Chinese motor companies’ growing investment in vehicle manufacture in South Africa should be accompanied by parallel investment in local automotive parts, says Renai Moothilal, CEO of the National Association of Automotive Components & Allied Manufacturers (Naacam).
BAIC completed construction of its Eastern Cape vehicle assembly plant in 2023 and Chery is officially opening its plant in Rosslyn, Tshwane — formerly owned by Nissan — on Friday July 3. Other Chinese companies are also considering local manufacture.
When BAIC started operations in the Coega special economic zone near Gqeberha, it assembled imported kits with no local content. Since then, it has started using South African suppliers, but Moothilal says: “Localisation levels remain low and substantial opportunities exist to deepen local component sourcing.”
Chery has said it will establish a chain of local components suppliers, but Moothilal says: “It remains too early to speculate on future local content levels.”
Chery says it has launched “an extensive localisation programme”. It adds: “Our long-term vision is to develop the facility into a comprehensive automotive hub encompassing R&D, supply chain operations and skills development, evolving into an automotive and industrial ecosystem that supports the company’s expanding presence in Southern Africa.”
There is little doubt that Chinese companies will come under government pressure to source locally, whether from South African companies or from Chinese ones establishing subsidiaries here.
Trade, industry & competition minister Parks Tau this week bemoaned the low level of local content used in South Africa-made vehicles. In a written parliamentary answer, he said there had been “negligible and lacklustre performance” in trying to raise the industry average from 40% to 60%. That is the target of the 2021-2035 automotive production & development programme (APDP).
In fact, even “negligible” is an overstatement. Moothilal says local content has actually regressed, to about 38%. And it gets worse. The figure — an industry-wide, average percentage of the local value addition in vehicles — includes manufacturing costs like energy and labour. Take those out, says Moothilal, and the actual value contribution of locally sourced components is below 15%.
“That less than 15% of the average vehicle value in South Africa comes from a components base hosting about 80,000 jobs paints its own picture of opportunities being forgone,” he says.
South Africa should avoid outcomes where assembly activity is established without meaningful integration of local suppliers
— Renai Moothilal
Tau says part of the blame lies with vehicle manufacturers’ foreign parents preferring to source from cheaper overseas suppliers. That’s not surprising, but to be fair, the state of the South African motor industry makes it easy for them to do so.
By allowing relatively unhindered market access to low-priced imported vehicles, particularly from China, the APDP has seen local manufacturers forced to reduce production, making it harder to justify local supply chains and leading to job losses at assembly plants and components suppliers.
Moothilal says: “Domestic production volumes have not expanded at the pace originally anticipated [in the APDP], constraining economies of scale and limiting the competitiveness of local component manufacturing.
“The consequences of reduced production have been visible in the supplier sector, including 13 plant closures and 7,500 job losses over the past two years.”
That is why it is so important for incoming Chinese manufacturers to source locally. “With any new entrant, the focus should be on securing growth of the purchase of domestically manufactured components over time,” he says. “South Africa should avoid outcomes where assembly activity is established without meaningful integration of local suppliers, as this limits broader industrialisation, employment creation and supply chain development benefits.”
Mike Whitfield, MD of Stellantis South Africa, whose multinational parent’s brands include Peugeot, Citroën, Fiat, Opel and Jeep, says that just as American, Japanese and German motor companies have persuaded their groups’ global suppliers to set up shop in South Africa, so the Chinese influx should encourage the same.
Stellantis, which plans to build a R3bn vehicle assembly plant in Coega, has overseas joint ventures with Chinese companies, and Whitfield says their production costs are much lower than those of Western competitors.
Moothilal says there is already heightened “engagement” with potential Chinese suppliers. A Naacam team visited China in May to explain South Africa’s automotive policy and solicit investment.
He says: “The number of Chinese automotive component suppliers with a manufacturing presence in South Africa remains small compared to the established Japanese, European and American supplier footprint.
“This creates significant scope for future investment and localisation. Historically, major global auto component suppliers tend to invest alongside vehicle manufacturers due to global sourcing, logistics and quality requirements.”
For Chinese companies active in new-energy vehicles, especially electric vehicles, the local and regional abundance of minerals used in battery manufacture is an added drawcard.
This, and South Africa’s established supplier base, creates opportunities for “partnerships, technology transfer, co-investment and market expansion between local firms and international suppliers”, says Moothilal.
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