The government says it is considering antidumping measures against imported cars and bakkies from China and India, to save the South African motor industry from irreparable damage.
While welcoming the announcement, local vehicle and components manufacturers, along with the National Union of Metalworkers of South Africa (Numsa), retort that the government has had more than enough time to consider and should have acted by now.
As explained in last week’s FM cover story, industry production is shrinking and thousands of jobs are being lost as uncontrolled imports strangle demand for South Africa-made vehicles and components.
The industry has been begging the government for more than a year to urgently amend the 2021-2035 automotive production & development programme (APDP), which is intended to double industry production and employment and increase localisation by 50%. Instead, all three measures are regressing.
The main problem is imports. Imported vehicles are subject to a 25% import tariff. Even after this, it is claimed that some Chinese imports enjoy a 30% cost advantage over local vehicles thanks to generous manufacturing incentives and subsidies in their own country.
The local motor industry has enormous trade deficits with India and China, where import penalties can be over 100%. This is despite the fact that both countries are South Africa’s partners in Brics.
Zuko Godlimpi, deputy minister of trade, industry & competition, told parliament’s portfolio committee on trade, industry & competition on Tuesday that the government “will have no choice but to impose antidumping duties against our own allies”.
Godlimpi was there for the presentation of his department’s report detailing progress on the 2021-2035 South African automotive masterplan, which sets out a strategic vision for the motor industry. The APDP sits within it, providing the nuts and bolts, such as investment and incentives rules, to be followed in pursuit of the masterplan’s goals.
Various industry bodies, and Numsa, also presented their assessment of progress on the masterplan and APDP.
Godlimpi’s reference to antidumping duties implies that the government may go beyond the industry’s initial request that the existing 25% import tariff be raised to 30%. Some companies have proposed 35%. In addition, says deputy director-general Tebogo Makube, possible government actions to regenerate the industry include “developing an [electric vehicle (EV)] battery manufacturing policy, attracting new vehicle manufacturers and reviewing the ad valorem tax on light motor vehicles”.
Battery manufacture, which includes the mining and local beneficiation of minerals, has been on the agenda for a long time without any clear indication of what is happening.
New manufacturing investors may be hard to find as long as they are unprotected from imports, though last week’s announcement that Chinese company Chery plans to buy Nissan’s South African vehicle manufacturing plant shows there is appetite for investment.
Urgent and decisive intervention is needed to prevent further decline in the value chain outlook and unlock opportunity for the auto industry to grow and act as a catalyst for South African reindustrialisation
— Renai Moothilal
The ad valorem issue is a complicated one. In 1995, when the tax was introduced, R200,000 would buy you a new BMW 5 Series, Mercedes E-Class or Audi A6, so vehicles at that price were taxed as luxury goods. Value categories have never been amended, so today’s R200,000 cars — bottom-of-the-range entry-level vehicles — are still considered luxury.
Besides category adjustment, local vehicle manufacturers want the opportunity to nullify their ad valorem obligations completely. APDP manufacturing and localisation incentives entitle them to reduce duties on vehicles they import to supplement their local models.
Some companies don’t import enough to use all their incentives, so their only option is to sell them, at a discount, to other companies — mainly specialist importers — to reduce their own duties. In some cases, these unused incentives run into billions of rand, and the companies that earn them want to use this money to eliminate ad valorem tax on their own vehicles — giving them a further opportunity to reduce their cost disadvantage against imports.
The industry is also asking the government to close what it calls an APDP “loophole” that allows importers of vehicle kits — which require limited assembly, labour, local components and investment — to enjoy APDP vehicle manufacturing incentives. These are meant to benefit only companies undertaking full-scale manufacture, using thousands of components.
Instead, according to the submission of the National Association of Automotive Component & Allied Manufacturers (Naacam), the average tariff for kit assemblers is 10%, and some products arrive in South Africa duty-free.
Vehicle manufacturers and importers association Naamsa says this “undermines localisation and employment intensity”. For every job in this sector, full manufacturing provides eight. It says the practice “runs counter to the intent of the APDP and warrants a structured phase-out to protect manufacturing depth and jobs”.
It adds that the government must provide policy certainty on EVs and other new-energy automotive technologies like hydrogen. The local motor industry has to transition away from petrol- and diesel-based internal combustion engines but is loath to do so without policy clarity. Naamsa demands “a coherent, legislated framework”.
Naacam CEO Renai Moothilal says that, under current circumstances, the masterplan’s 2035 goals look unachievable. He says: “Urgent and decisive intervention is needed to prevent further decline in the value chain outlook and unlock opportunity for the auto industry to grow and act as a catalyst for South African reindustrialisation.”
Numsa general secretary Irvin Jim is particularly scathing about government inactivity so far. Like Moothilal, he points out that the motor industry is supposed to be the model for general South African reindustrialisation. In fact, it is proving to be a model for deindustrialisation.
Jim says South Africa faces a “current terrible picture” of a “deepening crisis of deindustrialisation, job losses and policy drift”.
Numsa is demanding a series of urgent government decisions to protect the industry. Besides higher import duties, the scrapping of ad valorem and an end to the sale of import duty credits, these include:
- An immediate ban on imports of new tyres, to protect what little remains of the South African tyre manufacturing industry;
- Foreign brands selling 10,000 or more vehicles annually must manufacture in South Africa, either on their own or in a shared assembly plant; and
- Immediate implementation of localisation provisions in the Public Procurement Act. All levels of government should be buying only South Africa-made products for their vehicle fleets.
BMW South Africa CEO and Naamsa president Peter van Binsbergen reportedly said on Wednesday that the APDP and masterplan required “fine-tuning”, rather than major surgery. Business Day quoted him as saying: “When the masterplan was created, we had very different assumptions for South Africa’s economy and trajectory ahead. So we expected a much stronger domestic market, which hasn’t come as we expected.”
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