SA Auto Industry At Crossroads: Cheap Imports Threaten Future

• Government must urgently finalise new energy vehicles policy, refine tariffs and deploy anti-dumping measures to protect vehicle manufacturers.
• Balancing China as a critical trading partner with protecting domestic jobs requires sophisticated policy, supporting Chinese manufacturers who invest in local production like Chery’s Rosslyn acquisition, whilst deploying anti-dumping measures against subsidised imports that undermine the industrial base.
• The DTIC’s proposed competition threshold increases will reduce the regulatory burden on thousands of transactions and address investor concerns about unpredictable merger approval processes.
• The BLSA Reform Tracker quarterly review, to be launched on Thursday, will show strong progress on logistics reforms with port and rail concessioning advancing, but troubling backward steps on electricity reform as delays and resistance emerge now that the availability crisis has abated.
• Operation Vulindlela’s transparency is welcome, but its own scorecard identifies electricity as facing “significant challenges” – sustained reform pressure resolved the crisis, and backsliding risks reversing those gains when genuine market competition and Eskom unbundling remain incomplete.

There are life and death decisions that government must make about our vehicle industry, one of the most important parts of our industrial base. It is facing a bleak future as cheap imports flood the market.

BMW South Africa CEO Peter van Binsbergen said last week that today one in three vehicles sold is produced locally. Twenty-five years ago, over 80% were locally produced. Local production has stagnated below pre-COVID levels of 640,000 units per year. Even those still produced locally are seeing declining proportions of local content, with the National Association of Automotive Component and Allied Manufacturers (Naacam) reporting it has fallen about 1.1 percentage points per year for the last 25 years.

The component sector is particularly hard hit. Naacam reports that 13 component manufacturers have closed in the last three years, with more closures expected this year. This destruction of manufacturing capacity represents not just direct job losses, but the erosion of skills and supply chain capabilities that took decades to build.

Our main export market, Europe, is rapidly evolving to embrace new-energy vehicles. South Africa is still poorly positioned to serve that demand, with policy uncertainty and slow implementation of the new-energy vehicle roadmap delaying investment in local NEV production. Meanwhile, the industry faces a flood of cheap Chinese imports. Chinese models now account for 22% of all vehicle imports, sold at prices that undercut local manufacturers, enabled by substantial subsidies for manufacturing in China.

Government has begun considering tariff tools to address this problem, but no decisions have been made. Current tariffs of 25% on imported fully manufactured vehicles could be doubled and still comply with WTO rules. However, local manufacturers have pointed out that blunt tariff increases could damage them, as they support local manufacturing of some models while importing others to complete their product ranges. The challenge requires more sophisticated policy responses than simple across-the-board tariff increases.

The geopolitical context complicates matters. With the United States turning against the global trading system, building relationships with alternative markets has never been more important. China is a critical trading partner and a potential source of investment. But we must be laser-focused on what matters: our own economy and its ability to employ people. That is the single test for policy decisions. Chinese market access must serve those core objectives, not undermine them. We should support Chinese manufacturers to develop production in South Africa, such as Chery’s acquisition of Nissan’s Rosslyn manufacturing facilities, which preserves manufacturing capacity and jobs while potentially expanding export production.

In parliament last week, Deputy Minister of Trade, Industry and Competition, Zuko Godlimpi, showed welcome focus on the issues, noting it is critical to “tactically defend” the employment capability of the industry while it gears up to produce new energy vehicles competitively. Business and labour are aligned on this objective, with union leaders also noting last week the importance of protecting jobs from unfair competition.

Now we need urgent action. Government must finalise new energy vehicle policy to enable local manufacturers to transition production capabilities. Tariff policy must be refined to protect local manufacturing while avoiding damage to local assemblers. Anti-dumping measures should be deployed where Chinese vehicles are being sold below cost. Most importantly, these decisions cannot wait for factory closures to force action. The motor industry development strategy must position South Africa as an export-led, globally competitive manufacturing hub, and policy must support that outcome immediately. We cannot afford to lose more component manufacturers or see assembly plants shut down while government deliberates.

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The Department of Trade, Industry and Competition has published a draft amendment to the thresholds at which a transaction must be notified to the Competition Commission, and this deserves recognition. Competition processes are currently a source of significant red tape to our economy and substantially increase the transaction costs of investment.

The thresholds at which a merger must require clearance from the authorities were last adjusted nine years ago. The DTIC now proposes to increase the threshold for combined turnover of the merging parties from R600 million to R1 billion. For intermediate mergers, the target firm threshold increases from R100 million to R175 million. For larger firms, the combined threshold rises from R6.6 billion to R9.5 billion, with the target threshold increasing from R190 million to R280 million.

The change to the intermediate threshold is materially positive, making it easier for many smaller firms to do deals and attract investors. The other adjustments roughly track inflation over the nine-year period. This should reduce the regulatory burden on thousands of transactions that pose no meaningful competition concerns.

Competition approvals have become a substantial cost for investors, who find it difficult to anticipate what additional requirements may be imposed through the process. International investors have told me repeatedly that this uncertainty is a major deterrent, making them prefer other markets where merger approval processes are more predictable. The threshold adjustment is a positive step forward, though much more can be done to streamline processes, reduce timelines and provide greater certainty about conditions that might be imposed.

BLSA will be submitting comments supporting these threshold increases and proposing additional reforms to improve the efficiency and predictability of the competition approval process.

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Readers are well aware of BLSA’s deep commitment to driving reforms that support the business environment. In line with that commitment, we developed the BLSA Reform Tracker, which monitors progress on over 200 reform deliverables and is available as a free resource to the public at tracker.blsa.org.za. On Thursday, we will be launching the second quarterly review of that progress.

The review will show good progress in many areas, particularly logistics reforms, where port and rail concessioning is advancing. More concerningly, there have been backward steps on electricity reform. It appears that now the crisis of electricity availability has abated, the reform agenda is being challenged. Reforms to create genuine market competition, complete Eskom unbundling and establish the independent transmission company are facing delays and resistance. This is deeply troubling – the electricity crisis was resolved through sustained reform pressure, and backsliding now risks reversing those gains. After Thursday’s launch, I will address these concerns in detail, including what appears to be happening and what must be done to get reforms back on track.

Operation Vulindlela last week published its own quarterly report on progress with its reform agenda. OV is an outstanding public institution and its transparency is welcome. By its own scorecard, electricity reforms stand out as one area facing “significant challenges”. On the positive side, it reports that almost half of the reforms are on track and another 40% progressing but with delays, with particularly strong progress on logistics and visa reforms.

These efforts to maintain focus on delivering the reform agenda are critical to achieving the job-creating economic growth we desperately need. The Reform Tracker and OV’s reporting provide accountability mechanisms that help sustain momentum even when immediate crises abate. I’m pleased to see both government and business working to ensure transparency and continued progress, though the electricity reform concerns make clear that vigilance cannot be relaxed.

• This column was first published in the Business Leadership South Africa (BLSA) weekly newsletter. The author Busisiwe “Busi” Mavuso, is the CEO of BLSA.