South African auto industry gets R4.8-billion cash injection

The National Association of Automotive Component and Allied Manufacturers (Naacam) has pledged to invest R4.8 billion into the South African economy between now and the end of 2024, marking a huge vote of confidence in the country’s automotive components sector.
Naacam CEO, Renai Moothilal, confirmed that the commitment was consolidated from a group of 16 stakeholders comprising a mix of large multinational and domestic component manufacturers, as well as emerging black industrialists.
Minister of Trade, Industry, and Competition, Ebrahim Patel, hailed the announcement and emphasised the importance of investment for the country’s fiscus.
“Investment is the lifeblood of growth. So much of our preoccupation is to expand the economy, get more taxes and create more jobs, and generate revenue for essential public services,” said Patel.
“But, all of that depends on investment – a commercial decision driven by an expectation of a return. I am pleased with the pledge here today as this is a strong vote of confidence by component makers.”
The minister noted that investments to such a scale usually target original equipment manufacturers, with component production traditionally being underplayed despite being one of the most fundamental arguments for the incentives that South Africa offers the global and domestic automotive industry.
Import substitution crucial for the South African economy
Import substitution in the South African automotive industry is crucial for the growth of the economy, said Stoney Steenkamp, Managing Director of Hudson Rubber Company, a member of Naacam.
Import substitution refers to when a manufacturer with domestic operations finds local suppliers for goods instead of relying on imports from other countries, and is invaluable in reducing developing nations’ reliance on developed economies.
“Although the quality of a large proportion of locally-produced automotive components is on a par with imported components, import substitution is still a barrier for many local companies,” said Steenkamp.
“Local substitution saw a significant increase during Covid due to the disruption of overseas distribution channels, forcing local companies to source components at home. Since then, when speaking to a number of auto component manufacturers, import substitution has grown.”
Apart from creating opportunities for South African citizens, there are several major benefits to import substitution including competitive costs, shorter lead times, better cash flow, less administration, and none of the complications associated with international shipping; however, businesses more often opt to haggle with overseas suppliers over improved contract terms, lower prices, and more reliable shipping methods.
This may be justified if domestic companies can’t meet the large organisations’ requirements, but at no cost should it be generalised, said Steenkamp.
“Localisation can benefit buyers because it provides opportunities to customise or make changes to products in a relatively short space of time, adapting to country-specific requirements,” he said.
“Import substitution can also increase innovation which in turn generates better engineers to the benefit of the economy.”
Steenkamp believes that more can be done to ensure local manufacturing under license with assistance from local clients, and that there needs to be an urgent and strong emphasis for companies to commit to at least consider import substitution, and with this, the incentive of job creation and economic growth.