Focus on growing vehicle export industry

South Africa's automotive industry is one of the more impressive success stories since the advent of democracy in 1994, say commentators. It has become an increasingly important contributor to the country's gross domestic product, mainly through strong growth in the motor vehicle and component exporting sector. One of South Africa's poorest provinces, the Eastern Cape, has benefited from this growth in vehicle manufacturing and export. It has no fewer than three plants operating within its borders. ECONOMIC SIGNIFICANCE The importance of the automotive manufacturing industry to South Africa was underlined by the National Association of Automotive Manufacturers of South Africa (NAAMSA). NAAMSA's Nico Vermuelen told IRIN the automotive manufacturing industry really got off the ground with the introduction in 1995 of the Motor Industry Development Programme (MIDP). "The MIDP was introduced to place the industry on a better footing; to encourage the industry to become more outward looking. It is a programme that has a number of parameters, which are built around import duties of built-up vehicles and equipment," Vermuelen said. "It is premised on: reduced levels of protection [for the local industry]; a degree of support, but on a declining basis for exports; and a duty free allowance. Really, it's an incentive for vehicle manufacturers to manufacture and export vehicles in South Africa," he added. The programme was based on the Australian Car Plan from the mid 1990's. The end product was the result of extensive research, consultation and negotiation between government, the various business sectors within the automotive industry (vehicle manufacturers, component suppliers, retailers) and the trade unions. CATALYST FOR GROWTH The MIDP did what it was supposed to, and became the catalyst for the motor vehicle industry's growth. "It was a turning point in the performance of the vehicle manufacturing industry. In that year [1995] exports of motor vehicles amounted to 15,764 units. That figure, in 2002, had grown to 125,306 units - that in itself illustrates the remarkable performance of the industry in terms of exports," Vermuelen noted. The fact that "exports grew by a 695 percent ... over a short period of eight years" meant South Africa was 18th in terms of the international rankings of vehicle producers, surpassing countries such as Australia. The industry accounted for 6.3 percent of South Africa's gross domestic product, and "has progressively increased over the last few years, largely on the increased export volumes of vehicles and components". NAAMSA figures show that in 2002, exports of components amounted to about R22.5 billion (about US $2.7 billion), while exports of motor vehicles amounted to about R18 billion (about US $2.2 billion). "In summary, the auto industry in this country has developed into one of the most impressive success stories in our country since the 1994 advent of the new democratic order," Vermuelen said. "There's no doubt the rationalisation and restructuring that had to take place as the industry became exposed to much lower levels of protection - for example, the duty (tax) on a fully imported car is now 35 percent, as opposed to 110 percent 10 years ago - translated into job losses on the assembly side of the industry during early years. On the component side, what we've seen is that a lot of new companies have sprung up and established operations to benefit from the export emphasis of the MIDP. So, although there were some job losses, that was more than offset by job gains and newly established small to medium industry [on the supplier side]," he added. Job losses on the manufacturing side of the industry stabilised from 1998/99 onwards. LOCAL IMPACT OF PLANTS The Eastern Cape plant of DaimlerChrysler South Africa (DCSA) is typical example of the impact of motor manufacturing on provincial economies. Sukayna Vengadajellum, local corporate affairs and business development manager at the East London plant, has no doubt that the contract for manufacturing the current C-Class Mercedes-Benz for right-hand drive markets, won by DCSA, has had a significant impact on the local economy. "The plant has developed - over 40 years it's grown from only doing CKD assembly (CKD: "complete knockdown", when the entire vehicle is imported in disassembled form) to actually manufacturing vehicles part by part. However, about 70 percent of parts are still imported. We are trying to increase net local content; trying to get suppliers to invest here," she said. The year 2000 was a milestone for DCSA: "we won the right-hand drive C-Class order. By doing so, we entered the global network". Last year the plant produced about 47,000 C-Class cars. Forty-two percent went to Great Britain, and the remainder to Ireland, Hong Kong, Japan, Singapore and Australia. "That means that a customer who goes into a DaimlerChrysler dealership in the UK (United Kingdom) - a customer who goes there for the quality represented by the three-pointed star - will be driving a car built here. The cars are built to the exact same specifications as in Germany. It used to be said that 'made in Germany' was the ultimate stamp of approval for a car," Vengadajellum noted. The race is on to win the export contract for the next C-Class, she added. SPIN-OFFS The plant's export programme began to pick up steam in August 1998, exporting 32,000 C-Class passenger cars per year, which made up 75 percent of total production. In addition, the Mitsubishi Colt pick-up is exported into Africa only. Component exports are destined primarily for DaimlerChrysler plants in Germany. DCSA has 3,000 supplier companies in South Africa.

HIV/AIDS is a major challenge for industry

There are currently has 883 salaried staff and 2,296 hourly paid staff - a total workforce of 3,728 who support in excess of 15,000 family members - making it one of the largest employers in the Eastern Cape region. The plant has its own harbour from where two-thirds of the vehicles it manufactures are exported to the rest of the world. Exports for 2002 were in excess of R6 billion (about US $733 million), according to the company. HIV/AIDS CHALLENGE Like the economy as a whole, the motor manufacturing sector has had to recognise the threat of HIV/AIDS. DCSA has budgeted R6 million (about US $733,000) over a three year period for HIV/AIDS programmes. Vengadajellum said the company was running training programmes for HIV/AIDS counsellors, and has offered voluntary testing and anti-retrovirals to its staff. It estimates the economic impact of HIV/AIDS in 2001, as a result of infections and deaths, was a "a staggering R9.3 million [about US $1.1 million] in direct and indirect costs to the company (40 percent as death and disability payments and 36 percent due to productivity loss)". The company is an active member of the Global Health Initiative, Vengadajellum said. MORE EXPORTS EXPECTED Like DCSA, BMW South Africa also exports its 3-Series cars to right-hand drive markets internationally. So too does Volkswagen South Africa. All of them recently received quality awards. All are set to continue their export programmes.