Nw dac august 2013
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The document discusses South Africa's vision to manufacture 1.2 million vehicles locally by 2020. It outlines the history of sector development policies in South Africa's automotive industry since 1959 and highlights key objectives of growth plans like the MIDP to significantly increase local production and value addition. The challenges of achieving this vision are also examined, including the need to boost international competitiveness through factors like lower costs, infrastructure development, skills training, and stable industrial relations. Localization is identified as a strategic pillar to realize the manufacturing target through increasing local content and the use of global suppliers.
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Nw dac august 2013
- 1. The Challenge of Localisation
- 2. Nigel Ward Senior Vice President Toyota SA Motors Vision 2020 Manufacture 1.2 million vehicles in South Africa !
- 3. Vision 2020 : Manufacture 1 200 000 vehicles in South Africa ! Questions that we need to Ask : • Is it possible ? • What needs to happen to be able to produce 1 200 000 vehicles in SA ? • What will the results be if we manufacture 1.2 million vehicles?
- 4. Contents • History of the Sectoral Development Policy in the SA motor industry • Vision 2020 – Growth plan for Motor Manufacturing in SA : Towards 1 200 000 production • Localisation – A Strategic Pillar • Conclusion
- 6. Motor Industry in SA Years Policy Instrument 1959 Increase in duty on passenger cars and light commercial vehicles, levy an excise duty, additional protection to domestic component manufacturers, create rebate provisions subject to local content requirements. 1961 – 1963 Phase I :15% to 40%. Ad valorem duty set at 35% up to a maximum of 100% depending on the value and the weight of the car. 1964 - 1969 Phase II : increase local content in mass from 45% in 1964 to 55% in 1969.
- 7. Motor Industry in SA Years Policy Instrument 1971 – 1976 Phase III : 52% at the beginning of 1971 to increase to 66% on 1 January 1977. 1977 - 1978 Phase IV : A two-year standstill phase 1980- 1988 Phase V :66% by mass in respect of motorcars and 50% by mass in respect of light commercial vehicles. 1989 - 1995 Phase VI : Local content based on value as opposed to mass. 55% at the inception of the programme to 75% (including exports) by the year 1997. Reduce the foreign exchange used by the vehicle manufacturing industry by about 50% over the period 1989 – 1997.
- 8. Motor Industry in SA Years Policy Instrument 1989 - 1995 Import duty was increased to 50% ad valorem and on passenger vehicles to 100% ad valorem. 1994 Reduction of the duty on passenger cars to 80% af valorem from 1Janury 1994. 1995 Reduction of the duty to 75% ad valorem from 1 January 1995 on passenger cars.
- 9. • Customers – Affordability • Industry – Plant modernisation – Model line-up rationalisation – Local production of volume models • Economy – Employment – Investment – Exports OBJECTIVES OF THE MIDP
- 10. 1 • Significantly Grow Vehicle Production in South Africa 2 • Increase local value addition in the automotive supply chain 3 • Increase employment in the automotive supply chain OBJECTIVES OF THE APDP 21
- 11. Vehicle Production and the Various phases of the Motor Industry Development Plan 0 100 000 200 000 300 000 400 000 500 000 600 000 700 000 800 000 900 000 1 000 000 1960 1970 1980 1990 1995 2000 2005 2006 2010 2015 2020 Exports Local Market Start-up Phase Initial Growth Isolation Phase Revitalisation Growth Phase 149,7% 36% -17,3% 16% -8,3% 48% 57,7% ☀ 20,4% ?
- 12. Vision 2020
- 13. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 13 2005 2013 350,000 600,000 Localproductionvolumeperannum Domestic supply with some global and regional exports MIDP Investment Support AIS OtherIPAP 2 MIDP/ APDP 1995 Vulnerable Sectors Light Vehicles MCV / HCV IDC
- 14. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 14 2005 2013 350,000 600,000 Localproductionvolumeperannum Domestic supply with some global and regional exports MIDP Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development OtherIPAP 2 1995 MIDP/ APDP
- 15. 0% 20% 40% 60% 80% 100% Past Future (High-volume Players) Future (Low- volume/Premium Players) Imported Imported in Local Local 35-40% 70-80% LocalContent Excl.engine&gearbox Local Content Development 40-50% 15
- 16. Brazil 104 W. Europe 100 Mexico 89 Russia 107 Malaysia 94 E. Europe 93 Cz. Rep 95 India 85 China 91 Thailand 92 RSA 107-110 Supplier Cost Competitiveness 2013 16EUR 1 : ZAR 10.50 South Korea 88 USA/Canada 91 North Africa 86
- 17. Is this a real Threat? Hyundai/Kia in SA as an example 17 Hyundai/Kia produce in South Korea (cost index 88) and India (cost index 85), ship cars to SA, pay 25% import duty and are still highly competitive in SA PassengerMarketShare
- 18. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 18 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports MIDP Tooling Initiative Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development OtherIPAP 2 Preferential Procurement 1995 MIDP/ APDP
- 19. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 19 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports MIDP Tooling Initiative Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU OtherIPAP 2 Preferential Procurement 1995 MIDP/ APDP
- 20. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 20 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU OtherIPAP 2 Preferential Procurement 1995 MIDP/ APDP
- 21. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 21 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Electricity Tariffs OtherIPAP 2 Preferential Procurement 1995 MIDP/ APDP
- 22. [%] 2008 – Index 100 Energy 30 25 25.3 25.6 11 10 22 CPI 9.5 6.3 3.5 6.1 5.7 5.5 Cumulative Inflation Cost Increases Energy vs. CPI (2008 – 2013 FC)
- 23. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 23 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Ports and Rail Electricity Tariffs OtherIPAP 2 Preferential Procurement 1995 MIDP/ APDP
- 24. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 24 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Ports and Rail Electricity Tariffs OtherIPAP 2 Preferential Procurement Labour Industrial stability Productivity 1995 MIDP/ APDP
- 25. Nr of working days lost due to strikes SA vs other Countries 25 Note: Days lost during 2010 for SA = 20.6 Mio Country GDP (Mio USD) 2010 Canada 1,574,051 South Africa 357,259 France* 2,582,527 Spain 1,409,946 Britain 2,247,455 Ireland 204,261 Italy 2,055,114 Australia 1,235,539 Germany* 3,315,643 USA 14,657,800 Belgium 465,676 Finland 239,232 Denmark 310,760 Poland 468,539 Netherlands 783,293 Sweden 455,848 Russia 1,465,079
- 26. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 26 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Ports and Rail Electricity Tariffs OtherIPAP 2 Preferential Procurement Labour Industrial stability Skills / training Productivity Wage Inflation 1995 MIDP/ APDP
- 27. Cumulative Inflation Cost Increases Auto Wages vs. CPI (1993 – 2013 FC) [%] 1992 – Index 100 27 0 100 200 300 400 500 600 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013FC Cum CPI (%) Cum Auto Wage increase (%)
- 28. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 28 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Local Content / Global Suppliers Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Ports and Rail Electricity Tariffs OtherIPAP 2 Preferential Procurement Labour Industrial stability Skills / training Productivity Wage Inflation 1995 MIDP/ APDP
- 29. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Local Content / Global Suppliers Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Ports and Rail Electricity Tariffs New trade agreements Mercusor Africa (SSA) BRIC OtherIPAP 2 Preferential Procurement Labour Industrial stability Skills / training Productivity Wage Inflation 1995 29 MIDP/ APDP
- 30. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Local Content / Global Suppliers Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Ports and Rail Electricity Tariffs New trade agreements Mercusor Africa (SSA) BRIC OtherIPAP 2 Fuel quality Preferential Procurement Labour Industrial stability Skills / training Productivity Wage Inflation 1995 30 MIDP/ APDP
- 31. SA Fuel Quality vs Global Players 31
- 32. Legend: Domestic Market only The roadmap towards 1.2 mil vehicles and achieving international competitiveness 2005 2013 2020 And Beyond 350,000 600,000 1,200,000 Localproductionvolumeperannum Domestic supply with some global and regional exports Enhanced International Competitiveness MIDP Tooling Initiative Beneficiation Strategy Local market growthLocal Content / Global Suppliers Vulnerable Sectors Light Vehicles MCV / HCV Investment Support IDC AIS Local content Development Existing trade Agreements AGOA SADCEU Infrastructure Development Ports and Rail Electricity Tariffs New trade agreements Mercusor Africa (SSA) BRIC OtherIPAP 2 Fuel quality Preferential Procurement Labour Industrial stability Skills / training Productivity Wage Inflation 1995 32 MIDP/ APDP
- 33. Passenger and LCV Market in SA 354632 623921 1200000 0 200000 400000 600000 800000 1000000 1200000 1400000 2000 2012 2020 Vision 33 Annual Local Market increase required until 2020 = 8 - 9% Units
- 34. +8% for Euro +21% for Dollar [%] 2008 – Index 100 Exchange rate impact on revenue R/Euro 12.07 11.69 9.71 9.99 10.53 13.00 R/Dollar 8.26 8.42 7.32 7.27 8.21 10.00
- 35. Extended Auto Industry – Cumulative Costs Inflation Impacts (2008 – 2013 FC) [%]2008 – Index 100 Wages 8 7.5 10 9 9 7.5 Energy 30 25 25.3 25.6 11 10 Local Material 10.9 -2.2 -3.5 1.1 -0.3 3.93 CPI 9.5 6.3 3.5 6.1 5.7 5.5
- 36. + Major deterioration of export competitiveness!= Costs inflation impacts (2008 – 2013 FC) [%] 2008 – Index 100 Exchange rate impact on Revenue [%] 2008 – Index 100 Combined effect of Exchange Rate + Cost Inflation 36
- 38. Weakness Build to print industry Assembler culture Limited skills and resources Low local content (value added) International not competitive Strength Wide supplier base to the 7 OEM‘s Availablity of basic raw materials International certification of management systems Strong automotive assembly experience Threat Political situation High crime level Free capacities in Asia and Europe Monopoly situation of suppliers Price increases Opportunities Export of single components Local OEM‘s to use common suppliers Localisation of current CKD parts Currency development APDP / BBBEE IPAP Initiative to support supplier Industry SWOT Analysis Understanding where we are!
- 39. JSP/MSP Parts 54% Local Parts 46% LocalVendor V-V • 46% of Local Parts Cost is V - V Parts from Overseas • Highly affected by exchange rate fluctuation • Logistics cost is high Other 2% JPY 12% EUR 14% USD 18% ZAR 54% Local Vendor Parts Breakdown Reality: Net Local Content = ONLY 25% Current Local Content Image
- 40. Opportunities Electrical / Electronic Chassis and Drive-train Body 19% 15% 23% 10% • Axles • Differentials • Drive shafts • Brakes • Harnesses • Starter motors • Alternators • Wiper systems • HVAC • Cockpit • Seats • Door panels • Carpets • Bonnets • Bootlids • Side frames • Doors 6% 5% 3% 7% XX%: % of total material cost YY%: True local material plus value add as % of total material cost Note: %’s indicative only • Glass • Paint • Bumpers • Mirrors Exterior Interior 33% 14%
- 41. – Exchange Rate 5 7 9 11 13 15 17 19 Exchange Rate Projection USD1 EUR1 Now 2013 FC 2025 USD EUR Inflationary Differential > 37% Why Local Content ? Increasing Differential - Competitiveness
- 42. • Job Creation Why Local Content ? Unemployment: National Average = 24.9% SA Population by Age: 2012 Sustainable Future
- 43. Ways to Improve Local Content Using The APDP Benefits Improve Competitiveness NOT Profits Price CIM CIL Price CIM CIL Glass 100 1.77 1.06 91 1.68 0.97 Casting 100 1.06 0.87 89 0.95 0.76 Before APDP After APDP Examples 9% Improvement 11% Improvement
- 44. Ways to Improve Local Content Beneficiation Export Destinations: China, Europe, Japan, Asia-Pacific, Middle East, South Korea Iron 6th Largest of 50 Export Destinations: China, Europe 20th of 45 countries Copper 1 2 4 5 7 9 8 12 14 15 18 20 22 23 25 27 34 35 36 43 45 Export Destinations: China, Europe 12th of 38 countries Lead 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435363738 Export Destinations: China1 2 3 4 5 7 8 9 13 14 16 15 19 21 22 23 27 28 33 34 41 42 43 9th of 43 countries Aluminium • Primary Raw Materials All major Commodities available in RSA – High Potential Strategy Alignment Maximize Government Support and Utilize Local Materials
- 45. Ways to Improve Local Content Beneficiation Finished Part Machining FoundryDie MakingAlusaf Not OEM Specific
- 46. Ways to Improve Local Content OEM Collaboration
- 47. Imperatives to sustain (manufacturing) industry • Policy certainty and predictability with appropriate levels of support and investment incentives • Labour stability • Average annual volumes per platform produced to increase to globally competitive levels (minimum 80 000 units) with local content levels to increase to 70% plus for volume producers • SA Supplier Competitiveness to improve to/align with average European costs • Focused Industrialisation Strategy to broaden SA supplier chain and increase manufacturing depth • Productivity to improve from 15 cars to 30 cars per employee per annum and continued industrial relations stability • Massive investment in Training and Skills development at all levels • Substantial improvement in logistics competitiveness and infrastructure