Rooting SA: Strengthening the local automotive industry
Value beyond compliance
For decades, the automotive industry has been fundamental to South Africa’s economy. In 2018, the sector directly employed around 110 000 people and contributed a total of 6.8% (4.3% manufacturing and 2.5% retail) to gross domestic product. The South African government has recognised the importance of well-designed automotive incentives, supporting the industry through consecutive industry incentive programmes. Yet, when compared to other emerging countries with local automotive manufacturing, localisation remains relatively weak.
South Africa’s latest automotive policy, the South African Automotive Masterplan (SAAM), aims to rectify this by broadening and deepening local value chains. Meaningful localisation, at its core, forms part of value beyond compliance: it drives innovation and productivity, and aligns economic performance with social progress, thus driving inclusive growth.
About the report
The latest policy changes have heightened the emphasis on localisation, intentionally shifting focus from imported to local content. Nevertheless, the desired level and quality of localisation require determination. Local suppliers need to be grown and/or created; if done properly, this will benefit all stakeholders in the long run. Below are insights on developing meaningful localisation drawn from interviews conducted with various automotive stakeholders.
Key take-outs from this report.
- The will to improve current inefficient structures in both the public and private sectors. Such improvements include much-needed structural reforms, more efficient use of special economic zones, lower administrative burdens, prioritisation and alignment of efforts and increased transparency from OEMs.
- With current production volumes around 600 000 vehicles, scale is one of the most pressing challenges facing the South African automotive industry. The industry will need to find alternative methods to stimulate demand, while the domestic economy is weak and unlikely to yield significantly more demand in the short term. This could include stimulating demand through more comprehensive regional integration, incentivising South African consumers to buy locally produced vehicles and deepening cross-industry value chains.
- To grow and support local manufacturers as envisioned by the SAAM, it is crucial for the industry to understand the type of upskilling needed. In South Africa, as the skills spread is wide, blanket-approach incubation programmes are often less effective. Instead, skills training needs to be tailored for individual business’ needs. This requires developing successful localisation strategies to grow and support local suppliers sustainably based on their individual needs and aspirations.
Key localisation enablers
How can Deloitte help
Meaningful localisation requires a shift away from a compliance-driven approach, towards value beyond compliance thinking, which fosters innovation and productivity. For localisation, this involves developing successful strategies to grow and/or create sustainable local suppliers, based on their individual needs and aspirations. Our ESD framework supports small suppliers by considering direct and side value chains to identify volume and thus sustainable opportunities for small suppliers. This helps our clients to obtain value for their money and exertions, and drives social progress by developing sustainable businesses.