Demand for South African Vehicles Doubles: South Africa, Enjoying Strong Economic Growth, Has Seen a Boom in Its Automotive Industry with Both Exports and Local Demand for Vehicles Doubling over Last Year. Neil Ford Explains the Forces Behind This Growth
Ford, Neil, African Business
The process of creating a more broadly based South African economy has been given a boost by the country's growing automotive sector. While economic growth has picked up over the past two years and the tourist sector continues to record strong growth, South Africa remains overly reliant on mining and the government is keen to strengthen trading links with the rest of the world. In addition, rapid job creation is required if the country's serious socio-economic problems are to be tackled and the racial imbalances of the past overcome.
Other sectors will play their role but the boom in the automotive industry brings benefits on a number of counts. The sector provides skilled, relatively well paid employment in its own right, both in the core production plants and in suppliers. Its emergence has provided a new strand to the economy and the role of the export market has helped to tie the country more closely into the international economy. Finally the import of components and the export of both assembled vehicles and components have provided more business for the growing South African ports.
The National Association of Automobile Manufacturers of South Africa (Naamsa) has revealed that the number of vehicles exported during the first three months of this year was 57.7% higher than during the same period last year, up from 24,442 in the first quarter of 2005 to 38,541 for the first three months of this year. Indeed, vehicle exports increased by about 900% during the decade following the end of apartheid in 1994 and the sector now accounts for about 7% of the value of all exports. In addition, capital investment in the automotive industry is projected to increase from R3.6bn last year to R8.4bn this year. The director of Naamsa, Nico Vermeulen, said: "Higher projected exports of cars and particularly light commercial vehicles should contribute to record export sales during 2006. Overall exports are projected to improve by over 50% year on year, so the export last year of 140,000 units is expected to increase to about 210,000. The sharp increase in new vehicle exports is on the back of ambitious new vehicle export programmes set to continue during the balance of 2006."
He continued: "Moreover, car rental business (boosted by higher levels of economic activity and tourism) and government business (driven by increased investment in infrastructure development and basic services delivery) should also contribute to higher demand for new cars and commercial vehicles."
Major investors include DaimlerChrysler South Africa, Ford, Nissan, Toyota and Volkswagen, while production of the Hummer H3 by General Motors in Port Elizabeth is scheduled to begin before the end of this year. The vehicles will be exported to the rest of Africa, Europe, the Middle East and the Asia-Pacific region. A number of new assembly lines have been developed in recent years and more are under construction.
A major breakthrough was made in 2004, when Volkswagen announced that it was setting up a major engine production plant in South Africa. A total of 440,000 units, worth R12bn, will be exported over six years from the plant and each engine will have about 30% local content. The German firm has also begun to manufacture the Golf 5 in Uitenhage in the Eastern Cape following the modernisation of its plant at the site. Eight out of the world's ten biggest component manufacturers now have operations in the country.
Rising domestic demand for vehicles
Apart from the export market, manufacturers have been boosted by rising domestic demand for vehicles. Economic growth stood at 4.5% in 2004, rising to 4.9% last year and is set to remain at about 5% for the foreseeable future, as the benefits of the government's long, painful economic reforms begin to filter through.
Sales of commercial vehicles increased by 23.9% and passenger cars by 21. …