SA’s automotive industry achieves record trade surplus

South Africa’s automotive industry achieved its fifth consecutive trade surplus in 2019 and its highest level on record.

Subject to the global impact of Covid-19 and an anticipated weak domestic market, it is expected to improve its trade balance further in 2020, according to the latest Automotive Industry Export Council (AIEC) export manual.

Norman Lamprecht, executive manager: trade, exports and research at the National Association of Automobile Manufacturers of SA (Naamsa) and author of the report, said on Monday the report was written before the impact of Covid-19 had become evident and the outlook for the domestic and global automotive industries had looked positive.

However, Lamprecht said SA’s automotive industry could still achieve a trade surplus this year because vehicle exports and components might decline by 20% this year and imports by 30%.

Lamprecht stressed that the future is uncertain but the majority of South African vehicle and component export sales are to first-world countries and comprise only a small percentage of the total sales in those countries.

He added that people will still buy vehicles although they may buy cheaper models and the vehicles produced by SA-based manufacturers are part of the popular vehicle model ranges.

The industry achieved a trade surplus of R27.1 billion last year compared with a surplus of R16.8 billion in 2018 and R10.3 billion in 2017.

Lamprecht said vehicles remain the key driver behind the automotive industry’s healthy trade balance over recent years.

SA exports to 151 countries

A record 387 125 vehicles worth a record R148 billion, along with a record R53.7 billion in automotive components, were exported to 151 countries in 2019.

“Record vehicle exports, and a decline in vehicle imports due to a weak domestic market, have resulted in a positive trade balance for vehicles over recent years, but the trade balance related to automotive components has remained negative,” he said.

But Lamprecht said the objectives under the South African Automotive Masterplan 2021-2035 to increase vehicle production to 1.4 million vehicles a year by 2035, as well raising local content levels in SA-manufactured vehicles from an average of 40% to 60% by 2035, among others, will contribute to the reliance on imported components declining substantially in future.

Figures published by Naamsa reveal the vehicle manufacturing industry has invested more than R35.5 billion in the past five years in production and manufacturing-related facilities.

Lamprecht said that as the leading manufacturing sector in South Africa’s economy, the automotive industry’s export value under the Automotive and Production Development Programme (APDP) in 2019 amounted to a record R201.7 billion

This comprised a significant 15.5% of total South African exports of R1 297 billion compared to 14.3% of total exports in 2018.

The industry’s imports of R174.6 billion under the APDP comprised 13.7% of the total South African imports of R1 273.3 billion compared to 13.1% in 2018.

Azar Jammine, chief economist at Econometrix, said the automotive industry’s positive trade balance is “very positive and very important” because it adds to the sense of having an export industry if it can outweigh the cost of all the components.

Jammine said exports will decline sharply this year but the motor industry is in an outstanding position at the moment to exploit the weakness in the value of the rand and the fact that general costs, other than the cost of imported components, are not rising.

“Labour costs might come down, given that people are taking pay cuts at the moment. Theoretically there should be the potential to make a nice profit if they can source all the components to make cars,” he said.

‘Nice fillip’

Jammine added that the risks to supply chain blockages as a result of lockdowns in many countries from which South African manufacturers import could provide “a nice fillip” to local automotive component manufacturers.

SA’s component manufacturers are now going to become more competitive and may be sought after more readily by original equipment manufacturers than before, said Jammine.

Lamprecht said that as the largest manufacturing sector in the country’s economy, a substantial 27.6% of value addition within the domestic manufacturing output was derived from vehicle and automotive component manufacturing activity, positioning the industry and its broader value chain as a key player within South Africa’s industrialisation landscape.

Success depends on continued ‘intelligent partnership’

However, Lamprecht added that the South African automotive industry’s performance remains dependent on an intelligent partnership between the sector and government to develop the industry.

“One of the attractions of South Africa’s automotive policy regimes over the past three decades has been its long-term vision and consistency,” he said.

SA’s automotive industry’s top export market in value terms in 2019 was Germany, with R75.5 billion, followed by Belgium, the UK and the US.

The UK, with 101 401 vehicles, was once again SA’s top destination for vehicle exports in 2019.

Volkswagen, with its Polo model, topped the country’s export rankings in 2019.

The trade arrangements SA enjoys with the European Union (EU), allowing for duty-free vehicle and automotive component exports to the 28 countries in the region, as well as the Africa Growth and Opportunity Act trade arrangement with the US, enhanced exports to those countries.

The EU, with exports of R129.7 billion or 64.3% of the total export value of R201.7 billion, was the domestic automotive industry’s main export region in 2019, followed by Africa with an export value of R31.9 billion or 15.8% of the industry’s total export value.

Lamprecht said SA’s global vehicle production ranking remained at 22nd in 2019, although its market share improved from 0.64% to 0.69% due to the record 631 983 vehicles produced in 2019, supported by the industry’s record vehicle export performance.

He said SA is highly exposed to economic conditions in China and the world economy in general, and the Covid-19 pandemic will stifle export-oriented industries and manufacturing in the foreseeable future.

“South African exporting companies will be required to consider various scenarios for the world economy and global trade patterns in the short to medium term,” said Lamprecht.

“The automotive industry across the world is currently experiencing unprecedented challenges due to the global lockdowns implemented across all major automotive manufacturing countries to flatten the Covid-19 curve, and SA is no exception to this.”

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