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Johannesburg – The wave of labour unrest could make global motor manufacturing groups think twice before establishing a plant in South Africa.
Rumours have recently surfaced that a number of international manufacturers, including Jaguar Land Rover, are currently considering building plants in South Africa.
But observers reckon that although heavy vehicle manufacturers – who produce smaller volumes of vehicles – may well establish plants here, it's unlikely that South Africa will attract bigger-volume manufacturers, also owing to a lack of competitiveness.
Gavin Maile, KPMG Africa’s director for the motor industry, believes there is “no doubt” that labour unrest will make investors think twice before putting up a plant here.
In the past week there were reports of investors selling their shares in South African companies, he says.
Maile says establishing a plant requires enormous investment. Local vehicle manufacturers have been established for many years (some for more than 50 years) and in terms of the new Automotive Production Development Programme (APDP) for the motor industry that comes into effect next year, manufacturers must produce at least 50 000 vehicles a year to qualify for incentives.
He reckons that from a logistics point of view South Africa is not an attractive proposition for new volume manufacturers because it is far from the most important markets.
Maile says local defective infrastructure – harbours, railways and the power supply – as well as the cost increases to which production groups have been subjected recently, put South Africa is a more disadvantageous position than countries like Brazil and India, for example.
Dr Johan van Zyl, president and chief executive of Toyota South Africa Motors, reckons the global motor industry had a difficult time following the Lehman shock and, as long as there is unexploited manufacturing capacity in Europe, in particular, plans will probably involve harnessing using that first.
What is more, all the major manufacturers are already established here, he says.
Sean Ellis of Benchmarking and Manufacturing Analysts, the discussion leader for the Durban automotive cluster, says the fact that South Africa has in recent years been unable to attract new motor manufacturers is possibly because of the lower competitive levels of the local vehicle component industry – not so much as regards direct component suppliers to vehicle manufacturers, but as regards suppliers to component manufacturers.
He reckons South Africa already has seven local manufacturers and, rather than attracting new manufacturers, the focus should be on better support for manufacturers that are already in South Africa.
Ellis says although there is currently speculation that one or two new vehicle manufacturers might enter the market, he is sceptical about this coming about.
But, he says, he does not hope that recent events at Marikana will discourage further investment in the motor industry.
Ultimately investors take a business decision and, although what happened at Marikana could be an issue, he believes that they will consider a range of factors.
The key issue is whether the Marikana incident – the fact that the strike got out of hand and the mineworkers received a high wage increase to 'solve' the problem – will repeat itself in other sectors, he says.
He is concerned that there will be more violent strikes, and that this will be seen as a way to "strong-arm" business and obtain wage increases that ultimately place the business under pressure.
He reckons this will depend on government and businesses’ ability to resolve the unrest and ensure that it does not become a problem.
But Ellis says he has serious concerns about government’s ability, willingness and competence in this regard.
* For business news in Afrikaans, visit www.sake24.com
* Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.
Rumours have recently surfaced that a number of international manufacturers, including Jaguar Land Rover, are currently considering building plants in South Africa.
But observers reckon that although heavy vehicle manufacturers – who produce smaller volumes of vehicles – may well establish plants here, it's unlikely that South Africa will attract bigger-volume manufacturers, also owing to a lack of competitiveness.
Gavin Maile, KPMG Africa’s director for the motor industry, believes there is “no doubt” that labour unrest will make investors think twice before putting up a plant here.
In the past week there were reports of investors selling their shares in South African companies, he says.
Maile says establishing a plant requires enormous investment. Local vehicle manufacturers have been established for many years (some for more than 50 years) and in terms of the new Automotive Production Development Programme (APDP) for the motor industry that comes into effect next year, manufacturers must produce at least 50 000 vehicles a year to qualify for incentives.
He reckons that from a logistics point of view South Africa is not an attractive proposition for new volume manufacturers because it is far from the most important markets.
Maile says local defective infrastructure – harbours, railways and the power supply – as well as the cost increases to which production groups have been subjected recently, put South Africa is a more disadvantageous position than countries like Brazil and India, for example.
Dr Johan van Zyl, president and chief executive of Toyota South Africa Motors, reckons the global motor industry had a difficult time following the Lehman shock and, as long as there is unexploited manufacturing capacity in Europe, in particular, plans will probably involve harnessing using that first.
What is more, all the major manufacturers are already established here, he says.
Sean Ellis of Benchmarking and Manufacturing Analysts, the discussion leader for the Durban automotive cluster, says the fact that South Africa has in recent years been unable to attract new motor manufacturers is possibly because of the lower competitive levels of the local vehicle component industry – not so much as regards direct component suppliers to vehicle manufacturers, but as regards suppliers to component manufacturers.
He reckons South Africa already has seven local manufacturers and, rather than attracting new manufacturers, the focus should be on better support for manufacturers that are already in South Africa.
Ellis says although there is currently speculation that one or two new vehicle manufacturers might enter the market, he is sceptical about this coming about.
But, he says, he does not hope that recent events at Marikana will discourage further investment in the motor industry.
Ultimately investors take a business decision and, although what happened at Marikana could be an issue, he believes that they will consider a range of factors.
The key issue is whether the Marikana incident – the fact that the strike got out of hand and the mineworkers received a high wage increase to 'solve' the problem – will repeat itself in other sectors, he says.
He is concerned that there will be more violent strikes, and that this will be seen as a way to "strong-arm" business and obtain wage increases that ultimately place the business under pressure.
He reckons this will depend on government and businesses’ ability to resolve the unrest and ensure that it does not become a problem.
But Ellis says he has serious concerns about government’s ability, willingness and competence in this regard.
* For business news in Afrikaans, visit www.sake24.com
* Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.
