Ford boss: Justifying business in South Africa becoming harder
Despite a series of recent investment, the Blue Oval has admitted it wants urgent addressing and fixing of ongoing economic challenges.
Ford South Africa has indicated that while it has no plans to depart South Africa after a series of significant investment, it is becoming harder not to ignore the obvious challenges. Image: Ford
Ford Motor Company Africa boss, Neale Hill, has described the dismal current economic climate as a “slow poison” for which South Africa could pay dearly down the line.
Hill told the media at the launch of the new Puma in Cape Town this week that the dysfunctional port and railway system along with the ailing power grid are all playing their part in making South Africa a very unattractive investment destination.
His sobering remarks follow that of Thomas Schafer, Volkswagen’s Global Head of Passenger cars, who recently questioned the sustainability of the German carmaker’s South African operations.
His sentiments were echoed by Volkswagen South Africa boss, Martina Biene this week, who despite declaring its Kariega assembly plant ”safe for now”, warned that Germany could run out patience should the energy crisis and logistical challenges not improve.
Volkswagen is already holding out on a big investment for a new model to be built in Kariega.
Ford recently announced an additional investment of R5.2-billion to its Silverton assembly plant in addition to the R15.8-billion upgrade in 2021.
Urgent attention needed
But now Hill too has warned that these commitments are not guaranteed as he saw first-hand how three carmakers closed shop in Australia.
“My concern is that business decisions that are being made right [now are] not going in our direction. But we are not going to feel that until five years from now,” Hill said.
“I’m not trying to be a scare monger or anything like that. I’m one of those tenaciously optimistic people that believe the message has to be heard.
“I’m just worried about those investment decisions that is going to start not going our way because we are a volatile, high-risk country where government is not enabling business. That is the reality of what we are dealing with and it is gravely, gravely concerning.
“I think the risk that we face is the slowing poison that we are seeing.”
Cannot afford “doing an Australia”
Hill held a top job at Ford Australia just before the Blue Oval closed its production facility Down Under in 2016, followed by Toyota and General Motors subsidiary Holden in 2017 due to a lack of government-supported incentives. Just over a decade before, over 400 000 cars were built in Australia in a year.
Ford and Volkswagen are two of seven manufacturers with local assembly facilities. The local car industry is said to contribute as much as 6% of South Africa’s GDP.
Apart from Wolfsburg’s assembly plant in Kariega and Ford’s factory in Silverton, the Blue Oval also has an engine-building facility in Gqeherha where Isuzu also runs an assembly plant, Mercedes-Benz has an assembly plant in East London, Nissan and BMW have plants in Rosslyn and Toyota a facility in Durban.
In total the eight assembly plants create dozens of thousands of direct jobs, with the number estimated to go up to the six digit-mark down the supply chain.
Hill warns that just one manufacturer pulling out could start a dire knock-on effect sending the whole system in a “downward spiral”.
Once local car manufacturing collapses, the price of all imported cars faces a 25% price hike.
Getting harder to justify South Africa
“It’s getting harder and harder to convince our principles that South Africa is a place worth doing business with,” Hill added.
“If you think about it, we have to use air freight to fly parts in because parts get stuck in the ports. You think about Transnet moving goods from the coast and back. You think about Eskom. You think about labour costs.”
Hill adds that because of the current backlog at the ports, Ford is spending huge amounts on air freight just to have enough parts to keep the assembly lines moving.
It was reported this week that there are more than 100 000 containers carrying goods worth R7-billion waiting to dock at the ports in Durban, East London and Gqeberha.
Volkswagen has committed to generator hire and a diesel supply just to safeguard the Kariega plant from load shedding for the next two years to the tune of R130-million.