 Silencers & exhausts R488,4 9 Road wheels & parts R133,3 14 Axles R87,0 19 Wiring harnesses R12,6 5 Radiators & parts R448,0 10 Clutches & shaft couplings R127,3 15 Car radios R35,8 20 Gear boxes R8,6 (2) Country USA R 3 939,1 million 1 Catalytic converters R1 760,6 2 Engine parts R787,5 3 Silencers & exhausts R244,4 4 Radiators & parts R179,9 5 Tyres R110,9 6 Axles R80,4 7 Gauges & instrument parts R49,9 8 Gear boxes R41,1 9 Filters R38,7 10 Jacks R34,0 11 Steering wheels R29,8 12 Automotive tooling R23,6 13 Transmission shafts R23,0 14 Shock absorbers R22,4 15 Seat parts leather R15,6 16 Lighting equipment R12,7 17 Clutches & shaft couplings R12,6 18 Ignition starting equipment R8,5 19 Engines R6,2 20 Road wheels & parts R5,0 (3) Country United Kingdom (UK) R2 004,2 million 1 Catalytic converters R1 372,9 2 Engine parts R223,4 3 Glass R66,1 4 Gauges & instrument parts R28,7 5 Batteries R19,6 6 Silencers & exhausts R19,2 7 Lighting equipment R18,8 8 Air conditioners R17,4 9 Engines R15,0 10 Automotive tooling R12,1 11 Gaskets R8,3 12 Transmission shafts R7,1 13 Tyres R6,8 14 Clutches & shaft couplings R4,5 15 Filters R3,2 16 Alarm systems R2,5 17 Springs R1,9 18 Seat parts leather R1,7 19 Radiators & parts R1,2 20 Body parts & panels R1,1 64

66 (4) Country Belgium R1 571,5 million 1 Silencers & exhausts R638,5 2 Catalytic converters R468,1 3 Road wheels & parts R77,7 4 Glass R61,6 5 Transmission shafts R54,0 6 Tyres R48,7 7 Automotive tooling R28,5 8 Filters R24,1 9 Engine parts R17,4 10 Brake parts R17,2 11 Gaskets R9,1 12 Clutches & shaft couplings R8,1 13 Steering wheels R6,9 14 Lighting equipment R6,1 15 Gauges & instrument parts R4,4 16 Radiators & parts R4,3 17 Body parts & panels R4,0 18 Wiring harnesses R2,5 19 Axles R2,4 20 Seat parts leather R1,3 (5) Country Zambia R1 314,2 million 1 Tyres R151,0 2 Engines R92,2 3 Engine parts R65,5 4 Body parts & panels R57,5 5 Transmission shafts R55,3 6 Road wheels & parts R43,6 7 Automotive tooling R41,2 8 Batteries R37,0 9 Gauges & instrument parts R35,3 10 Catalytic converters R32,8 11 Filters R29,7 12 Axles R24,4 13 Ignition starting equipment R14,6 14 Gaskets R12,6 15 Radiators & parts R11,4 16 Gear boxes R9,8 17 Brake parts R8,3 18 Shock absorbers R7,8 19 Lighting equipment R4,6 20 Wiring harnesses R4,5 (6) Country Spain R1 291,3 million 1 Catalytic converters R903,4 2 Seat parts leather R121,0 3 Radiators & parts R113,6 4 Road wheels & parts R37,6 5 Silencers & exhausts R14,5 6 Glass R12,3 7 Tyres R3,7 8 Jacks R1,6 9 Engine parts R0,6 10 Ignition starting equipment R0,5 11 Alarm systems R0,4 12 Automotive tooling R0,2 13 Brake parts R0,1 14 Lighting equipment R0,1-65

67 (7) Country Czech Republic R964,8 million 1 Catalytic converters R814,4 6 Alarm systems R0,7 2 Seat parts leather R76,0 7 Engines R0,1 3 Silencers & exhausts R26,8 4 Jacks R7,8 5 Radiators & parts R2, (8) Country Netherlands R924,0 million 1 Catalytic converters R662,6 2 Tyres R113,7 3 Automotive tooling R29,8 4 Alarm systems R22,4 5 Silencers & exhausts R13,4 6 Ignition starting equipment R9,5 7 Transmission shafts R7,0 8 Engine parts R4,7 9 Air conditioners R4,6 10 Steering wheels R2,8 (9) Country Zimbabwe R905,9 million 1 Tyres R169,9 2 Filters R62,7 3 Engine parts R45,7 4 Transmission shafts R31,8 5 Automotive tooling R23,4 6 Engines R22,6 7 Batteries R22,2 8 Gauges & instrument parts R21,3 9 Ignition starting equipment R17,8 10 Brake parts R15,4 (10) Country Poland R885,7 million 1 Catalytic converters R719,2 2 Silencers & exhausts R47,6 3 Seat parts leather R20,9 4 Automotive tooling R20,5 5 Jacks R5,4 6 Tyres R5,2 7 Glass R3,3 8 Wiring harnesses R2,5 9 Filters R2,1 10 Gauges & instrument parts R0,6 (11) Country Thailand R871,0 million 1 Engines R387,0 2 Catalytic converters R286,9 3 Transmission shafts R70,5 4 Road wheels & parts R31,2 5 Springs R7,9 6 Brake parts R6,0 7 Automotive tooling R5,4 8 Ignition starting equipment R4,0 9 Tyres R2,0 10 Seat parts leather R1,0 66

68 (12) Country Mozambique R788,8 million 1 Tyres R118,0 2 Batteries R69,4 3 Engine parts R59,2 4 Transmission shafts R29,8 5 Gauges & instrument parts R27,8 6 Automotive tooling R26,8 7 Filters R25,2 8 Engines R15,8 9 Catalytic converters R11,4 10 Ignition starting equipment R10,1 (13) Country Argentina R786,8 million 1 Engine parts R126,5 2 Catalytic converters R122,5 3 Road wheels & parts R31,2 4 Transmission shafts R26,2 5 Automotive tooling R9,3 6 Silencers & exhausts R8,2 7 Tyres R4,5 8 Springs R3,8 9 Alarm systems R2,1 10 Radiators & parts R1,7 (14) Country Democratic Republic of Congo (DRC) R786,2 million 1 Transmission shafts R50,4 2 Gauges & instrument parts R43,8 3 Engine parts R40,2 4 Tyres R30,1 5 Engines R21,7 6 Catalytic converters R18,2 7 Automotive tooling R15,0 8 Ignition starting equipment R13,1 9 Gaskets R11,3 10 Axles R7,6 (15) Country Brazil R594,5 million 1 Engines R248,0 2 Tyres R109,9 3 Engine parts R89,3 4 Radiators & parts R50,9 5 Road wheels & parts R25,1 6 Transmission shafts R24,7 7 Automotive tooling R7,7 8 Catalytic converters R7,2 9 Silencers & exhausts R4,6 10 Gauges & instrument parts R3,7 (16) Country Mexico R564,4 million 1 Catalytic converters R440,5 2 Radiators & parts R19,9 3 Silencers & exhausts R11,9 4 Automotive tooling R11,3 5 Tyres R8,2 6 Clutches & shaft couplings R7,2 7 Engine parts R3,4 8 Gauges & instrument parts R1,3 9 Steering wheels R0,8 10 Engines 0,4 67

69 (17) Country Hungary R469,1 million 1 Catalytic converters R389,6 6 Silencers & exhausts R1,5 2 Wiring harnesses R42,3 7 Alarm systems R0,1 3 Seat parts leather R17,9 4 Automotive tooling R14,7 5 Jacks R2, (18) Country Canada R464,9 million 1 Catalytic converters R214,9 2 Tyres R9,8 3 Engines R6,8 4 Transmission shafts R4,9 5 Seats R4,1 6 Gauges & instrument parts R3,0 7 Wiring harnesses R2,8 8 Body parts & panels R2,8 9 Automotive tooling R1,9 10 Ignition starting equipment R1,9 (19) Country France R454,8 million 1 Catalytic converters R305,5 2 Glass R31,1 3 Tyres R13,2 4 Silencers & exhausts R9,8 5 Batteries R8,8 6 Radiators & parts R7,6 7 Filters R6,4 8 Gaskets R5,4 9 Automotive tooling R4,3 10 Brake parts R2,9 (20) Country Australia R446,7 million 1 Catalytic converters R62,1 2 Transmission shafts R33,7 3 Gauges & instrument parts R28,2 4 Silencers & exhausts R22,5 5 Road wheels & parts R21,5 6 Seat belts R20,7 7 Radiators & parts R14,8 8 Automotive tooling R13,4 9 Engine parts R11,4 10 Filters R10,0 (21) Country India R421,7 million 1 Catalytic converters R276,0 2 Engine parts R34,3 3 Body parts & panels R29,3 4 Tyres R17,1 5 Clutches & shaft couplings R12,9 6 Radiators & parts R11,6 7 Automotive tooling R5,7 8 Road wheels & parts R4,6 9 Gauges & instrument parts R1,7 10 Batteries R1,2 68

70 (22) Country Japan R420,5 million 1 Catalytic converters R338,5 2 Silencers & exhausts R42,6 3 Automotive tooling R7,2 4 Springs R2,6 5 Seat parts leather R2,3 6 Engine parts R1,6 7 Tyres 0,7 8 Clutches & shaft couplings R0,5 9 Transmission shafts R0,5 10 Batteries R0,2 (23) Country Turkey R342,7 million 1 Catalytic converters R244,8 2 Silencers & exhausts R23,3 3 Tyres R13,9 4 Radiators & parts R9,4 5 Automotive tooling R6,5 6 Engine parts R6,0 7 Road wheels & parts R5,6 8 Engines R2,4 9 Gauges & instrument parts R2,0 10 Body parts & panels R0,5 (24) Country Angola R319,3 million 1 Tyres R64,3 2 Engine parts R39,4 3 Automotive tooling R23,8 4 Filters R16,4 5 Transmission shafts R10,5 6 Batteries R7,9 7 Brake parts 6,9 8 Ignition starting equipment R6,1 9 Clutches & shaft couplings R5,6 10 Gaskets R5,3 (25) Country China R287,4 million 1 Engine parts R77,3 2 Radiators & parts R39,8 3 Jacks R17,7 4 Shock absorbers R17,1 5 Silencers & exhausts R14,0 6 Automotive tooling R9,9 7 Steering wheels R9,5 8 Transmission shafts R6,7 9 Catalytic converters R6,2 10 Clutches & shaft couplings R4,1 (26) Country Tanzania R238,8 million 1 Tyres R32,9 2 Transmission shafts R14,5 3 Engine parts R14,4 4 Gauges & instrument parts R13,8 5 Automotive tooling R10,3 6 Air conditioners R3,6 7 Filters R2,9 8 Engines R2,8 9 Ignition & starting equipment R2,8 10 Body parts & panels R2,5 69

71 (27) Country Korea Republic South R219,6 million 1 Engine parts R91,5 6 Jacks R0,5 2 Catalytic convertors R74,6 7 Gauges & instrument parts R0,1 3 Silencers & exhausts R16,8 4 Batteries R2,4 5 Automotive tooling R2, (28) Country Italy R218,8 million 1 Catalytic converters R66,8 2 Silencers & exhausts R66,4 3 Glass R17,1 4 Automotive tooling R16,6 5 Gaskets R10,2 6 Tyres R8,2 7 Filters R1,9 8 Wiring harnesses R1,3 9 Engine parts R0,6 10 Road wheels & parts R0,4 (29) Country Algeria R211,8 million 1 Axles R32,3 2 Road wheels & parts R17,2 3 Gear boxes R8,6 4 Transmission shafts R8,2 5 Wiring harnesses R4,5 6 Steering wheels R4,4 7 Engine parts R2,8 8 Body parts & panels R2,6 9 Tyres R1,8 10 Silencers & exhausts R1,6 (30) Country Kenya R198,2 million 1 Tyres R85,4 2 Engine parts R12,1 3 Automotive tooling R10,0 4 Gauges & instrument parts R6,0 5 Filters R4,7 6 Clutches & shaft couplings R3,4 7 Brake parts R3,1 8 Transmission shafts R3,0 9 Radiators & parts R1,8 10 Road wheels & parts R1,7 (31) Country Ghana R187,5 million 1 Transmission shafts R19,4 2 Tyres R16,3 3 Automotive tooling R10,7 4 Gauges & instrument parts R8,6 5 Engine parts R7,1 6 Engines R6,1 7 Filters R4,1 8 Catalytic converters R3,1 9 Gear boxes R1,5 10 Alarm systems R1,4 70

72 (32) Country Bulgaria R186,4 million 1 Seat parts leather R173,7 2 Lighting equipment R0,4 3 Filters R0,3 4 Transmission shafts R0,1 - (33) Country Egypt R184,4 million 1 Automotive tooling R89,7 2 Tyres R62,2 3 Gauges & instrument parts R2,5 4 Engine parts R2,0 5 Axles R1,1 6 Filters R1,1 7 Brake parts R1,0 8 Transmission shafts R0,8 9 Body parts & panels R0,5 10 Radiators & parts R0,5 (34) Country Malawi R151,4 million 1 Tyres R21,6 2 Gauges & instrument parts R10,5 3 Engine parts R6,9 4 Road wheels & parts R4,7 5 Filters R4,1 6 Engines R3,9 7 Transmission shafts R3,5 8 Brake parts R2,9 9 Batteries R2,9 10 Automotive tooling R2,9 (35) Country United Arab Emirates (UAE) R150,7 million 1 Gauges & instrument parts R42,6 2 Automotive tooling R8,9 3 Clutches & shaft couplings R6,6 4 Engine parts R6,6 5 Transmission shafts R3,7 6 Tyres R2,4 7 Axles R1,5 8 Air conditioners R1,2 9 Body parts & panels R1,0 10 Brake parts R0,4 (36) Country Romania R108,1 million 1 Catalytic converters R105,3 2 Gauges & instrument parts R2,3 3 Steering wheels R0,1 4 Ignition starting equipment R0,1-71

73 Automotive Components Export by Product South African component suppliers have to compete with world best prices. Component strategies, therefore, depend on aspects such as the individual company s international links, the need for technology and licenses or sale of equity, the position in the aftermarket, the focus on niche markets, the type of product, the volume requirements and the dependence on OEMs. Component manufacturers, due to the MIDP, have tended to reduce their product lines and specialize, thus reducing costs and increasing exports in a narrow range of products. The growing vehicle exports have been a spur to many domestic component suppliers to set their sights on increasing their export business too. These component production programmes not only benefit the country in terms of earning foreign exchange, but also bring new technologies to South Africa and create new job opportunities. Evidence of cost-saving operational improvements by component firms resulting from greater economies of scale and demanding requirements of export markets as well as lower import protection has been evident. As is the case for South African vehicle manufacturers, South African component companies involved in exports must be innovative if they are to maintain their positions in international supply chains, as competition is fierce. South African component suppliers have been able to use their production flexibility as a decisive competitive advantage in penetrating global markets. Automotive component manufacturers seek contact with outside partners for purposes of market access, technology, process know-how, production rationalisation and other joint venture benefits. The diversification of automotive exports is important because it reinforces a longerterm export future for the industry. Under the MIDP many of the domestic automotive component manufacturers secured links with European-based companies, which was largely because the German OEMs had put pressure on their European suppliers to form links with South African companies when they instituted their export programmes. The EU had extensively displaced its own production to lowercost developing countries such as South Africa. The level of industry integration increases the export expansion and the degree to which it improves competitiveness. Increasingly under the MIDP, local component producers also forged technological links with Japanese suppliers to support local Japanese vehicle production. The following tables reveal the major destinations for the automotive component category exports from South Africa from 2008 through to

74 Catalytic converters (1) COUNTRY TOTAL (R million) , , , , ,0 Germany 32% 36% 36% 39% 40% USA 9% 8% 10% 8% 11% UK 10% 8% 8% 10% 8% Spain 15% 13% 12% 7% 6% Czech Republic 2% 2% 4% 4% 5% Poland 5% 4% 7% 7% 4% Netherlands 2% 2% 3% 5% 4% Belgium 5% 6% 3% 3% 3% Mexico - 1% 1% 2% 3% Hungary % Engine parts (2) COUNTRY TOTAL (R million) 1 852, , , , ,1 USA 16% 22% 25% 39% 28% Germany 26% 26% 19% 15% 21% Thailand % 13% UK 26% 20% 23% 18% 8% Argentina % 4% Brazil 5% 8% 5% 3% 3% Korea Republic South 5% 1% 5% 5% 3% China 2% 3% 7% 5% 3% Zambia 2% 3% 2% 2% 2% Mozambique 1% 1% 3% 1% 2% Silencers / Exhausts (3) COUNTRY TOTAL (R million) 1 913, , , , ,6 Belgium 35% 14% 29% 32% 37% Germany 18% 13% 21% 27% 28% USA 9% 5% 8% 8% 14% Italy 9% 15% 8% 4% 4% Poland 12% 36% 13% 5% 3% Japan 3% 3% 3% 2% 2% Czech Republic - 1% 1% 1% 2% Turkey 1% 1% 1% 1% 1% Australia 2% 2% 1% 1% 1% UK 1% 1% 1% 1% 1% 73

75 Stitched leather seat parts (4) COUNTRY TOTAL (R million) 3 084, , , , ,7 Germany 82% 93% 92% 88% 74% Bulgaria % Spain 6% 3% 4% 8% 7% Czech Republic % 4% Poland % 1% Tyres (5) COUNTRY TOTAL (R million) 1 676, , , , ,5 Germany 9% 11% 18% 26% 12% Zimbabwe 6% 7% 10% 8% 11% Zambia 5% 7% 9% 6% 10% Mozambique 5% 6% 8% 6% 8% Netherlands 16% 15% 12% 7% 7% USA 9% 4% 2% 6% 7% Brazil 1% 3% 8% 13% 7% Kenya 4% 6% 6% 5% 6% Angola 5% 4% 3% 3% 4% Egypt 1% 1% 1% 3% 4% Radiators and parts (6) COUNTRY TOTAL (R million) 1 026,1 823,9 950, ,9 945,2 Germany 28% 21% 28% 21% 47% USA 17% 14% 17% 17% 19% Spain 14% 11% 14% 14% 12% Brazil 3% 2% 3% 3% 5% China 2% 2% 3% 3% 4% Automotive tooling (7) COUNTRY TOTAL (R million) 518,0 463,5 446,9 438,1 782,0 Georgia % Egypt 1% 1% 1% - 12% Zambia 2% 4% 2% 4% 5% Chile 4% 19% 1% 1% 5% Netherlands 2% % 74

76 Transmission shafts and cranks (8) COUNTRY TOTAL (R million) 781,7 503,2 415,1 568,8 770,7 Germany 40% 30% 31% 27% 23% Thailand % 9% Zambia 6% 7% 9% 7% 7% Belgium 5% 7% 5% 9% 7% Democratic Republic of Congo 2% 2% 5% 8% 6% Engines (9) COUNTRY TOTAL (R million) 1 045,4 604,7 964,9 819,0 558,9 Brazil 46% 53% 63% 64% 44% Zambia 3% 6% 5% 5% 16% Venezuela 7% 17% 10% 13% 14% Zimbabwe 2% 2% 1% 1% 4% Democratic Republic of Congo 1% 1% 1% 1% 4% Road wheels and parts (10) COUNTRY TOTAL (R million) 693,9 387,9 382,7 494,2 466,0 Germany 66% 72% 71% 52% 29% Belgium 8% 1% 1% 13% 17% Zambia - 1% 2% 1% 9% Spain 2% 9% 11% 12% 8% Argentina % Shock absorbers and suspension parts (11) COUNTRY TOTAL (R million) 172,3 261,0 329,0 430,4 439,6 Germany 93% 88% 90% 86% 83% USA - 1% - 2% 5% China - 1% 3% 3% 4% Zimbabwe 2% 2% 2% 3% 3% Zambia 1% 3% 2% 3% 2% Gauges, instruments and parts (12) COUNTRY TOTAL (R million) 327,8 290,6 240,8 319,4 401,4 USA 5% 6% 7% 15% 12% Democratic Republic of Congo 2% 3% 7% 12% 11% United Arab Emirates 6% 6% 7% 4% 11% Zambia 8% 6% 8% 6% 9% UK 15% 14% 13% 10% 7% 75

77 Filters (13) COUNTRY TOTAL (R million) 315,8 341,3 337,5 312,2 353,0 Germany 31% 40% 31% 38% 27% Zimbabwe 4% 6% 11% 14% 18% USA 11% 6% 6% 6% 11% Zambia 4% 4% 5% 6% 8% Mozambique 4% 4% 6% 7% 7% Axles (14) COUNTRY TOTAL (R million) 278,6 186,0 111,5 319,6 251,7 Germany 37% 3% 31% 37% 35% USA 30% 9% 37% 37% 32% Algeria 5% 46% 16% 16% 13% Zambia 1% 11% 5% 4% 10% Democratic Republic of Congo - 1% 2% 1% 3% Automotive glass (15) COUNTRY TOTAL (R million) 314,4 403,4 305,4 277,3 230,4 UK 27% 26% 22% 24% 29% Belgium 18% 18% 20% 30% 27% France 13% 15% 12% 10% 13% Germany 11% 15% 21% 17% 7% Italy 7% 7% 7% 6% 7% Clutches and shaft couplings (16) COUNTRY TOTAL (R million) 166,0 193,6 270,4 235,9 224,8 Germany 54% 57% 69% 56% 56% India 1% - 1% 5% 6% USA 5% 3% 2% 4% 6% Belgium 2% 1% 2% 3% 4% Zimbabwe 2% 2% 2% 3% 3% Lighting / signalling / wiping equipment (17) COUNTRY TOTAL (R million) 210,3 164,5 229,0 199,3 198,4 Germany 32% 43% 47% 60% 53% UK 5% 8% 5% 2% 10% USA 19% 12% 16% 10% 7% Australia 3% 2% 3% 2% 3% Russia 2% 2% 8% 2% 3% 76

78 Steering wheels / columns / boxes (18) COUNTRY TOTAL (R million) 287,4 169,3 170,2 154,8 181,8 Germany 50% 72% 74% 68% 63% USA 12% 18% 9% 17% 16% China 1% 2% 2% 2% 5% Belgium 1% 1% 2% 3% 4% Algeria 1% 2% 2% 2% 2% Batteries (19) COUNTRY TOTAL (R million) 169,1 171,8 116,4 143,2 180,0 Mozambique 25% 32% 44% 41% 38% Zambia 13% 19% 22% 20% 21% Zimbabwe 7% 10% 8% 7% 12% UK 31% 22% 12% 19% 11% France 6% 2% 5% 5% 5% Body parts and panels (20) COUNTRY TOTAL (R million) 121,6 74,5 75,2 139,6 145,8 Zambia 13% 5% 3% 5% 40% India % 46% 20% Germany 46% 48% 32% 15% 12% Democratic Republic of Congo 19% 1% 1% 2% 3% Mozambique 2% 6% 19% 4% 3% Ignition / starting equipment (21) COUNTRY TOTAL (R million) 191,4 126,3 83,2 102,8 108,8 Zimbabwe 5% 7% 13% 14% 17% Zambia 9% 8% 8% 18% 14% Democratic Republic of Congo 2% 2% 5% 6% 12% Mozambique 3% 4% 6% 10% 9% Netherlands 1% 2% 3% 8% 8% Jacks (22) COUNTRY TOTAL (R million) 88,3 109,6 82,6 92,3 103,3 USA 38% 17% 35% 43% 33% China - 5% 20% 16% 17% Malaysia % 13% Czech Republic 19% 38% - 1% 8% Poland - 1% 5% 4% 5% 77

79 Gaskets (23) COUNTRY TOTAL (R million) 103,3 83,5 75,0 69,3 100,2 Zambia 6% 7% 14% 10% 13% Democratic Republic of Congo 6% 3% 5% 8% 11% Italy 18% 18% 15% 13% 10% Belgium 12% 17% 16% 11% 9% UK 6% 7% 7% 12% 8% Gear boxes (24) COUNTRY TOTAL (R million) 83,8 79,7 66,6 68,8 99,9 USA 23% 7% 37% 44% 41% Zambia 4% 4% 5% 8% 10% Germany 16% 15% 6% 3% 9% Algeria 5% 12% 11% 20% 9% Mozambique 3% 3% 3% 4% 6% Brake parts (25) COUNTRY TOTAL (R million) 124,4 104,6 92,7 82,4 97,3 Belgium 50% 35% 26% 30% 18% Zimbabwe 4% 7% 9% 13% 15% Zambia 3% 4% 5% 6% 8% Angola 2% 2% 2% 3% 7% Thailand % Wiring harnesses (26) COUNTRY TOTAL (R million) 205,0 92,6 51,3 77,6 94,0 Hungary - 1% 3% 43% 45% Germany 89% 79% 67% 21% 14% USA - 1% 3% 2% 5% Algeria 2% 5% 8% 2% 5% Zambia - 2% 2% 1% 5% Alarm systems (27) COUNTRY TOTAL (R million) 92,2 52,8 73,2 60,7 61,5 Netherlands 58% 48% 45% 46% 37% Zimbabwe 1% 6% 4% 4% 5% Democratic Republic of Congo 1% 1% 1% 2% 4% UK 5% 5% 5% 5% 4% Mozambique 1% 4% 2% 4% 3% 78

80 Car radios (28) COUNTRY TOTAL (R million) 14,3 43,3 20,0 39,2 46,7 Germany 4% 13% 53% 76% 77% Mozambique 29% 15% 15% 6% 5% Republic of Congo - - 1% - 5% Zambia 18% 8% 5% 3% 3% Angola 6% 1% 2% 1% 1% Air conditioners (29) COUNTRY TOTAL (R million) 29,2 19,0 34,5 35,7 42,2 UK 4% 12% 4% 49% 41% Netherlands - - 1% 1% 11% Zambia 5% 7% 1% 5% 9% Tanzania 6% 1% 1% 3% 9% Zimbabwe 5% 3% 1% 4% 6% Springs (30) COUNTRY TOTAL (R million) 43,5 34,6 30,0 43,2 32,9 Thailand 20% 7% 9% 19% 24% Argentina % 12% Germany 39% 37% 38% 34% 10% Japan - 2% 3% 8% 8% UK 6% 5% 12% 4% 6% Seat belts (31) COUNTRY TOTAL (R million) 47,7 40,8 32,9 27,6 24,1 Australia 84% 81% 76% 66% 86% Taiwan 3% 6% 12% 16% 2% Zimbabwe 1% 1% 1% 1% 1% Zambia - 1% 1% 1% 1% Philippines 3% 4% 7% 8% 1% Seats (32) COUNTRY TOTAL (R million) 8,3 6,2 5,4 5,7 11,4 Canada 2% 1% - 5% 36% Zambia 7% 8% 11% 9% 10% Singapore 20% 5% 10% 15% 10% India - - 5% 17% 9% Mozambique 4% 5% 5% 7% 9% 79

81 Imports by Country of Origin Imports of automotive products into South Africa remain a function of the success of the MIDP under its import/export complementation scheme, a function of domestic market demand and a function of currency movements. Trade liberalization, however, has forced many South African companies to adapt to both intensified rivalry and new forms of competition. Growing import competition in the domestic market and that of low-cost products sourced from a global pool are the order of the day. Imports of CBUs, in line with domestic market demand, imports of original equipment components to accommodate vehicle production, as well as imports of replacement parts for the growing vehicle parc (also defined as the number of registered vehicles) of 10,61 million vehicles, remain high. The countries of origin of CBUs and automotive components imported into South Africa generally reflect the global linkages with the head offices of parent companies, except in the notable case of China where most of the imports were for replacement parts. The following table reveals the import values and rankings for the 48 countries of origin for vehicles and automotive component imports into South Africa, above R20 million, for 2012 versus Imports

82 Import value and ranking by country 2012 vs Country R million Ranking R million Ranking Germany , ,3 1 Japan , ,7 2 USA 9 616, ,5 3 Thailand 8 832, ,2 5 Korea Republic South 8 444, ,9 4 China 8 093, ,1 6 United Kingdom 7 412, ,2 7 India 6 457, ,4 8 Brazil 3 574, ,2 10 France 2 730, ,0 11 Spain 2 650, ,0 9 Italy 2 336, ,8 14 Sweden 2 110, ,8 13 Czech Republic 1 842, ,3 12 Belgium 1 257, ,2 18 Indonesia 1 248, ,6 19 Poland 1 137, , COUNTRIES ABOVE R1 BILLION Argentina 956, ,4 15 Netherlands 890, ,9 21 Mexico 850, ,0 22 Taiwan 807, ,2 20 Turkey 642, ,6 23 Austria 600, ,1 16 Philippines 588, ,9 27 Slovak Republic 547, ,4 25 Malaysia 501, ,8 26 Hungary 446, ,9 24 Australia 437, ,8 29 Portugal 431, ,4 28 Canada 217, ,5 30 Switzerland 200, ,3 32 Romania 187, ,6 31 Denmark 143, ,8 35 Finland 133, ,3 33 Slovenia 101, ,7 38 Israel 98, ,9 36 Singapore 75, ,6 37 Norway 70, ,6 43 Zimbabwe 68, ,4 - Hong Kong, China 66, ,5 39 Luxembourg 60, ,7 34 United Arab Emirates 52, ,7 41 Vietnam 45, ,3 42 Liechtenstein 39,5 44 4,0 - Ireland 36, ,7 40 Croatia 25, ,2 - Tunisia 25, ,8 - New Zealand 21, ,4-48 COUNTRIES ABOVE R20 MILLION Source: AIEC, SARS 81 Imports

83 Imports of Vehicles Light vehicles (passenger cars and light commercial vehicles) were imported from 28 countries in Total passenger car and commercial vehicle imports increased significantly from units in 1995 to units in Imports of light vehicles increased from 6,6% in 1995 to 58,1% of total domestic new vehicle sales of units, in While this trend is indicative of the aim of the MIDP to encourage domestic companies to specialise in high volume models, obtain benefits of economies of scale in order to export competitively and in turn import the low volume models not manufactured in South Africa, the quantum of imports by OEMs not manufacturing in South Africa has far exceeded earlier projections. However, the domestic model mix can now be arranged to provide the most effective marketing combination of domestically manufactured and imported models to satisfy consumers. Germany, with units, remained the main country of origin of imported passenger cars in 2012, reiterating the South African automotive industry s strong links with its main automotive trading partner. The nature of the South African vehicle parc had changed under the MIDP. The benefit for South Africa has been a reduction in retail prices in real terms, as well as a much larger variety of choice. Being part of the global market, South Africa is fully utilizing its access to new models in the domestic market. According to Response Group Trendline Smart/NAAMSA, 19 passenger car brands with choices between 356 model derivatives and 12 LCV brands with choices between 173 model derivatives were available in South Africa in 1995 in the domestic market. This compared to the 52 brands and passenger car model derivatives and 29 LCV brands and 519 model derivatives in 2012, the biggest ratio compared to its market size in the world. In-roads into the domestic market by imports, initially by the Koreans, have latterly been followed by the Indians. The following table reveals that in value terms, Germany, South Korea and Japan remained the top three countries of origin for passenger car imports by value during Imports

84 Light vehicle imports (passenger cars and light commercial vehicles) 2008 to Total value (R billion)(fob) R25,8 R21,5 R33,5 R42,0 R47,4 Country of origin Germany 28% 34% 24% 25% 24% Korea Republic South 9% 12% 14% 16% 15% Japan 24% 22% 20% 13% 12% India 3% 5% 7% 9% 11% UK 12% 8% 9% 8% 10% USA 5% 4% 6% 8% 9% France 1% 1% 2% 2% 3% Thailand - 1% 2% 4% 3% China 6% 1% 3% 2% 3% Spain 3% 2% 3% 2% 2% Other 9% 10% 10% 11% 8% Number of light vehicle imports Source: AIEC, NAAMSA, SARS A process of homologation must be carried out before any motor vehicle model is introduced in the South African market. South African Bureau of Standards (SABS) homologation is a procedure intended to ensure that all new vehicle models comply with the relevant South African legislation, standards and specifications, as well as codes of practice, for motor vehicles intended for use by the public on public roads. This prevents the need to withdraw a motor vehicle model before it enters the market and reduces the possibility of resultant legal action against the supplier. A process of homologation is also required for new models of motor vehicle tyres introduced in the South African market. As far as used vehicle imports are concerned, strict control measures ensure that only a limited number of legal import permits are issued to allow used vehicles into South Africa. In terms of current legislation, used vehicles qualifying for an import permit include those for returning residents and immigrants, vintage cars, racing cars, donated vehicles for welfare organisations and adapted vehicles for persons with physical disabilities. Without a legal import permit, imported used vehicles cannot be registered on the National Transport Information System (NaTIS). The system also combats stolen and non-complying vehicle registrations. All vehiclemanufacturing plants in South Africa have been linked on-line to the system to facilitate the collation of data of vehicles produced. Left hand drive vehicles are also not allowed into the country. More information in respect of used vehicle imports and relevant application forms can be accessed at 83 Imports

85 Parts and Components - Imports Much of the strategic behaviour of OEMs in expanding market share in South Africa is directed at optimizing their duty position. Minimising duty payments can be achieved in a number of ways. Firstly, OEMs can limit vehicle imports. Secondly, local content in domestically manufactured vehicles can be adjusted upwards. Thirdly, OEMs undertaking specified investments which qualify under the Productive Asset Allowance (PAA) receive import credits (the PAA has subsequently been replaced by a cash grant investment incentive in the form of the Automotive Investment Scheme). Fourthly, OEMs can expand exports either of vehicles or automotive components and, by means of increased exports, reduce the liability of paying duty on imports. These considerations have exercised a decisive effect on the strategic choices made by domestic OEMs. The strong focus on the sourcing of components in the domestic market and the development and deepening of the local component supplier industry is important because it will reduce the risks associated with exchange rate fluctuations and logistics costs. The OEMs perceive increasing local sourcing levels in South African manufactured vehicles as a prerequisite for establishing a more sustainable production base. A large portion of the automotive imports comprises original equipment components, which are subsequently exported as CBUs after significant value adding processes. Original equipment component imports by the OEMs amounted to R51,4 billion in 2012 in line with increased vehicle production. The following table reveals that imports of original equipment components originated mainly from Germany, Japan and Thailand. Original equipment component imports (Chapter 98) 2008 to 2012 COUNTRY TOTAL (R billion) 48,1 30,0 37,9 43,8 51,4 Germany 36% 35% 38% 37% 35% Japan 25% 22% 22% 24% 25% Thailand 9% 11% 9% 9% 12% Brazil 7% 8% 6% 6% 6% USA 3% 3% 2% 4% 3% Sweden 1% 1% 3% 3% 3% China 1% 1% 1% 1% 2% UK 4% 3% 3% 3% 2% Czech Republic 1% 2% 3% 3% 2% Spain 2% 3% 5% 3% 2% Other 11% 11% 8% 7% 8% Source: AIEC, SARS 84 Imports

86 The following table reveals the increasing trend in the import of aftermarket replacement parts to complement the parts not manufactured in the domestic market and more particularly to service the rapidly increasing imported vehicle parc for which most parts are imported. The growth of cheaper products, mainly from China, has exacerbated this trend. Replacement parts imports in 2012 increased by 6,8% compared to The growth of imported replacement parts over recent years, after adjusting for the stronger Rand currency, is even more evident in real terms. Top 10 replacement parts imported (R million) 2008 to 2012 Part category Tyres Engine parts Automotive tooling Transmission shafts / cranks Gauges / Instrument parts Engines Leather and leather parts Brake parts Lighting equipment / parts Catalytic converters Other Total Source: AIEC, SARS The following table reveals that the countries of origin for the replacement parts imported were aligned with the main countries of origin for new passenger cars and commercial vehicles. Imports from China, however, have increased, indicating the cost competitiveness of this increasingly dominant automotive force, not just in South Africa but in the global automotive arena in general. Top 10 countries of origin for replacement parts imported 2008 to 2012 Country of origin Germany 25,4% 25,9% 20,4% 24,9% 20,4% China 9,9% 11,3% 14,0% 14,6% 15,9% USA 11,0% 9,4% 9,0% 10,0% 10,2% Japan 8,0% 7,8% 7,5% 8,2% 7,9% Thailand 2,6% 2,8% 2,5% 3,8% 4,6% UK 4,6% 4,7% 3,1% 3,5% 4,6% Italy 4,4% 4,4% 3,5% 3,7% 3,9% France 4,7% 4,1% 3,0% 2,8% 2,8% Korea Republic South 2,6% 0,8% 0,1% 0,1% 2,6% Spain 2,5% 2,9% 2,5% 2,7% 2,3% Other 24,3% 25,9% 34,4% 25,7% 24,8% Source: AIEC, SARS 85 Imports

87 Main Automotive Trading Partners With vehicle production becoming globally integrated South Africa forms a vital part of international supply chains. South Africa s main automotive trading partners (exports plus imports) for 2012 reflected the country s global linkages with the OEM parent companies in Germany, the USA and Japan. Germany comprised R56,1 billion or 25,2% of South Africa s total automotive trade in 2012, followed by the USA with R29,5 billion or 13,2% and Japan with R24,5 billion or 11,0%. The table below ranks the South African automotive industry s top 10 automotive partners for 2012 versus South Africa s main automotive trading partners 2011 vs COUNTRY TOTAL TRADE 2012 (R billion) TOTAL TRADE 2011 (R billion) 1. Germany 56,12 57,24 2. USA 29,49 27,39 3. Japan 24,51 21,94 4. UK 10,95 9,47 5. Thailand 9,70 7,24 6. China 9,22 6,38 7. Korea Republic South 8,66 8,15 8. India 6,88 5,39 9. France 4,59 4, Spain 4,25 5,89 Other 58,53 49,64 Total trade 222,9 203,0 Source: AIEC, SARS The following tables reveal details and rankings of the South African automotive industry s top 10 automotive trading partners in 2012 reflecting the top 10 products exported and imported, where applicable. 1. Germany (Total trade R56 121,2 million) 2012 Main products R18 623,1 million Main products Imports R37 498,1 million Light vehicles 7 120,9 Original equipment components ,9 Catalytic converters 6 571,0 Light vehicles ,6 Stitched leather parts 1 278,5 MCV / HCV 986,1 Engine parts 579,2 Engine parts 689,5 Silencers / exhausts 488,4 Automotive tooling 512,5 Radiators and parts 448,0 Transmission shafts / cranks 294,5 Shock absorbers / suspension parts 365,6 Stitched leather parts 287,8 Tyres 182,7 Gauges / instrument parts 274,2 Transmission shafts / cranks 173,9 Tyres 273,4 Road wheels / parts 133,3 Engines 212,0 Other 1 281,6 Other 4 612,6 86

88 2. USA (Total trade R29 485,8 million) 2012 Main products R19 869,7 million Main products Imports R9 616,1 million Light vehicles ,8 Light vehicles 4 224,4 Catalytic converters 1 760,6 Original equipment components 1 721,9 Engine parts 787,5 Engine parts 551,9 Silencers / exhausts 244,4 Engines 379,1 Radiators and parts 179,9 Transmission shafts / cranks 295,8 Tyres 110,9 Tyres 236,0 Axles 80,4 Automotive tooling 221,0 Gauges / instrument parts 49,9 Gauges / instrument parts 214,2 Gear boxes 41,1 Catalytic converters 114,6 Filters 38,7 Axles 89,3 Other 648,5 Other 1 567,9 3. Japan (Total trade R24 505,4 million) 2012 Main products R3 163,4 million Main products Imports R21 342,0 million Light vehicles 2 742,9 Original equipment components ,1 Catalytic converters 338,5 Light vehicles 5 520,9 Silencers / exhausts 42,6 Engine parts 318,7 Automotive tooling 7,2 Tyres 294,4 Springs 2,6 Automotive tooling 244,6 Stitched leather parts 2,3 Filters 117,3 Engine parts 1,6 Ignition / starting equipment 114,6 Tyres 0,7 Transmission shafts / cranks 105,2 Clutches / shaft couplings 0,5 MCV / HCV 87,8 Transmission shafts / cranks 0,5 Engines 85,2 Other 24,0 Other 1 489,2 4. UK (Total trade R10 952,8 million) 2012 Main products R3 540,8 million Main products Imports R7 412,0 million Light vehicles 1 536,5 Light vehicles 4 683,5 Catalytic converters 1 372,9 Original equipment components 1 122,7 Engine parts 223,4 Automotive tooling 358,3 Automotive glass 66,1 Engines 174,4 Gauges / instrument parts 28,7 Engine parts 135,7 Batteries 19,6 Gauges / instrument parts 99,9 Silencers / exhausts 19,2 Tyres 85,6 Lighting equipment 18,8 Transmission shafts / cranks 53,0 Air conditioners 17,4 Catalytic converters 31,6 Engines 15,0 Alarm systems 26,3 Other 223,2 Other 641,0 87

89 5. Thailand (Total trade R9 704,8 million) 2012 Main products R872,8 million Main products Imports R8 832,0 million Engine parts 387,0 Original equipment components 5 940,9 Catalytic converters 286,9 Light vehicles 1 272,6 Transmission shafts / cranks 70,5 Stitched leather parts 206,6 Road wheels / parts 31,2 Tyres 140,4 Springs 7,9 Wiring harnesses 105,2 Brake parts 6,0 Road wheels / parts 96,4 Automotive tooling 5,4 Gauges / instrument parts 95,6 Ignition / starting equipment 4,0 Brake parts 75,9 Tyres 2,0 Engine parts 61,6 Light vehicles 1,8 Car radios 52,5 Other 70,1 Other 784,3 6. China (Total trade R9 223,3 million) 2012 Main products R1 129,5 million Main products Imports R8 093,8 million Light vehicles 842,0 Light vehicles 1 251,8 Engine parts 77,3 Tyres 1 151,4 Radiators and parts 39,8 Original equipment components 1 122,8 Jacks 17,7 Engine parts 377,0 Shock absorbers / suspension parts 17,1 Automotive tooling 330,2 Silencers / exhausts 14,0 Road wheels / parts 206,4 Automotive tooling 9,9 Stitched leather parts 176,3 Steering wheels / boxes 9,5 Transmission shafts / cranks 175,3 Transmission shafts / cranks 6,7 Brake parts 147,2 Catalytic converters 6,2 Automotive glass 134,5 Other 89,3 Other 3 020,9 7. Korea Republic South (Total trade R8 663,6 million) 2012 Main products R219,6 million Main products Imports R8 444,0 million Engine parts 91,5 Light vehicles 7 099,3 Catalytic converters 74,6 Original equipment components 274,0 Silencers / exhausts 16,8 Tyres 235,3 Batteries 2,4 MCV / HCV 158,8 Automotive tooling 2,2 Automotive tooling 101,7 Jacks 0,5 Batteries 99,0 Gauges / instrument parts 0,1 Engine parts 33,1 Other 31,5 Engines 30,7 Filters 28,9 Clutches / shaft couplings 26,7 Other 356,5 88

90 8. India (Total trade R6 878,8 million) 2012 Main products R421,7 million Main products Imports R6 457,1 million Catalytic converters 276,0 Light vehicles 5 149,1 Engine parts 34,3 Original equipment components 486,6 Body parts / panels 29,3 Engine parts 84,4 Tyres 17,1 Gauges / instrument parts 82,0 Clutches / shaft couplings 12,9 Automotive tooling 68,6 Radiators and parts 11,6 MCV / HCV 47,4 Automotive tooling 5,7 Tyres 41,9 Road wheels/parts 4,6 Engines 41,9 Gauges / instrument parts 1,7 Ignition / starting equipment 36,7 Batteries 1,2 Transmission shafts / cranks 25,1 Other 27,3 Other 393,4 9. France (Total trade R4 594,5 million) 2012 Main products R1 864,3 million Main products Imports R2 730,2 million Light vehicles 1 407,9 Light vehicles 1 333,1 Catalytic converters 305,5 Original equipment components 322,8 Automotive glass 31,1 Tyres 154,3 Tyres 13,2 MCV / HCV 77,8 Silencers / exhausts 9,8 Engine parts 75,0 Batteries 8,8 Transmission shafts / cranks 56,8 Radiators and parts 7,6 Gauges / instrument parts 54,7 Filters 6,4 Axles 46,0 Gaskets 5,4 Brake parts 38,1 Automotive tooling 4,3 Engines 35,8 Other 64,3 Other 535,8 10. Spain (Total trade R4 245,7 million) 2012 Main products R1 595,1 million Main products Imports R2 650,6 million Catalytic converters 903,4 Original equipment components 927,9 Light vehicles 303,8 Light vehicles 865,0 Stitched leather parts 121,0 Tyres 240,7 Radiators and parts 113,6 MCV / HCV 49,7 Road wheels / parts 37,6 Lighting equipment 41,4 Silencers / exhausts 14,5 Automotive tooling 34,5 Automotive glass 12,3 Engine parts 33,9 Tyres 3,7 Brake parts 33,7 Jacks 1,6 Batteries 31,8 Engine parts 0,6 Transmission shafts / cranks 21,2 Other 83,0 Other 370,8 89

91 Trade and Investment Opportunities South Africa s international stature is increasingly recognised and as a result trade and investment opportunities for the country s economy in general and its automotive sector in particular are emerging. BRICS countries South Africa officially became a member nation of BRICS on December 24, 2010, after being formally invited by the BRIC countries to join the group. Brazil, Russia, India and China s decision to extend membership to South Africa is a reflection of the country s undeniable influence over African economic development and investment. The BRICS countries have emerged as a powerful formation representing 43% of the global population. They have a combined gross domestic product (GDP) estimated at US$13,7 trillion, representing 20-25% of global GDP, as well as combined foreign reserves estimated at US$4 trillion. By joining BRICS, South Africa has enhanced the influence and presence of the economic body in Asia, Europe, the Americas and Africa. Working together, BRICS is poised to open up new prospects and become an important force advancing world peace and common development. Regarding the prospects of development, BRICS countries are in a similar stage of development and face the similar task of developing their economies to improve the wellbeing of their people. BRICS co-operation is therefore a valuable platform for members to share development experience and pool synergies to meet social and economic challenges. BRICS countries also enjoy highly complementary advantages and a solid foundation to promote common development. BRICS members are all emerging economies sharing strong ties with Africa. BRICS concerted efforts and deepened co-operation in African affairs would benefit Africa s development. China had overtaken the US as the largest trading partner of the African continent three years ago. China is the world s largest developing country and the African continent is home to the largest number of developing countries. The continent s relations with China will certainly prove critical as it confronts the need for closer regional integration, building the functional bases of its peace and security architecture, linking people and sub-regions through better infrastructure, enhancing Africa s nascent industrial capacities and addressing problems relating to environmental stewardship, food security and public welfare. China views South Africa as its foremost strategic partner in Africa as well as a major player in multilateral global politics. China has remained South Africa s largest trading partner for three consecutive years since 2009 and South Africa is now China s number one trading partner in Africa. Over the past 15 years the relationship between the two countries has gone through three principal stages: from a partnership in 2000 to a strategic partnership in 2004 to a comprehensive strategic partnership in As a gateway to the continent, South Africa is expected to play a unique role in promoting BRICS African co-operation. China, with 19,3 million units was the top vehicle producing country in 2012 with India 6th, Brazil 7th and Russia 11th. China and Russia were amongst the 65 countries to which South African automotive export values more than doubled from 2011 to The following table reveals that the automotive trade balance, however, remains in favour of these countries, except for Russia, and in 2012 the automotive import to export value ratio was 7,2 to 1 in favour of China, 15,3 to 1 in favour of India and 6 to 1 in favour of Brazil. 90

92 Automotive trade balance and ratio 2012 imports vs. exports Country 2012 imports R million 2012 exports R million China 8 093, ,5 Ratio 7,2 1 India 6 457,1 421,7 Ratio 15,3 1 Brazil 3 574,5 594,7 Ratio 6,0 1 Russia 9,2 940,3 Ratio 0,01 1 Source: AIEC, SARS South Africa, as a key member of the BRICS, has to entrench itself as a locus for international trade to influence global production and consumption.the economic slowdown in the Eurozone reduced the demand for South Africa s exports, since Europe is one of South Africa s major trading partners. South Africa therefore will seek to build closer South-South ties, especially with China, India and Brazil in order to pursue new business opportunities. Brazil, hosting the Soccer World Cup in 2014 and the Olympics in 2016, China and South Africa s comprehensive strategic partnership, increasing vehicle exports to Russia as well as the current preferential trade negotiations between South Africa and India could further enhance trade and investment opportunities for the domestic automotive industry. SADC EAC COMESA Tripartite Alliance It is an imperative for South Africa to be part of a strong region. South Africa is of the view that the best approach to regional integration is to build on existing regional integration communities and build deeper and wider FTAs in a practical manner. This is the basis for prioritising the consolidation of the FTA in SADC and the need to explore what it means to achieve broader African FTAs, the immediate priority being the Tripartite FTA. The Tripartite Free Trade Area (TFTA), launched on 12 June 2011, represents opportunities of a larger market comprising 26 countries, from Egypt in the north to South Africa at the continent s southern tip, and could be the precursor to an all-africa agreement. The TFTA will comprise a market of 533 million people, with a combined GDP of US$833 billion, and a GDP per capita of US$ This will equate to 58% of Africa s GDP and 57% of the continent s population. A developmental approach based on three pillars has been adopted to help the integration process: market integration, infrastructure development and industrial development. Regionalism offers opportunities that have profound political, economic and social implications for Africa and its people. Regional economic integration would reduce costs for trade in goods and services, promote efficiency and economies of scale and most importantly, improve the quality and standard of living for Africans. Regional integration will bear fruits if market integration is combined with trade infrastructure and industrial development. The development and expansion of ports is an initiative of national importance across Africa and a key pillar of support for African infrastructure development and economic growth. The lack of infrastructure is believed to restrain Africa s economic growth rate per capita by 2% per annum. The continent requires US$93 billion to build new and sustain current infrastructure which is equal to 15% of the continent s GDP. Trade is a major driving force behind economic development and is poised to improve the living standards and income of Africans. Africa s future lies in its stability to increase its production base, trade with itself, and its ability to integrate into the global market. 91

93 The TFTA is in line with a response to current global economic imbalances and shifting economic power relations. Africa is poised to become the next frontier for global trade and investment. The TFTA is regarded as a possible key building block for dealing with fragmented trade, investments and industrial relations. The enlarged trade bloc is in line with South Africa s New Growth Path, which amongst other things, will seek to leverage regional integration opportunities. As far as potential opportunities for the South African automotive industry are concerned, South Africa produced 76% of Africa s vehicle production in Vehicle and automotive component exports to the three individual regional economic communities in 2012 amounted to R9,46 billion in respect of the Southern African Development Community (SADC), R1,35 billion in respect of the East African Community (EAC) and R7,27 billion in respect of the Common Market for Eastern and Southern Africa (COMESA). Harmonisation of trade regimes, increased market liberalisation and various other areas of cooperation could present the South African automotive industry with increased export opportunities. In FTAs, member countries retain their own external tariffs unlike in a customs union where they must maintain a common external tariff, though they are required in the FTA to eliminate tariff and non-tariff barriers to trade among themselves. SADC operates as a free trade area. It, however, includes the Southern African Customs Union (SACU) which is a customs union, though. The EAC currently operates as a customs union. In practise COMESA is still a free trade area, but it was phasing in its common external tariff with a view to achieve a customs union by Only Angola, the Democratic Republic of Congo, Eritrea, and Ethiopia do not currently participate in any FTA arrangement with any of the tripartite countries. The current membership of the three Regional Economic Communities (RECs) is summarised in the following table. The countries in italic font are the ones to which South Africa does not yet have preferential access. Membership of the three Regional Economic Communities COUNTRY SADC EAC COMESA Angola x Botswana x Democratic Republic of Congo x x Lesotho x Madagascar x x Malawi x x Mauritius x x Mozambique x Namibia x Seychelles x x South Africa x Swaziland x x Tanzania x x Zambia x x Zimbabwe x x Burundi x x Kenya x x Rwanda x x Uganda x x Comoros x Djibouti x Egypt x Eritrea x Ethiopia x Libya x Sudan x 92

94 Potential SACU India preferential trade agreement (PTA) The Southern African Customs Union (SACU) and India have been engaged in a formal process of trade negotiations since 2008 that is intended to lead to a preferential trade agreement (PTA). The PTA is confined to product or tariff lines of special interest to the parties. A consultative process to compile a list of products of export interest to South African economic operators and exporters was undertaken within the National Economic Development and Labour Council (NEDLAC) over the period 2008 to 2010, with invitations also extended to interested economic operators through a notice in the Government Gazette on 19 September SACU and India have since exchanged their lists of products of export interest during the course of 2011 and SACU member states, namely Botswana, Lesotho, Namibia, South Africa and Swaziland are in the process of formulating their respective responses and national positions to the request from India. South Africa is currently conducting a consultative process within NEDLAC and interested economic operators had been invited as per a notice in the Government Gazette of 25 May 2012 to make submissions in response to the requests in their sectors of interest. SACU made a request for 730 lines amounting to 6,7% of the India tariff book while India s request amounted to lines amounting to 15% of the SACU tariff book. Automotive products also feature in these offensive lists and could enhance trade and investment opportunities in the domestic automotive sector. The following table reveals the South African automotive industry s trade with India in India (Total trade R6 878,8 million) 2012 Main products R421,7 million Main products Imports R6 457,1 million Catalytic converters 276,0 Light vehicles 5 149,1 Engine parts 34,3 Original equipment components 486,6 Body parts / panels 29,3 Engine parts 84,4 Tyres 17,1 Gauges / instrument parts 82,0 Clutches / shaft couplings 12,9 Automotive tooling 68,6 Other 52,1 Other 586,4 Source: AIEC, SARS SACU EFTA free trade agreement In 2005 the Southern African Customs Union (SACU) and the European Free Trade Association (EFTA) concluded an agreement to establish a free trade agreement (FTA) between the two regions. Norway and Switzerland were among the founding member states of EFTA in Iceland joined EFTA in 1970, followed by Liechtenstein in The free trade agreement provides for reciprocal preferential market access between EFTA and SACU states. The SACU EFTA FTA which entered into force on 1 May 2008 provides for South African economic operators to take advantage of trade opportunities offered by the agreement and also consolidating trade relations with Western Europe. In terms of access to EFTA, the latter offered South Africa full duty and quota-free access and entry for industrial products. On processed agricultural products, EFTA is offering the same treatment as that which it accords to the EU. For its part, South Africa offered EFTA what it 93

95 had already offered the EU on both processed agricultural products and industrial products, with some marginal adjustments. EFTA countries are world leaders in several sectors vital to the global economy. Liechtenstein and Switzerland are internationally renowned financial centres and hosts to major companies and multinationals. The FTA brings about a number of benefits to economic operators which include duty-free and quota-free market access for SACU industrial products into EFTA markets. The following table reveals the South African automotive industry s trade balance with EFTA countries in Automotive trade balance 2012 EFTA countries EFTA countries 2012 Imports R million 2012 R million Switzerland 200,1 97,8 Norway 70,4 149,4 Iceland 0,1 5,4 Liechtenstein 39,5 - Source: AIEC, SARS 94

96 Types of Co-Operation In view of the South African automotive industry s trade pattern, many opportunities of mutual benefit exist for foreign companies to collaborate with South African automotive component suppliers. The new Automotive Production Development Programme s (APDP s) vision to double vehicle production per annum by 2020 and an associated broadening and deepening of the component production basket in the country will ensure a major increase in business opportunities as well as enhance the viability of projects in the country significantly. The exporting link for the majority of the multinational automotive component manufacturers in South Africa consists of the South African based OEMs and parent companies. Some of the locally owned component manufacturers have also been successful in obtaining OEM business, while many others focus on exports of replacement parts. The integration into the global groups of the South African subsidiaries provides opportunities for business, produces synergies in several areas and accelerates the exchange of knowledge, which will enable the domestic subsidiary to be more competitive in the global automotive environment. Consequently, component manufacturers using South Africa s competitive advantages seek contact with outside partners for market access, technology, process know-how, production rationalization and other joint venture benefits. In addition, various other types of industry co-operation to pursue include: Technical collaboration in design of products, systems or production methods / layouts Research and development Supplier / customer relations Joint production Technology transfer Licenses and patents Marketing and co-operative promotion of projects and market sharing Commercial representation Franchising Financing Strategic alliance Third country collaboration 95

97 General Information The automotive industry, regarded as the leading manufacturing sector in South Africa, contributed, in total, 7,0% to the country s GDP in South Africa was ranked 25th in respect of global vehicle production with a market share of 0,64% in Significant investment programmes driven by export plans have been implemented by all the OEMs since the commencement of the MIDP and capital expenditure by the OEMs from 1995 to 2012 amounted to R48,6 billion. Under the MIDP left and right hand drive vehicles have been exported to global markets. Aggregate employment in the vehicle manufacturing industry in 2012 amounted to persons at the end of 2012 whilst employment in the component manufacturing industry was of the order of employees. Total employment in the trade area, namely in the vehicle sales and vehicle maintenance and servicing field, amounts to over persons. The automotive industry exhibits a high multiplier effect due to the creation of opportunities in automotive and related areas and maintains direct linkages with a large number of support services and SMMEs. Employment ratios vary from country to country, but generally for every worker in the manufacture of a motor vehicle there are at least two or more employed in used vehicle sales, servicing and repair. OEMs and official dealers and repair specialists work closely together to provide maintenance and repair services. They also cooperate to ensure warranty service, driver safety, environmental protection, spare parts availability and information about technical improvements. South Africa had a vehicle parc (number of registered vehicles) of 10,61 million at the end of December, 2012, of which 6,11 million or 57,6% comprised passenger cars. The broader South African automotive industry incorporates the manufacture, distribution, servicing and maintenance of motor vehicles and components. In terms of the trade which supports this industry, there are approximately garages and fuel stations (with the majority having service workshops as well) plus a further specialist repairers; new car dealerships holding specific franchises; an estimated used vehicle outlets; about 292 vehicle component manufacturers, together with about 150 others supplying the industry on a non-exclusive basis; specialist tyre dealers and retreaders; 483 engine reconditioners; 167 vehicle body builders; parts dealers and around 220 farm vehicle and equipment suppliers. 96