The automotive industry is the industrial backbone of South Africa’s economy. It is responsible for 60% of the country’s manufactured goods exports and is the single largest domestic manufacturing sector.
It faced challenges even before the Donald Trump administration’s tariff policies, with increased competition from imports and weak domestic demand. But the tariffs are a further blow.
Vehicle exports to the US have benefitted from the African Growth and Opportunity Act (Agoa), which has allowed duty-free access to the US market. Now the sector is facing a 25% tariff on foreign-made vehicles and components, as well as the 30% tariff on South African imports that was suspended for 90 days.
The US was the destination of 6.5% of vehicles exported from South Africa last year, but that figure had grown 22% from the year before, making the US the fastest-growing region for our vehicle exports. The tariffs will have a significant impact on models that are exported there, in some cases dealing major blows to the factories and towns where they are produced, with ripple effects throughout the value chains that link to them.
Of course, South Africa is in the same position as many other countries facing US tariffs. But if we are to forestall the impact on our industrial base, we must act.
The first step is to try to engage US leaders to shift course. US foreign policy, through Agoa, has long reflected an understanding of the strategic importance of growing Africa’s economies and building them as source markets for US consumers.
South African vehicles are only 0.1% of those sold in the US, but it helps diversify exposure to Chinese manufacturing, which is an increasingly important priority for the US government.
Strategic priority
Second, by ensuring the US is an important market for South Africa’s products, the US ensures it is a strategic priority for the South African government. If the US were closed to South African goods, South Africa’s wider geopolitical interests would shift to other strategic relationships, to the cost of US influence. The Trump administration has said it wants to negotiate. We must take it up and aim to clear trade barriers for the benefit of both our economies.
The second step is to reassess the South African Automotive Industry Masterplan (SAAM35) tabled in 2018. This provides a road map to 2035 for the industry and focuses on building African markets as well as diversifying into electric vehicles. It is time to revisit the plan to assess how it can cope with the US tariff shock and ensure it is geared for the world we now find ourselves in. The plan has ambitious targets, including growing the industry by 60%, increasing local content and significantly increasing employment. These are fine targets, but the world for which the plan was set up has changed.
Read: Trump’s 25% tariff sparks big concern for SA’s car makers
It is now more important than ever, for example, to focus on the rest of Africa. To do so, we must ensure the African Continental Free Trade Agreement is fully implemented for vehicles. The continent buys 1.3 million new vehicles per year, a figure which will grow significantly.
Our manufacturing must focus on brands and vehicle types that are suited for the continent, which has much to gain from lower-cost mobility solutions. We need to ensure supply chains adapt for these outputs and our skilling system delivers people with the right skills.
The plan already envisages South Africa as a manufacturing hub for the continent, but such long-term plans need to be dynamic and adapt to the changing environment. In addition to the US tariffs, Europe’s Carbon Border Adjustment Mechanism poses a further challenge for South African-manufactured vehicles despite already being the biggest market for our vehicle exports. However, the EU must also deal with American trade shocks that could provide new opportunities for our exports. The rest of the world’s markets will also be looking to forge new deals.
Business clearly recognises the importance of the vehicle manufacturing sector. It has critical spillover effects into the rest of the economy, supporting industrial capacity that enables many other producers. It is a major employer and export revenue earner. It is, within a general theme of deindustrialisation over the last three decades, the one exception. It is also a fine example of how business and government can work together to develop industry.
Read: Electric car vs petrol: which is really cheaper to run in South Africa?
The first Motor Industry Development Plan, launched in 1995, transformed the vehicle manufacturing industry from a domestic producer to an export-orientated manufacturing powerhouse. It stands out as an example of how export-orientated industrial policy can work.
Industrial policy has certainly not always followed the example, often becoming distracted by import substitution, a sure way to harm international competitiveness. SAAM35 must adjust to the strange new world we find ourselves in, where the world’s former champion of free trade and globalisation has become its biggest challenger.
- The author, Busi Mavuso, is CEO of Business Leadership South Africa
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