Caterpillar commits to local sourcing of components through R1.3 billion investment

Caterpillar, a leading US manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives has said it is to source components and related services in South Africa worth a total estimated value of R1.3 billion. The commitment is for a period of 10 years, in support of local enterprise and supplier development.

Caterpillar sells its equipment locally through Barloworld Equipment.

The investment deal was announced as part of government’s Equity Equivalent Investment Programme (EEIP), which falls under South Africa’s broad-based black economic empowerment (BBBEE) legislation, which allows multinationals to earn ownership credit without actually selling shares to black shareholders.

The EEIP instrument is available to those firms and original-equipment manufacturers (OEMs) that where unable, owing to corporate restrictions, to sell shares to meet their empowerment obligations.

It is reported that the Caterpillar deal is the ninth equity-equivalent investment deal and Caterpillar Industries MD Zakieya Parker described its largest-ever equity-equivalent investment concluded to date and also one of US group’s largest investments in Africa. Caterpillar has been present in the South African market for 90 years, having first signed a dealership agreement in August 1927.

The deal is also part of the previously announced plan of Caterpillar, its independent dealers and the Caterpillar Foundation to invest more than $1 billion in countries throughout Africa over five years.

Parker said the programme comprised five integrated and interdependent components: Local and supplier development, enterprise development, localisation of component content, skills transfer and development and job creation. Parker said localisation opportunities Caterpillar was looking at included sourcing component locally to support the mining, construction, energy and transportation industries.

At the ceremony, attended by Trade and Industry Minister Rob Davies, he said equity-equivalent investments were not government’s preferred empowerment option, with the amended BBBEE codes placing emphasis on black ownership and control.

The EEIP programme is a clear indication from government that it intends to put pressure on international companies doing business in South Africa. Government has also recently announced that it would be phasing in a stipulation that all recipients of government incentives, such as the automotive OEMS, would have to have a minimum BBBEE rating of Level 4.

One wonders how many international companies will be willing to be dictated to. The exit of General Motors was surely a warning to government, with big red lights flashing. Australia has seen its automotive industry collapse and close down with one of the last, Toyota, shutting up shop in October 2017. From the 1980s, successive Australian governments pursued a policy of “managed decline” by reducing and stopping subsidies. Ironically, at one stage, Australia manufactured roughly the same amount of vehicles per annum as South Africa does today.

The death of the Australian auto industry is expected to tally losses of hundreds of thousands of jobs, and reduce the country’s GDP by as much as two per cent.