South Africa is proposing automakers including Toyota Motor Corp., Ford Motor Co. and BMW AG more than double production in return for tax breaks so generous that the companies can ship the cars all the way to Europe.
With talks under way, the two parties are at odds on a number of issues — especially the state’s targets for what it wants the industry to achieve by 2035, according to Naamsa Director Nico Vermeulen. A production increase over that period to 1 percent of global output, or as many as 1.5 million vehicles a year, is overambitious, he said. South Africa produced about 600,000 units in 2017, the majority for export, and Naamsa forecasts an increase to 850,000 in 2020.
A second point of contention in the negotiations is a government demand for the automakers to double the size of their combined workforce to about 225,000, a move that would help ease South Africa’s unemployment rate of 26.7 percent. That’s unrealistic given the global industry’s shift toward robotics and automation, Vermeulen said. The manufacturers are committed to increasing production and employment if the incentives are adequate, he said, but are reluctant to agree to specific targets.
“What we are saying to government is: ‘Let’s work closely together on a program that’s going to keep us active in the country,’” BMW South Africa Chief Executive Officer Tim Abbott said in an interview. “We are a long way from our customers,” he said, referring to export markets. “In a majority of cases we’re about 9,000 kilometers (5,600 miles) away. The logistics costs are much higher, therefore we have to make sure a program is in place that helps us sustain our business.”
Speaking in Port Elizabeth, where Volkswagen is the biggest employer, Trade and Industry Minister Rob Davies said he’s “more or less at the point where we will take a decision as to what the government program will be.” There will be some changes to the present program, such as deepening the incentives related to component manufacturing, though it will build on the present framework, he said.
For the auto industry’s role in the economy to be sustained, an upgrade to the existing Automotive Production and Development Programme must be seen by the carmakers as a continuation of existing policy, according to Sam Rolland, an economist at Econometrix in Johannesburg.
“It’s likely that the replacement to the APDP will contain many elements similar to the current policy,” he said in an emailed response to questions. “This is to guarantee that carmakers investing in the country are able to adequately plan production lines, production inputs and workforce requirements.”
— With assistance by Janice Kew, and Rene Vollgraaff