The plan was to be launched in January 2021 but both the industry and the government are not ready due to COVID-19.
The launch of the new South African automotive master plan, which will govern the local motor industry from 2021 to 2035, has been postponed for six months. The National Association of Automobile Manufacturers of SA (Naamsa) said on Tuesday that the plan, which was due to be launched on January 1, will now start in July 2021.
The motor industry’s appeal for a postponement of its challenging new development strategy because of Covid-19 will inevitably be seen by some as an opportunistic attempt to avoid its responsibilities. But there is much to be said for the idea.
Representatives of vehicle and components manufacturers have been dropping hints for some time that the proposed launch of the government-driven SA Automotive Masterplan is no longer realistic amid the disruptions caused by the pandemic.
In July 2020 Naamsa revealed it had formally asked President Ramaphosa to delay the master plan by six months, to July 2021. Given the uncertainty on how world economies will emerge from COVID-19, further delays are not inconceivable.
The trouble is that the master plan, which will run to 2035, was born three years ago in a “normal” world where business and economic forecasts could be made with a degree of confidence. The same applied when former Trade and Industry minister Rob Davies announced the main goals with the plan in November 2018. These were to double direct employment from 120 000 to 240 000, more than double annual vehicle production from 600 000 to 1.4 million and increase the average local content in South African made vehicles by 50%. The last of these would be used to make space in the components supply chain for black-owned companies.
But those baseline figures – 120 000 and 600 000 – came from 2018. In 2020, it was a very different story. There have been predictions of huge job losses because of COVID-19. As for production, that is guaranteed to tumble, with domestic new-vehicle sales forecast to fall by up to 25% in 2020 and the extent of export losses utterly unpredictable.
Consequently, instead of doubling jobs and vehicles by 2035, the industry may have to treble or even quadruple its 2020 performance. To add to its woes, some of the potential new black industry participants have already shut down because of the pandemic and more will follow suit. For them, the master plan’s R6 billion transformation fund to set up and support black automotive entrepreneurs will come too late.
The fund will be capitalised by local vehicle manufacturers. However, given the huge financial losses suffered during lockdown (Volkswagen SA alone estimates it has lost 16 000 to 17 000 export orders), the cost of implementing health protocols, and the continued loss of sales revenue in coming months, they will welcome the delay in having to find the money.
There are other challenges. The government has yet to finalise master plan technicalities. The current Automotive Production and Development Programme (APDP), launched in 2013, will drive the master plan but with amendments. For example, certain rebates and allowances will be redefined and measured differently. The government, however, has not decided how this should happen. Companies also don’t know how to report transactions under the new model. With barely seven months to go, Naamsa says companies cannot possibly implement all the (still unknown) changes by January 2021.
Indeed, they are already struggling with the current APDP. Its investment incentives are based on pre-COVID-19 production volumes. The industry could lose billions of rand in incentives if the formula is not adjusted temporarily to reflect current market realities.
The government’s lack of decisiveness is evident elsewhere. The master plan requires the state to upgrade South Africa’s ports and railways, whose inefficiency is a never-ending hindrance to the industry’s import and export activities. There is nothing to suggest either will be any better by January 2021. Indeed, their performance during the COVID-19 pandemic has been labelled “disorganised and generally ineffective”.
Given all these issues, and that industry prospects are unlikely to get any less opaque in the immediate future, it makes sense for the government and industry to step back, take a deep breath and reconsider their options. The motor industry is a huge contributor to the South African economy. One new estimate reckons it supports more than one million jobs directly and across support industries. It’s too important to be jeopardised in pursuit of policy haste.