Isuzu Motors South Africa (IMSAf) has called on Eskom to extend its electricity price relief to more industries to support the local vehicle manufacturing industry.
The company’s president, Billy Tom, argued that the steel industry should be positioned to produce and supply steel at low cost, enabling downstream industries to remain globally competitive.
He said this would strengthen both the steel and automotive industries and support South Africa’s broader industrial ambitions.
The local vehicle manufacturing industry is already a major contributor to South Africa’s manufacturing sector, accounting for around 3.2% of the country’s GDP.
That being said, local carmakers are struggling to keep up with emerging brands from China and India, where production costs and government incentives benefit carmakers.
Tom told the Sunday Times that local automotive manufacturers compete in a global market where costs are very sensitive.
“Access to internationally competitive steel is essential if you are to build vehicles that remain attractive for export markets,” he explained.
Eskom has already granted ferrochrome producers Glencore-Merafe and Samancor Chrome a 54% reduction in their electricity tariff this year.
The two facilities combine chromium and iron to produce ferrochrome, which is later used to produce steel for a range of industries, including car manufacturing.
South Africa’s high electricity prices, coupled with cheap imports from China, have taken their toll on local steel production – for both local use and export.
Since 2018, crude steel production has decreased by 33%, long-steel import penetration has increased to 27%, and finished steel exports have collapsed by 63%.
Without access to internationally competitive steel, carmakers in South Africa run the risk of becoming less attractive in export markets.
The discount granted to ferrochrome smelters over their previous tariff means they are paying 62 cents per kW, which is 80% less than residential customers.
South Africa’s auto sector capitalises on government support
In a recent interview with BizNews, Donald MacKay, founder and CEO of XA Global Trade Advisors, explained that local carmakers already benefit under the Automotive Production and Development Programme (APDP2).
The programme, which supports large-scale vehicle production and exports, includes customs duty rebates, tax incentives, and investment grants.
As a result, the state loses tax revenue, meaning taxpayers are ultimately paying for it all, and without the subsidy, MacKay said there wouldn’t be cars built in South Africa.
Up to 25% of the investment in new factories comes from the government, increasing to 35% for new-energy vehicle component projects for hybrid and electric models.
MacKay noted that it is difficult to calculate the exact value of the incentives each manufacturer receives because they comprise several mechanisms, rather than direct payments.
However, he warned that the cost of maintaining the programme was enormous – over R40 billion per year – if all the different subsidies are combined.
This, he said, is equivalent to around three percentage points of VAT, illustrating the scale of the government’s support for the auto sector.
The Automotive Business Council (Naamsa) has since called out MacKay’s comments and explained why the APDP2 remains one of South Africa’s most successful industrial policy instruments.
“A reduction of VAT by three percentage points would reduce one of the government’s largest and most stable sources of revenue by tens of billions of rand annually,” the council said.
“Even accepting the disputed estimate of approximately R40 billion in automotive tax incentives, the numbers simply do not reconcile with the fiscal cost of such a VAT reduction.”
Naamsa noted that the APDP2 is designed to stimulate investment, local production, exports and local value addition, and that removing it would not result in an equivalent increase in government revenue.
Instead, it would alter investment decisions, reduce production volumes, weaken exports, diminish tax collections, reduce VAT generated throughout the automotive value chain, and shrink the tax base on which the government depends.
Naamsa noted that the APDP2 does not forgo revenue but rather creates it, adding that it is designed to grow South Africa’s industrial economy.
Last year, the auto industry generated around R137 billion in audited Local Value Addition (LVA) through domestic manufacturing, supplier development and localisation, and R291.8 billion in vehicle and component exports.
“This represents real economic value created within South Africa’s borders,” said Naamsa.
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