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South African Business 2017 edition

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South African Business is a unique guide to business and investment in South Africa. In addition to an up-to-date economic overview of the country, analyses of the main industrial sectors, plus profiles of the nine provincial economies, the 2017 edition of South African Business includes special features on key topical issues such as skills development and education, renewable energy and the REIPPPP programme, and trade with Africa.

OVERVIEW Automotive Car

OVERVIEW Automotive Car makers exported a record number of cars in 2015. SECTOR INSIGHT A joint venture between BAIC and the IDC will see Chinese vehicles manufactured at Coega IDZ. Automotive and automotive components make up one of the most important parts of the South African manufacturing sector: 30.2% of total manufacturing output, about 7% of the nation's Gross Domestic Product (GDP) and they are responsible for a significant proportion of exports. In 2014, South Africa exported 276 404 vehicles and in 2015 a new record was achieved – 338 802. The total value of this (together with automotive parts exported) amounted to R151-billion. Total production in South Africa in 2016 was expected to reach 640 000 units. South Africa’s most important automotive trading partners are the EU, North American and certain African countries. Total South African vehicle and component exports to 148 countries in 2014 were worth R115.7-billion. Automotive manufacturing takes place in three provinces: Gauteng (Nissan-Renault, BMW and Ford); KwaZulu-Natal (Toyota, Bell Equipment) and the Eastern Cape (Volkswagen, Mercedes-Benz, General Motors and Ford engines). In May 2015, Mercedes-Benz SA produced its one-millionth passenger car. The East London plant, which regularly wins awards for quality, is producing the W205 C-Class car. National government (through the Department of Trade and Industry, dti) has had a plan in place since 2013 to encourage investment in the sector, the Automotive Production Development Programme (APDP). It is estimated that the scheme has attracted about R50-billion through incentives. The latest foreign investment, and one of the biggest, will see Beijing Automobile International Corporation (BAIC) take a 65% stake in a multi-billion-rand joint venture with the Industrial Development Corporation at the Coega Industrial Development Zone outside Port Elizabeth. BAIC is a Chinese stateowned enterprise with several brands. The intention is to start production on the 85 000m² site in 2018 and the target is annual production of 100 000 cars, bakkies and sports utility vehicles. About 2 500 jobs are expected to be created in the longer term. This follows the arrival of Chinese automotive manufacturer First Automotive Works (FAW), which has established a R600-million assembly plant in Zone 2 at Coega. The Coega IDZ is run by the Coega Development Corporation. Companies like BAIC and FAW may well be positioning themselves to push into Africa, not only SOUTH AFRICAN BUSINESS 2017 78

OVERVIEW for selling vehicles but for sending automotive parts and partlyassembled kits further north. A new pan-African organisation has been established to promote the auto industry on the continent, the African Association of Automotive Manufacturers (AAAM). Recent announcements of increased investments by existing Original Equipment Manufacturers (OEM) in South Africa include: • The Volkswagen Group South Africa, R4.5-billion rand, new lines of production • Ford South Africa, R2.4-billion, Everest sports utility vehicles • BMW, R6-billion, conversion to production of X3 model The industry association, NAAMSA, pegged the total expenditure within the industry in 2015 at R6.6-billion and projected a R1-billion increase for 2016. South Africa produces a small number of cars relative to world production (about 91-million in 2015) but considering that South Africa's share of global GDP is about 0.46%, a figure of 0.68% of cars produced is quite impressive. Automotive components South Africa has a sophisticated automotive component sector, with the producers of catalytic converters doing particularly well in the international market. From a start-up industry in the mid-1990s, the sector now supplies 14% of the world market and is worth at least R18-billion. Catalytic converters convert bad gases coming out of exhausts into less harmful gas. The converter uses platinum group metals (PGMs), of which South Africa has about three-quarters of the world's reserves. Tyre and glass manufacturers are clustered around the areas where the automotive industry is active. Sumitomo Rubber South Africa, which includes Dunlop among its brands, is spending R2-billion on expanding production in Ladysmith, KwaZulu-Natal. Bridgestone Tyres has plants in Port Elizabeth and Brits and Continental makes tyres in Port Elizabeth. The large number of vehicle models produced in South Africa is a complicating factor for the components sector: low volumes often mean high prices. Two Port Elizabeth companies export significant portions of their production to overcome this: Schaeffler SA exports to its international parent so that it can achieve higher volumes. Shatterprufe supplies the majority of windscreens to the South African market but there are 12 model ranges to serve. The provincial government of the North West and the Automotive Industry Development Centre (AIDC) combined to help wire harness manufacturer Pasdec Automotive Technologies open a new assembly line in Brits. Other big companies in the North West are Bosch, Bridgestone and Giflo Engineering. In Gauteng, the AIDC teamed up with government agencies, Ford and Nissan to establish incubation parks to encourage more black businesses to enter the sector. Automotive parts made in South Africa are exported to more than 70 countries including Japan, Australia, the United Kingdom, the United States, Algeria, Zimbabwe and Nigeria. The Automotive Incubation Centre based at the Nissan plant in the Tshwane suburb of Rosslyn aims to boost small and medium sized enterprises that can supply components to Nissan South Africa’s production line. Training will also be provided. Only 35% of the components and parts used to make vehicles in South Africa are produced locally; the balance is imported. Gauteng’s car-makers spend nearly R8-billion a year on imports of automotive parts, components and accessories. To tackle this, the first Automotive Incubation Centre was launched in 2011 at Ford Motor Company of Southern Africa’s manufacturing plant in Silverton, as well as in Tshwane. The incubation centre was established by the AIDC, a subsidiary of the Gauteng Growth and Development Agency (GGDA), which is a unit of the Gauteng Department of Economic Development. ONLINE RESOURCES Automotive Industry Export Council: www.aiec.co.za Automotive Industry Development Centre: www.aidc.co.za National Association of Automotive Component and Allied Manufacturers: www.naacam.co.za National Association of Automobile Manufacturers of South Africa: www.naamsa.co.za 79 SOUTH AFRICAN BUSINESS 2017

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