Toyota has sounded the alarm on the state of South Africa’s manufacturing sector, warning that the country is rapidly losing its competitive edge in the global market.
This is according to Toyota South Africa Motors (TSAM) CEO Andrew Kirby, who recently spoke about the carmaker’s position during a seminar organized by the National Association of Automotive Component and Allied Manufacturers (NAACAM).
Kirby commented that South Africa is entering a phase of “deindustrialisation” which will put the local automotive industry at risk unless urgent government action is taken.
A concerning trend
An easy way to illustrate the decline of South Africa’s auto sector is to compare it to Thailand’s, as the two countries were once comparable in size and key metrics in the 1990s, wrote Daily Investor.
However, Thailand now produces three times as many cars as South Africa and employs over 400,000 people in its automotive industry – which was made possible thanks to strategic economic policies.
Kriengkrai Techakanont, a speaker from the Thammasat University in Bangkok, explained that the Thai government prioritized consumer-demand-linked production and component localisation, giving it a competitive advantage over comparable economies.
Furthermore, Thailand has successfully introduced tax incentives and consumer subsidies allowing both manufacturers and consumers to begin the transition to new energy vehicles (NEVs).
In contrast, Kirby warned that South Africa is ‘deindustrializing,’ as evidenced by heightened sales of import models relative to ones built locally.
Toyota’s factory in Prospecton, Durban in KwaZulu-Natal.
One reason for this is that South Africa’s locally assembled cars are anywhere from 6% to 12% more expensive than equivalent models built and sold in Thailand, thanks to differences in tax policies.
One problematic area concerns the Ad Valorem Luxury Tax (AVLT) on new vehicles, which South Africa hasn’t changed in nearly 30 years.
It is a tax that is meant to exponentially increase with the cost of the vehicle, theoretically taxing luxury models at a higher rate than affordable ones and leveling the playing field for different income earners while generating revenue for the state.
In practice, the AVLT has not been adjusted to account for the fact that a Suzuki S-Presso now costs R178,900 when you could buy a BMW 320i for R106,590 back when the policy was implemented in 1995, meaning that the tax is putting even more pressure on South Africa’s expensive car landscape.
“[The AVLT] is something that very simply needs to be addressed, updated, and fixed, which will go a long way to helping create the scale and growing the market in South Africa,” said Kirby.
As a result of policies like these, South Africa’s original equipment manufacturers (OEMs) are losing their advantage on the global stage, and cash-strapped consumers are turning to cheaper vehicles imported from countries like India and China.
Not just Toyota
Toyota is not the only OEM to raise concerns about South Africa’s operating environment, as Ford, VW, and Isuzu have all spoken out about the various problems they face.
In late 2023, Thomas Schaefer, head of the VW global passenger car brand, said he was “very worried” about the future of the company’s facility in the Eastern Cape.
The executive noted that the costs involved with mitigating load-shedding and navigating South Africa’s dilapidated rail and road infrastructure have rendered the country unappealing as an avenue for further investment.
While VW has reaffirmed its commitment to the country with a new crossover planned to enter production in 2026, it said that restrictive policies have made it difficult to argue for further investment to produce vehicles like its emerging line of ID. electric cars.
Instead, Volkswagen is investigating new prospects in other African countries like Egypt in pursuit of this endeavour.
In a similar vein, Ford South Africa CEO Neale Hill previously warned of the “slow death of South Africa“, explaining that Ford’s Pretoria plant is struggling to compete against its sister facility in Thailand.
Isuzu has also weighed in on the issue, citing the same concerns as other automakers regarding the country’s dysfunctional port and rail services, leading to huge delays for shipments that risk halting production at its factories.
All of these manufacturers have warned that the government needs to take urgent steps to improve operating conditions for its OEMs, else their parent companies will continue to take their investments and growth opportunities overseas.
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