Rooting SA: Strengthening the local automotive industry - Value Beyond Compliance series September 2019 - Deloitte
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Rooting SA: Strengthening the local automotive industry | Value Beyond Compliance series
Rooting SA: Strengthening the
local automotive industry
Value Beyond Compliance series
September 2019
1
Rooting SA: Strengthening the local automotive industry | Contents
Contents
Introduction............................................................................................. 1
Global automotive industry overview.................................................. 2
Case study: Thailand – the Detroit of Asia............................................ 3
Local automotive industry overview.................................................... 5
Case study: The South African policy landscape.................................. 6
Enabling localisation............................................................................... 8
Deloitte Africa: Lessons from the trenches ......................................10
Deloitte Africa’s ESD framework........................................................... 11
The road ahead.....................................................................................12
Contacts..................................................................................................13
Endnotes.................................................................................................14
Rooting SA: Strengthening the local automotive industry | Value Beyond Compliance series
“We want the industry to be globally competitive,
but competitiveness is not just a function of what
happens on the factory floor.”
– Trade and Industry Minister Ebrahim Patel1Rooting SA: Strengthening the local automotive industry | Introduction
Introduction
Manufacturing is often seen as a gateway to inclusive growth. It has the potential to create jobs, deepen and
broaden local value chains, advance technology and cultivate local skills. As such, numerous countries,2 like South
Africa, have solidified manufacturing as the cornerstone of their industrial policies.3
The automotive industry is part of the manufacturing basket, and so many developing economy
governments 4 have incentivised domestic automotive manufacturing. For some countries, such
as Thailand, this investment has also contributed to deep socio-economic gains. However, other
countries have not realised their full potential. In addition, the global automotive industry is
now experiencing slowing demand and manufacturing volumes as a result, making government
incentives increasingly important to retain global automotive manufacturers.
The South African automotive industry employed around 110 000 people directly and
contributed 6.8% (4.3% manufacturing and 2.5% retail) to gross domestic product (GDP) in
2018.5 The government has recognised the importance of well-designed automotive incentives,
supporting the industry through consecutive industry incentive programmes.6 Yet, when compared to
other emerging countries with local automotive manufacturing, localisation remains relatively weak.
Figure 1. South Africa: local content (%) of the automotive industry
60%
50% 46.60%
40.90% 41.50%
38.70%
40%
30%
The South African
20% government has
10%
recognised the
importance of
0%
2012 2013 2014 2015 well-designed
Local content SAAM target automotive
Source: Black, et al., 20187 incentives.
South Africa’s latest automotive policy, the South African Automotive Masterplan (SAAM), aims to
rectify this by broadening and deepening local value chains and embedding industry into the domestic
economy. Meaningful localisation, at its core, forms part of value beyond compliance:8 it supports
innovation and productivity, and aligns economic performance with social progress, thus driving
inclusive growth.
This report investigates enabling localisation factors as compiled from industry interviews, while
unpacking the South African automotive context and supplementing it with corresponding international
best practice, and Deloitte Africa’s own experience in meaningful localisation and value beyond
compliance practices.
1Rooting SA: Strengthening the local automotive industry | Global automotive industry overview
Global automotive
industry overview
Globally, there is a symbiotic relationship Globally, tier 2/remaining tier suppliers
between the automotive industry and dominate the automotive supply chain and
governments: the automotive industry are responsible for 50% of value addition
depends on government incentives to (Figure 2). These suppliers often drive
improve viability, while governments localisation and are important to deepen
support automotive industries to spur skills, employment and value chains in the
economic development. host country.14
The automotive industry often relies Figure 2. Global value addition
on this support, with net profit margins composition (% of total value addition)
relatively low – mostly single digits.9 The Tier 2/remaining
dependence was recently highlighted when
Ford, Holden and Toyota’s manufacturing
tier suppliers
20%
plants in Australia closed due to a lack
OEMs
often drive
of government support, with many local
suppliers (and jobs) following suit.10 localisation and
30% are important to
The automotive industry – defined
Tier 1 suppliers
in this report as the automotive
manufacturing sector – usually consists
deepen skills,
of three categories, all of which can
50%
employment and
create employment opportunities in the
producing country: Tier 2/remaining tier suppliers value chains in
•• Original Equipment Manufacturers the host country.
(OEMs)
Design, assemble and market the Source: Black, et al., 201815
final automotive product, and, on
This typical global composition, however,
occasion, manufacture equipment for it.
requires conducive domestic business,
Components are typically procured from
economic and policy environments to
suppliers according to the OEM’s specific
support local suppliers.
criteria.11
Examples: BMW, Ford, Mercedes Benz,
Nissan, Toyota and Volkswagen
•• Tier 1 suppliers
Manufacture components and/or
systems according to specified criteria.
These firms supply OEMs directly. Inputs
into these parts and systems are typically
procured from the tier 2/remaining tier
suppliers.12
Examples: Bosch and Continental
•• Tier 2/remaining tier suppliers
The tier 2/remaining tier suppliers
produce parts and/or raw materials
throughout the automotive industry
value chain. Importantly, these suppliers
usually serve multiple industries and not
exclusively the automotive industry.13
Examples: Aluminium, plastic and steel
industries
2Rooting SA: Strengthening the local automotive industry | Global automotive industry overview
Case study: Thailand – the Detroit of Asia Figure 3. Thailand’s automotive structure
Thailand has made great strides in realising its automotive
aspirations. Over a 60-year period, the country has
transitioned from an assembler to a top automotive 31
manufacturing and export hub. Its success has attracted OEMs
leading global automakers, assemblers and component
manufacturers.
This progress is evident in the numbers. Thailand’s
automotive production increased by 383% from 2000 to
2017.17 There are 31 assemblers and over 2 000 suppliers
located in Thailand, which produced around 2.2 million
vehicles in 2018. This local production caters for most of
the local demand, meeting over 95% thereof. In addition,
local production amounted to US$30bn in foreign revenue
with around 55% of cars and 60% of commercial vehicles
exported. It is thus no surprise that the automotive sector
constitutes approximately 12% of GDP. This all translates
386 ~1 700
into employment: the automotive sector employs around Tier 2/remaining tier
850 000 people.18 This has also led to various training Tier 1 suppliers suppliers
initiatives, upskilling people in lifelong and, often, industry-
transferrable skills. Source: Maikaew, 201916
The success described above required long-term strategic and concerted efforts. Pragmatic, coherent and dynamic government
policies were, and remain, integral to the success of the industry.
Figure 4. Thai automotive policy development
Initial phase Investment Export Domestic Industrial Export Green automotive
promotion promotion automotive part re-engineering production base base
manufacturing
promotion
1961 1967 1977 1987 1997 2007 2012
•• Focus on •• Focus on •• Support •• Introduce •• Establish •• Introduce •• Develop
import automotive automotive trade the Thailand the Thailand Thailand
substitution industry assembly agreements Automotive Automotive Automotive
promotion Institute (TAI) Industry Industry
•• Focus on •• Promote
Master Plan Master Plan
•• Decrease and promote targeted •• Introduce
2007–2011 2012–2016
import tariffs exports manufacturing: the Thailand
and 2017–2021
5 C parts for Automotive •• Promote
•• Support
the pickup Industry eco-friendly •• Focus on green
domestic
truck Master Plan investment automotives
manufacturing
2002–2006 and vehicles,
by introducing •• Vision 2027:
and export
localisation •• Define vision Global Green
50% of
rate Automotive
•• Introduce the production
Research and
first product
Development
champion
(R&D) base
Source: Thailand Automotive Institute, 2012,19 and Deloitte Africa research
3Rooting SA: Strengthening the local automotive industry | Global automotive industry overview
The Thai government used a phased This was not the only policy that
approach to attract OEMs and benefit contributed to automotive development.
from the automotive industry. After The government also created strategic
focussing on protectionist measures, the trade agreements with key countries such
Thai government shifted its attention as Australia, China and India, yet another
to attracting multinational automotive benefit to automotive exporters. These
manufacturers, promoting exports and agreements assisted OEMs to tap into
building local capacity for greater export the growing regional middle class, and to
production. source raw materials.25
Importantly, the objectives were generally However, Thailand’s policy is also dynamic
clear, with incentives, investment and and adjusts to the changing internal and Given the global
growth aligned to support the objectives.20 external environment. Given the global
For example, Thailand’s automotive trend of moving towards digital and green trend of moving
industry focussed on producing select automotive solutions, Thailand’s current
vehicles (appropriately called the product policy iteration focusses on promoting towards digital and
champion) and components locally.21
This strategy narrowed the scope of
green vehicles. Subsequent incentive
schemes have been established to support
green automotive
local vehicle manufacturing and thus its 2027 Vision of becoming the Global solutions,
components, increasing volumes and Green Automotive R&D base.26 For example,
improving economies of scale. Policy was Thailand has already attracted electric Thailand’s current
developed to support specific investment vehicle (EV) investment from Nissan, Toyota
as well as local demand for these vehicles.22 and Honda by introducing applicable tax policy iteration
By focussing incentives and support
on targeted areas, Thailand was able to
breaks.27
focusses on
deepen the relevant supply chains. These comprehensive and targeted policy promoting green
reforms, alongside economic stability, well-
Notably, Thailand also concentrated developed infrastructure and upskilling vehicles.
on developing local skills, including for the local labour force, have proven strong
lower tier suppliers, often by entering drivers for the Thai automotive industry.
into strategic partnerships and sharing
the responsibility of transferring the
needed skills to domestic suppliers and
employees.23
The government also introduced industrial
policy which linked to the abovementioned
objectives. These policies translated
into practical benefits for multinationals;
including exemptions on corporate income
tax and import duties on machinery and
raw materials, immigration permits for
experts, land ownership options and
supercluster automotive zone benefits.24
4Rooting SA: Strengthening the local automotive industry | Local automotive industry overview
Local automotive
industry overview
For decades, the automotive industry has been fundamental to South Africa’s economy. It contributed 6.8% (4.3% manufacturing and
2.5% retail) to GDP in 2018. In addition, automotive exports are valued at nearly R180bn, and comprised 14.3% of South African exports.28
Moreover, in 2018 the industry employed around 110 000 people (across vehicle and component manufacturing),29 producing over half
a million vehicles.30 This makes South Africa the largest automotive producer in Africa (54.3%) with many of the major OEMs operating
in South Africa. However, Morocco – the second largest African producer – has increased production significantly, and produces more
passenger cars than South Africa.31
Figure 5. South African automotive industry key 2018 statistics
4.3%
manufacturing 110 000
6.8%
people employed across vehicle
and component manufacturers
contribution
to GDP
610 854
2.5%
retail vehicles produced
Source: Automotive Industry Export Council, 2019,32 and Davies, 201833
While the sector is important to the South African economy, the low and Figure 6. South African automotive value addition
decreasing level of local content (see Figure 1) remains distressing. In 2015, composition (% of total value addition)
local content was recorded at 38.7% – below some of our automotive peers
and the current SAAM target of 60%. This is challenging for the domestic
economy – localisation drives employment and skills development – and for
the automotive industry in particular. By importing goods, the automotive
industry is exposed to exchange rate volatility, something the rand is
renowned for as one of the most traded emerging market currencies.34
40%
OEMs
As shown in Figure 6, the structure of South Africa’s automotive industry
is dominated by OEMs and tier 1 suppliers, with few tier 2/remaining tier
suppliers. In comparison (Figure 2), the tier 2/remaining tier suppliers typically
contribute 50% value addition to the automotive industry globally relative to
South Africa’s 20%. 40%
Tier 1 suppliers
This is exacerbated by the lack of volumes and inadequate local production
capabilities.36 Volumes are important in utilising economies of scale:
20%
significant volumes decrease input costs, making production economical.
Local lower tier suppliers thus often struggle to deploy economies of scale,
skills and advanced technologies. Tier 2/
remaining tier
There are more challenges, all of which affect small suppliers more than suppliers
their downstream counterparts. Inconsistent electricity supply, fragmented
transport infrastructure and low business confidence plague the South
African economy.37 Rectifying these inefficiencies and supporting small local Source: Black, et al., 201835
suppliers, in this environment, are crucial for their survival.
5Rooting SA: Strengthening the local automotive industry | Local automotive industry overview
Case study: The South African policy landscape
The Thai case study above highlighted some key areas for developing an automotive
production hub. Government policies are pivotal, and should be practical, simple,
targeted and aligned.
South African automotive policy, much like Thailand’s, began with an inward focus.
At the start of the 1960s, policy prioritised local content for local consumption. This
started to change in the late 1980s with later phases of the local content programme.
Post-democracy saw liberalisation increase further with the Motor Industry Government policies
Development Programme (MIDP), which reduced tariffs at an even faster rate.38
are pivotal, and
In 2013, the MIDP was replaced by the Automotive Production and Development
Programme (APDP). Although both these programmes aimed to increase production should be practical,
volumes, the MIDP focussed on exports, while the APDP shifted focus to increasing
production in general. Both these policies, however, were accompanied by stable,
simple, targeted and
if not declining, levels of localisation.39 aligned.
Figure 7. South African automotive policy landscape – focus on localisation
Local content MIDP APDP SAAM
programmes and amendments to and
phase 1 extension of APDP
1961 1995 2013 2018
•• Localisation was •• Prioritise •• Shift away from •• Promote higher
used to protect liberalisation to solely exports, degree of
foreign exchange increase volume towards supporting localisation (target
production set at 60%)
•• Further phases •• No local content
in general
were introduced, requirement •• Support local value
(irrespective of
with phase 6 addition – shift from
•• Focus on market)
introduced in 1989 Vehicle Assembly
exports
Allowance (VAA) to
Volume Assembly
Localisation
Allowance (VALA)
Source: Black, et al., 2018;40 and Davies, 201841
6Rooting SA: Strengthening the local automotive industry | Local automotive industry overview
In 2018, the South African Cabinet approved the extension of the APDP to 2035 with amendments which align with the new
automotive policy document, the SAAM 2035. Importantly, the SAAM gives a clear vision and sets objectives for the industry –
a crucial element of policy certainty for the automotive industry.42
The SAAM’s vision:
“A globally competitive and transformed industry that actively contributes to the sustainable
development of South Africa’s productive economy, creating prosperity for industry stakeholders and
broader society.”
Key summary of SAAM:
•• “Achieve 1% of global vehicle production by 2035 (increase from current 600 000 units to almost 1.4 million
units a year)
•• Increase local content from current 39% to 60%
•• Double employment in the value chain from current levels to about 240 000
•• Achieve at least level 4 BEE status from 2021
•• Support to be based on value addition rather than production sales value.”
Source: Davies, 201843
The SAAM and APDP policies are widely regarded as supportive and well-developed, with the changes focussed on
creating greater opportunities for local suppliers. The SAAM targets 60% local content with the extended APDP moving
away from VAA towards VALA.44 The latter excludes imported content and is expected to drive greater localisation,
compelling OEMs and tier 1 suppliers to source locally.45
Yet, the SAAM and APDP do not function in isolation. There are multiple government departments which influence
the automotive industry through different policies, e.g. the promotion of EVs. The APDP, the Green Transport Strategy
and the EV Roadmap all aim to support EV production. However, government and the industry have yet to finalise a
comprehensive and aligned plan.46 South Africa would benefit from better alignment across policies, not only in the EV
space, to support the industry’s vision.47
Misalignment frequently also extends across industries. Alignment is especially important for tier 2/remaining tier
suppliers, who globally tend to supply multiple industries rather than solely the automotive industry.
7Rooting SA: Strengthening the local automotive industry | Enabling localisation
Enabling
localisation
The latest policy changes have heightened the emphasis on
localisation, intentionally shifting focus from imported to
local content. Nevertheless, the desired level and quality of
localisation require determination. Local suppliers need to
be grown and/or created; if done properly, this will benefit all
stakeholders in the long run.
Below are insights on developing meaningful localisation
drawn from interviews conducted with various automotive
stakeholders.48 Three key themes emerged:
Figure 8. Key localisation enablers
The will Volumes Upskilling
Drive efficiency gains Increase volumes Cultivate the local skills
in the: by promoting: base by focussing on:
•• public sector •• regional integration •• individual business needs
such as structural reforms, alignment
•• incentives for locally •• continuous business
of efforts, special economic zones and
produced vehicles development
administrative efficiencies
•• cross-industry value chains
•• private sector
such as OEM collaboration and
transparency
Source: Deloitte Africa interviews and research
The will
The best automotive vision means procure from, and supporting economic and consistent power supply are typical
little without the will to follow through. growth, thus increasing automotive benefits of SEZs.
This requires proper regulation, demand. In addition, this could assist in
implementation and, importantly, the addressing low–hanging fruit, such as Government processes, furthermore,
will to change inefficient structures and scrap metal localisation, and rail and port often lead to unintended administrative
systems in both the public and private efficiency.50 burdens. This is especially damaging
sectors. for smaller businesses with limited
The issue of will also relates to Special administrative capacity. For example,
This starts with the South African business Economic Zones (SEZs), which could VAT administration can be cumbersome,
environment.49 Structural reforms are often be used more efficiently. Many resulting in wasted resources, and refunds
vital for broader economic efficiency small suppliers do not have access to are often slow, resulting in cash flow
gains. Although reforms do not specifically these advantageous zones, leading to difficulties. This also applies to incentive
target the automotive industry, the impact higher production costs and limited schemes, with some small businesses
on it could be two-fold: stimulating local exposure to technical expertise. For finding incentive programmes difficult to
business for the automotive industry to example, preferential electricity pricing access, and finding the process slow.
8Rooting SA: Strengthening the local automotive industry | Enabling localisation
Overall, strategy and policy efforts that SSA production could increase to a for example, is plastics. Plastics are used
should be aligned and more holistic projected 2.05 million units.51 As Deloitte in multiple industries, including the
to pursue strategic interest areas. This Africa has stated previously, it is not automotive industry (e.g. plastic injection),
includes targeted trade strategies to unfathomable to see this market as the and are currently being produced as a by-
decrease tariffs and unlock volume, as “final frontier for the global automotive product in South Africa.
well as prioritising specific value chains for industry”.52 South Africa is well positioned
local development. Progress needs to be as the anchor economy, which is an
monitored and evaluated to keep parties opportunity the country cannot afford to Upskilling
accountable. waste. However, markets in SSA are fraught
with challenges: these include inadequate
Efficiency gains are also required from the logistics, overlapping trade agreements, Business excellence is no easy feat. With
private sector. Collaboration between insufficient financing options, and the focus on local manufacturers, some
OEMs is central: clustering incentives and misalignment across policies. In addition, of whom may not yet exist, the industry
opportunities will give greater support to these markets tend to be dominated by needs to understand what type of
small business. This could also assist OEMs second-hand vehicles.53 upskilling small suppliers require. This likely
and tier 1 suppliers in finding a supplier entails a wide range of development, from
base. A unified approach to information Moreover, African markets are vastly technical training in R&D centres, to basic
sharing and utilising small local suppliers different, and it requires time and effort to financial and management training on
can thus assist everyone in the sector. understand local conditions. It is important business readiness.
to develop targeted product strategies per
Moreover, small local suppliers need country (or even per city), and establish As is often the case in South Africa, the
transparency and adeptness from local and international partnerships to skills spread is wide.60 This often leads to
OEMs for business planning and overcome current barriers. Nonetheless, blanket-approach incubation programmes
forecasting. Current and potential small there are opportunities. Progress has being less effective. Skills training should
suppliers often do not understand the been made with some African countries cater for the individual business
opportunities available in the industry, revising or developing automotive policies needs (see section titled Deloitte Africa:
exacerbating difficulties in identifying (including legislation to curb second- Lessons from the trenches). For example,
opportunities and planning. This also hand vehicle importation)54 and the SSA some suppliers need to acquire better
relates to current processes, where some Automotive Pact Task Team investigating technology – giving small local suppliers
payment terms are lengthy, creating cash regional integration.55 the opportunity to leapfrog to the next
flow challenges for small businesses. This level of productivity. For others, they
is worsened by the naturally low profit South Africa also has opportunities for may need to acquire negotiation and
margins of the automotive industry. economies of scale. Volumes can be forecasting skills training.61 Depending on
stimulated by incentivising South the need, it could be beneficial to partner
African consumers to buy locally with global experts to increase local
Volumes produced vehicles. This can come in competency. Once again, this requires a
various forms: Thailand uses import targeted approach.
duties,56 India offers upfront subsidies
Economies of scale are essential for an with EV purchases,57 Kenya plans to Additionally, continuous business
industry with low profit margins. Scale is limit second-hand car imports,58 and development is crucial for long-term
one of the greatest challenges facing the China incentivises the acceleration of success (and the lack thereof is partly
South African automotive industry, with auto replacement.59 As a World Trade noted for the failure of past incubation
current production volumes around Organisation (WTO) member, South Africa programmes). Long-term coaching,
600 000 vehicles. With the domestic would need to investigate these different especially throughout the business
economy weak, and unlikely to yield options, ensuring the country complies life cycle, assists in dealing with new-
significantly more demand in the short with international trade regulation. found challenges. This requires regular
term, it is crucial for the industry to find check-ins, and embedded incubation
alternative methods to stimulate demand. Furthermore, volumes for tier 2/remaining practices, processes and systems. Another
tier suppliers can be increased by consideration is having incubation
One such way is through regional deepening the cross-industry value programmes in industrial parks or SEZs.
integration. The middle class in Sub- chains (and not solely focussing on the This would give small businesses access to
Saharan Africa (SSA) is expected to automotive industry). This is done globally, preferential agreements of SEZs and the
increase substantially: by 2035, around with lower tier suppliers supplying multiple necessary exposure to OEMs and tier 1
50 million adults are expected to earn industries. A targeted approach may prove suppliers.
more than US$10 000 annually. If binding beneficial and would entail understanding
structural constraints are resolved, the South Africa’s import base and products
SSA Automotive Pact Task Team estimates used across industries. One possibility,
9Rooting SA: Strengthening the local automotive industry | Deloitte Africa: Lessons from the trenches
Deloitte Africa: Lessons
from the trenches
Meaningful localisation, which both deepens and broadens local value chains, is crucial in aligning economic and social
progress. This requires a shift away from a compliance-driven approach, towards value beyond compliance thinking, which
fosters innovation and productivity. For localisation, this involves developing successful strategies to develop and/or create
sustainable local suppliers, based on their individual needs and aspirations.
The focus area for Enterprise and Supplier Development (ESD) is specifically small, medium and micro-sized enterprises
(SMMEs). SMMEs have the greatest need for developmental support, and require different ESD support at different phases of
their growth journey (Figure 9). Their needs, and the challenges they face, are well researched and documented, not only in
South Africa, but globally.
Based on Deloitte Africa’s experience, some of the important considerations when supporting SMMEs are:
•• Entrepreneurial competence is correlated with the business’s survival and success
•• Education and training are also correlated with successful SMMEs (as evidence in South Africa has indicated)
•• Support should be differentiated by sector, size, skills and other factors
•• Different stages of business growth should be taken into consideration
•• The low survival rate for start-ups in South Africa (most fail within the first three years) is correlated with inadequate
managerial skills
•• Accessing and retaining skills within SMMEs is a key competitive advantage.
Figure 9. SMME support phases - Emerging Micro Enterprises (EMEs), Qualifying Small Enterprises (QSEs) and Generics
Types of ESD •• Incubation •• Financial assistance •• Favourable
support programmes (i.e. loans) funding (e.g. loans)
•• Training •• Managerial for expansion,
development transformation,
•• Equipment and
and productivity
materials •• Acceleration
improvements
programmes
EMEs QSEs Generics
Typical length •• 5 years
Source: Deloitte Africa, 2019b62
10Rooting SA: Strengthening the local automotive industry | Deloitte Africa: Lessons from the trenches
Deloitte Africa’s ESD framework Data-driven opportunity identification
Traditionally, ESD programmes have We identify opportunities for enterprise
focussed on organisational programmes, and/or supplier development by analysing
which often disregard the specific needs of data at organisation, sector and cross-
SMMEs and their operating environment. sector levels. This includes understanding
Deloitte Africa has taken a different relevant value chains, and undertaking
approach. proper market sensing, while considering
the potential capabilities of suppliers. This
Our ESD framework is underpinned by process helps to identify opportunities that
an industry approach (e.g. tier 1 suppliers are likely to succeed. We identify
collaborating to develop their tier 2
suppliers), with elements of cross-industry Individual approach opportunities
deliberation. Hence, the framework
considers direct and side value chains
After identifying and prioritising
opportunities, it is important to create a
for enterprise
to identify volume and opportunities for personalised programme. We work with and/or supplier
small suppliers. It therefore supports small entrepreneurs to match their capabilities
suppliers in achieving a sustainable growth to the selected opportunity. This means development by
path. creating individual development plans
– including elements such as types of analysing data
Figure 10. Deloitte Africa’s ESD funding, skills development or mentorship –
and implementing these effectively.
at organisation,
framework
sector and cross-
Robust post-investment monitoring
In an ever-changing environment, efficient sector levels.
monitoring and effective adjustments are
crucial for SMMEs’ long-term sustainability.
ESD programmes therefore need to
be agile. In this phase, we monitor and
evaluate SMMEs’ progress, and adjust the
programme to support their long-term
sustainability. The data collected feeds
back into the first step, i.e. data-driven
opportunity identification, to ensure we
have the best information to make the best
decisions.
Having the right processes, people and
Source: Deloitte Africa procedures in place to ensure successful
localisation is key in driving value beyond
Moreover, the framework is dynamic and compliance. This helps our clients to obtain
iterative – collecting data throughout the value for their money and exertions,
process, and adapting to shifting needs. and drives social progress by developing
Deloitte Africa’s ESD framework consists of sustainable businesses.
three basic steps:
11Rooting SA: Strengthening the local automotive industry | The road ahead
The road
ahead
The SAAM has recognised the need
for and urgency to drive meaningful
localisation. The reasons are clear.
Developing the local automotive
industry and subsequently tier 2/
remaining tier suppliers has the
potential to generate high-value
economic activities, improve living
standards, and create higher-paying
jobs, while developing upstream
(e.g. plastics) and even services-
based downstream (e.g. maintenance
services) industries.
Nevertheless, legislation alone is not
enough and key areas – including
the will, volume and upskilling –
need to be addressed to unlock the
full potential of the local automotive
industry.
12Rooting SA: Strengthening the local automotive industry | Contacts
Contacts
Dr Martyn Davies
Managing Director: Emerging Markets & Africa
Africa Automotive Leader
Deloitte Africa
Email: mdavies@deloitte.com
Tel: +27 (0)11 209 8290 09 8290
Mike Vincent
Director: Strategy
Africa Consulting Leader: Automotive
Deloitte Africa
Email: mivincent@deloitte.co.za
Tel: +27 (0)11 806 5467
Khutso Sekgota
Director: Strategy
Deloitte Africa
Email: ksekgota@deloitte.co.za
Tel: +27 (0)12 482 0048
Elmarie Nel
Senior Consultant: Africa Insights
Deloitte Africa
Email: elnel@deloitte.co.za
Tel: +27 (0)11 209 8496
13Rooting SA: Strengthening the local automotive industry | Endnotes
Endnotes
1
Furlonger, D., 2019. State should do more to help motor industry, says Ebrahim Patel. [Online] Available at: https://www.businesslive.co.za/bd/
economy/2019-08-22-state-should-do-more-to-help-motor-industry-says-ebrahim-patel/ [Accessed 26 August 2019].
2
For example, many Asian countries have focussed on industrial development. See Chang, H.-J. & Zach, K. (2018) Industrial development in Asia:
Trends in industrialization and industrial policy experiences of developing Asia, s.l.: WIDER Working Paper 2018/120. Helsinki: UNU-WIDER.
3
The Department of Trade and Industry, 2018. Geared for Growth: South Africa’s automotive industry masterplan to 2035, s.l.: The Department of
Trade and Industry.
4
For example, Brazil, China, India, Indonesia, Mexico, Thailand and Turkey all have developed their automotive manufacturing sector.
5
Automotive Industry Export Council, 2019. Automotive Export Manual 2019, s.l.: Automotive Industry Export Council.
6
Such as the Motor Industry Development Programme (MIDP), Automotive Production and Development Programme (APDP), and South African
Automotive Masterplan (SAAM).
7
Black, A., Barnes, J. & Monaco, L., 2018. Structural Transformation in the Auto Sector: Industrial Policy, State-Business Bargaining and Supply Chain
Development, s.l.: Industrial Development Think Tank.
8
Value beyond compliance is about the fundamental synergy between business performance and social progress in creating shared value. See
Deloitte, 2019a. Value Beyond Compliance: A new paradigm to create shared value for mines, communities and government, s.l.: Deloitte.
9
For example, the global auto and truck net profit margin is 5.14%, auto parts is 4.34%, while automotive retail is 3.12%. See Damodaran, A., 2019.
Data. [Online] Available at: http://people.stern.nyu.edu/adamodar/New_Home_Page/data.html [Accessed 20 April 2019].
10
Australian Government, Department of Industry, Innovation and Science, 2018. Transitioning Australia’s automotive manufacturing industry.
[Online] Available at: https://www.industry.gov.au/funding-and-incentives/manufacturing/transitioning-australias-automotive-manufacturing-
industry [Accessed 18 April 2019].
11
Silver, D., 2016. The Automotive Supply Chain, Explained. [Online] Available at: https://medium.com/self-driving-cars/the-automotive-supply-chain-
explained-d4e74250106f [Accessed 12 April 2019].
12
Ibid.
13
Ibid.
14
Venter, I., 2018. Auto thought leader on need to build Tier 2 and 3 suppliers as local content falls. [Online] Available at: https://www.
engineeringnews.co.za/article/auto-thought-leader-on-need-to-build-tier-2-and-3-suppliers-as-local-content-falls-2018-08-24/rep_id:4136
[Accessed 17 July 2019].
15
Black, A., Barnes, J. & Monaco, L., 2018. Structural Transformation in the Auto Sector: Industrial Policy, State-Business Bargaining and Supply Chain
Development, s.l.: Industrial Development Think Tank.
16
Maikaew, P., 2019. Automotive industry at a turning point. [Online] Available at: https://www.bangkokpost.com/business/1606570/automotive-
industry-at-a-turning-point [Accessed 23 July 2019].
17
Visram, T., 2018. How Thailand became the ‘Detroit of Asia’. [Online] Available at: https://money.cnn.com/2018/07/10/news/world/thailand-auto-
industry/index.html [Accessed 23 July 2019].
18
The Economist Intelligence Unit, 2019. Industry Report, Automotive, Thailand, 2nd Quarter 2019. s.I.: The Economist Intelligence Unit.
19
Thailand Automotive Institute, 2012. Master Plan for Automotive Industry 2012–2016, s.l.: Ministry of Industry.
20
Automotive Supply Chain Competitiveness Initiative, 2015. Lessons for South Africa from the Thai automotive industry’s success, s.l.: ASCCI
Quarterly.
21
Natsuda, K. & Thoburn, J., 2011. Industrial Policy and the Development of the Automotive Industry in Thailand, s.l.: RCAPS Working Paper No. 11-5.
22
Ibid.
23
Automotive Supply Chain Competitiveness Initiative, 2015. Lessons for South Africa from the Thai automotive industry’s success, s.l.: ASCCI
Quarterly.
24
Natsuda, K. & Thoburn, J., 2011. Industrial Policy and the Development of the Automotive Industry in Thailand, s.l.: RCAPS Working Paper No. 11-5.
25
Automotive Supply Chain Competitiveness Initiative, 2015. Lessons for South Africa from the Thai automotive industry’s success, s.l.: ASCCI
Quarterly.
26
Nitipathanapirak, R., 2017. Thailand Automotive Industry Situation and Master Plan, s.l.: Thailand Automotive Institute.
27
The Economist Intelligence Unit, 2019. Industry Report, Automotive, Thailand, 2nd Quarter 2019. s.I.: The Economist Intelligence Unit.
28
Automotive Industry Export Council, 2019. Automotive Export Manual 2019, s.l.: Automotive Industry Export Council.
29
Davies, R., 2018. Media statement on the South African Automotive Masterplan 2035 and the Extension of the Automotive Production and
Development Programme with amendments [Interview] (23 November 2018).
30
Automotive Industry Export Council, 2019. Automotive Export Manual 2019, s.l.: Automotive Industry Export Council.
31
Ibid.
32
Ibid.
33
Davies, R., 2018. Media statement on the South African Automotive Masterplan 2035 and the Extension of the Automotive Production and
Development Programme with amendments [Interview] (23 November 2018).
14Rooting SA: Strengthening the local automotive industry | Endnotes
34
Black, A., Barnes, J. & Monaco, L., 2018. Structural Transformation in the Auto Sector: Industrial Policy, State-Business Bargaining and Supply
Chain Development, s.l.: Industrial Development Think Tank.
35
Ibid.
36
Ibid.
37
International Monetary Fund, 2018. IMF Country Report: South Africa, s.l.: International Monetary Fund.
38
Black, A., Barnes, J. & Monaco, L., 2018. Structural Transformation in the Auto Sector: Industrial Policy, State-Business Bargaining and Supply
Chain Development, s.l.: Industrial Development Think Tank.
39
Ibid.
40
Ibid.
41
Davies, R., 2018. Media statement on the South African Automotive Masterplan 2035 and the Extension of the Automotive Production and
Development Programme with amendments [Interview] (23 November 2018).
42
Ibid.
43
Ibid.
44
Ibid.
45
Venter, I., 2019. New-look APDP could change face of the local auto industry, says Naacam. [Online] Available at: https://www.engineeringnews.
co.za/article/driving-force-2019-02-01 [Accessed 26 July 2019].
46
Cokayne, R., 2019. Volkswagen on the electric vehicle offensive. [Online] Available at: https://www.moneyweb.co.za/news/companies-and-deals/
volkswagen-on-the-electric-vehicle-offensive/ [Accessed 26 August 2019].
47
Automotive Supply Chain Competitiveness Initiative, 2015. Lessons for South Africa from the Thai automotive industry’s success, s.l.: ASCCI
Quarterly.
48
Interviews were conducted with 20 industry stakeholders across six organisations (such as OEMs, industry bodies, and tier 1 suppliers).
49
South Africa ranks 82nd out of 190 countries for ease of doing business. See World Bank Group, 2019. Doing Business 2019: Training for Reform,
s.l.: World Bank Group.
50
South Africa ranks 65th for rail and 55th for port efficiency out of 137 countries in the World Economic Forum’s Global Competitiveness report.
See World Economic Forum, 2018. The Global Competitiveness Report 2018, s.l.: World Economic Forum.
51
The Sub-Saharan African Automotive Pact Task Team, 2019. Realising the potential of the Sub-Saharan African automotive market: The
importance of establishing a subcontinental Automotive Pact, s.l.: A Report for Trade and Industrial Policy Strategies (TIPS) and the African
Association of Automotive Manufacturers (AAAM).
52
Deloitte, 2016. Navigating the African Automotive Sector: Ethiopia, Kenya and Nigeria. [Online] Available at: https://www2.deloitte.com/content/
dam/Deloitte/za/Documents/manufacturing/ZA_Deloitte-Africa-automotive-insights-Ethiopia-Kenya-Nigeria-Apr16.pdf [Accessed 24 April 2019].
53
The Sub-Saharan African Automotive Pact Task Team, 2019. Realising the potential of the Sub-Saharan African automotive market: The
importance of establishing a subcontinental Automotive Pact, s.l.: A Report for Trade and Industrial Policy Strategies (TIPS) and the African
Association of Automotive Manufacturers (AAAM).
54
For example, Kenya plans to lower the restricted age of imported second-hand cars. See Miriri, D., 2019. Kenya to restrict second-hand imports
to boost domestic car sector, s.l.: Reuters.
55
The Sub-Saharan African Automotive Pact Task Team, 2019. Realising the potential of the Sub-Saharan African automotive market: The
importance of establishing a subcontinental Automotive Pact, s.l.: A Report for Trade and Industrial Policy Strategies (TIPS) and the African
Association of Automotive Manufacturers (AAAM).
56
Automotive Supply Chain Competitiveness Initiative, 2015. Lessons for South Africa from the Thai automotive industry’s success, s.l.: ASCCI
Quarterly.
57
Bahree, M., 2019. India Offers $1.4 Billion In Subsidies To Support The Domestic Electric Vehicle Industry. [Online] Available at: https://www.
forbes.com/sites/meghabahree/2019/03/09/india-offers-1-4-billion-in-subsidies-to-support-the-domestic-electric-vehicle-industry/#1fd41f3f610a
[Accessed 28 May 2019].
58
Miriri, D., 2019. Kenya to restrict second-hand imports to boost domestic car sector, s.l.: Reuters.
59
People’s Daily Online., 2019. China rolls out new incentives to boost auto market. [Online] Available at: http://en.people.cn/n3/2019/0227/c90000-
9550399.html [Accessed 28 May 2019].
60
Many corporates already upskill people to break down the skills divide. For example, Bosch established a training centre where learners on
multiple Bosch programmes have the opportunity to undergo vocational training. See Bosch, 2019. Quality Bosch Parts Made in South Africa.
[Online] Available at: https://www.bosch.africa/news-and-stories/bosch-brits-plant/ [Accessed 26 August 2019].
61
Basic business skills often let companies down: bottom lines are insufficient, worsened by the lack of negotiation and forecasting skills. This is
often exacerbated by the lack of transparency from OEMs and tier 1 suppliers.
62
Deloitte, 2019b. 2018 Mining Charter Analysis: Finding a happy medium, s.l.: Deloitte.
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