|
Volume 10
Issue 31
Wednesday, September 6 2006
This issue highlights:
RAPID GROWTH OF SOUTH AFRICAN AUTOMOTIVE INDUSTRY
Strong domestic demand and production during the first eight months of 2006 point to a record year for the South African automobile industry.
Domestic sales are expected to exceed 700 000 units. In addition, the South African automotive industry expects to export up to 250 000 vehicles in 2006, compared to last year's export figure of close to 145 000 units. Major export destinies for South African produced vehicles, which include BMW, Mercedes-Benz, Ford, Toyota and Volkswagen, are the United States, Britain, Australia, Japan and countries in the rest of Africa.
It all started in 1920
Automobiles have been assembled in South Africa since 1920, with Ford and General Motors being the pioneers. In 2003 South Africa produced 84% of the vehicles in Africa. Today BMW, Mercedes-Benz, Audi, Volkswagen, Toyota, Chevrolet, Opel, Ford, Nissan, Fiat, Mazda, Mitsubishi and Isuzu are being assembled in the country. New entrants to the South African market, such as India's Tata-range, are planning to assemble vehicles soon. Cars and light, medium and heavy commercial vehicles are included in the domestic automotive industry.
According to the latest issue of TradeInvestSA, there are approximately 250 first tier suppliers and in excess of 200 second and third tier suppliers in South Africa.
The South African auto industry has undergone vast changes in recent years due to a shift in government policy from import substitution to export promotion.
The real value of the vehicle and automotive component imports rose by 12% annually from 1996 to 2001, and exports rose by a massive 32% a year over the same period - the fastest export rate for a major sector of the South African economy.
Investment in vehicle assembly and component manufacture has increased at an annual rate of 12% in real terms from 1996 to 2001.
Export market
Exports of assembled vehicles and automotive components have risen rapidly to become the second most important South African export sector after base metals. Exports in 2003 were already R18, 4 billion in assembled vehicles and coachwork and R21, 3 billion in automotive components.
The major trading blocs are the European Union (EU), the North American Free Trade Association (NAFTA), Australia and the Southern African Development Community (SADC). Exports to the European Union and the US take advantage of an absence of import duties under the [US] African Growth and Opportunities Act (AGOA) and reduced duties under the EU-SA Trade Agreement.
Eastern Cape automotive industry
The major automotive centres in the country are the Eastern Cape (also known as the 'Detroit of South Africa'), KwaZulu/Natal and Gauteng.
Around 40% of South African car sales and 60% of car exports by unit are produced in the Eastern Cape. When the components industry is included, 26% of South African auto sector value addition and 30% of employment is provided by the Eastern Cape with huge plants being concentrated in East London (Mercedes-Benz); Port Elizabeth (General Motors -- Chevrolet, Isuzu & Opel -- and Ford's engine manufacturing plant); and Uitenhage (Audi & Volkswagen). Investment in vehicle assembly and component manufacture has also increased at an annual rate of 12% in real terms from 1996 to 2001. There is evidence that much of this investment has been export-driven and located in the Eastern Cape to access world trade routes.
DaimlerChrysler South Africa was recently awarded a contract to assemble the W204 - the new generation Mercedes-Benz C-Class vehicles -- for right-hand drive markets worldwide. R1 billion has been committed to the new plant, which is one of the only three plants to produce the W204. The plant also produces the Mitsubishi Colt for local and export markets.
Volkswagen South Africa exports the new generation Golf to the United Kingdom and Europe. Over R1, 7 billion has been invested over the past three years. Volkswagen South Africa has won a six-year export contract worth more than R12 billion for the supply of engines to the Volkswagen plant in Hanover, Germany.
Ford Motor Company SA at its Port Elizabeth plant (the company manufactures vehicles at its Silverton plant in Gauteng), is one of two plants producing the 1, 3 and 1, 6 Rocam engine. The plant produces 240 000 units at full capacity a year, with a local content of 95%.
Component production in the Eastern Cape includes catalytic converters (the domestic catalytic converter industry now has 10% of world production, with the aim of reaching 25%); leather seats and upholstery, safety glass, tyres and tubes; production of raw materials and semi-finished products, such as metal pressings for the C-Class Mercedes and an aluminium high-pressure die-casting plant.
SOUTH AFRICAN COMPANIES INVESTING IN LATIN AMERICA
South African companies have already invested nearly US$20 billion in Latin America.
In recent years, greater political stability, robust economic growth and increasing affluence among consumers have created a business friendly climate in Latin America, which South African companies are keen to take advantage of.
Some of the key reasons for venturing into Latin America are the low cost of entry, high calibre of skills and good work ethics, according to Roy Gordon, former CEO of Irvin and Johnston (I&J). The company invested around $33 million in Argentina in 2001 and US$3, 2 million in Chile in 2004.
While most decision makers agree that Latin America has vast business opportunities, Emile Myburgh, a South African lawyer with extensive knowledge of the legal system of Brazil, cautions that there are some challenges. In particular numerous additional taxes that govern business transactions can result in onerous tax obligations and lengthy business administration processes can result in delays.
Despite these challenges, the Western Cape trade promotion agency, Wesgro, is encouraging exporters to consider Latin America as a region to do business with. Wesgro will lead a trade mission to Argentina later this year to further explore trade and investment opportunities for the Western Cape.
CCA SPONSORING US-AFRICA INFRASTRUCTURE CONFERENCE
Interest is mounting in the [US] Corporate Council on Africa's (CCA) first annual US-Africa Infrastructure from 27-29 September in Bethesda, Maryland.
The conference will feature sector-specific workshops, networking events and forums on global best practices and lessons learned. Workshop panellists will include African Ministers of Planning and Finance, leading US infrastructure companies, financial institutions and international organisations.
The Corporate Council on Africa, established in 1993, works closely with governments, multilateral groups and business to improve the African continent's trade and investment climate, and to raise the profile of Africa in the US business community.
REFORM SUGGESTED OF UNITED STATES' FARM POLICY
The United States needs to reform its farm policy, even if currently suspended global trade negotiations fail to produce an agreement in the near future, says US Secretary of Agriculture, Mike Johanns.
Johanns said that if a global trade accord eventually is concluded, it likely would require the US to substantially reduce agricultural subsidies and other farm supports.
He spoke at a panel discussion at the Cato Institute, a policy research group based in the American capital, on August 31.
The global trade talks, formally called the Doha Development Agenda, held under the auspices of the World Trade Organisation (WTO), were suspended indefinitely on July 24 after negotiators from member countries failed to bridge major difficulties, particularly in the agricultural sector.
Since the negotiations were launched in 2001, the Bush administration has pressed for more foreign market access for US farm exports in exchange for reducing domestic supports and eliminating export subsidies.
But even if a WTO agreement that included such changes is not reached in the near future, the US must reform its farm policy because global and US economic conditions have changed since the farm bill that set this policy was enacted in 2002, Johanns cautioned.
That law is scheduled to expire in 2007 and both the Congress and administration have held hearings around the country to help in crafting new legislation.
Johanns said the Bush administration may submit its own farm bill but not before January 2007. He said that reform is necessary because current farm support distribute much money to relatively few large producers and for selected crops. Such support produce relatively little revenue, thereby unintentionally raising the prices of land and capital, and discouraging young people from entering agriculture.
He added that some US farm support programmes such as those concerning rice and maize, as well as countercyclical and marketing payments are vulnerable to legal challenges at the WTO. The organisation has already ruled against US cotton subsidies.
Any challenges in the WTO to these programmes would be defended aggressively by the Bush administration, Johanns said.
But US farm policy should not be driven by the WTO litigation that may "dismantle farm programmes piece by piece," he said.
Instead, Johanns commented, the administration and legislators must take the initiative and deal with relevant issues "in such a way that it leads us to the future with vision and foresight". He added that a true safety net for farmers is more than subsidies. It comprises tax and includes energy and trade policies, as well as investment in export markets, which provide the greatest opportunities for American farmers. A good farm policy needs to be equitable, predictable and unchallenged. It should be done in a way that is pro-trade, pro-growth and fiscally responsible
Also speaking at the same forum, Robert Thompson of the University of Illinois said the lobby that supported large subsidies in the 2002 farm bill has fragmented. International pressure against subsidies has intensified since, providing an opportunity for reform.
ENTERPRISE FLORIDA LAUNCH A SOUTHERN AFRICA TRADE MISSION
Enterprise Florida, the US state of Florida's economic development agency, has launched a Southern Africa Trade Mission to Florida. The mission will focus on Science and Technology in the field of Life Science - Bio-technology and medical products -- and ICT (Information and Communications Technology).
The mission follows the success of the July 19-22 AfrICanDo Summit on "Science, Technology and Research for Africa's Development", held in Miami, Florida.
Five key cities in Florida will be visited from September 30 to October 8. Government officials, economic development agencies, non-governmental organisations, ICT and Life Science companies and export councils will participate in the mission.
It is envisioned that partnerships will be formed, and trade links established that will be a testament to the success of the AfrICanDo summit on Science, Technology and Research.
The state of Florida is currently ranked 4th in the US for high-tech employment.
EXCLUSIVE POINTERS
Most African countries reject a proposal to give a bigger voice to other developing countries at the International Monetary Fund (IMF). The countries that are due to be given a bigger vote are China, Mexico, South Korea and Turkey. Africans fear this will diminish their say in the IMF.
|
