A few weeks ago Eastern Cape MEC for economic development, environmental affairs and tourism Sakhumzi Somyo signed a memorandum of understanding in Cape Town with Beijing Automotive Industrial Corporation (BAIC) and Industrial Development Corporation (IDC) to create an automotive supplier park in the Coega Special Economic Zone (SEZ) to give SMMEs a foothold in the automotive sector.
This is a milestone achievement in the history of the SEZ. The jobs created directly by original equipment manufacturers (OEMs) are miniscule compared to those created within their value chains.
In Nelson Mandela Bay, the supplier park is not a new concept. When I read the press statement I immediately concluded that the focus at the moment is on first-tier suppliers, that is, companies who supply the likes of VWSA and GMSA directly. The Department of Trade and Industry reported in 2015 that we have 120 first-tier suppliers in South Africa, 75% of which are multinational enterprises. More than 200 companies in SA are second- and third-tier suppliers.
Boston Consulting Group did a study showing that between 2004 and 2014 many manufacturing countries, including Australia, Brazil and China, were losing ground when it came to manufacturing cost competitiveness.
This is an opportunity of a lifetime for Nelson Mandela Bay to bring not only opportunities at first-tier supplier level but also the expertise and know-how at second- and third-tier levels. This could contribute immensely to the efficiency of our supply chains.
Currently the first-tier suppliers have to contend with lead times of at least a month or more from overseas raw material suppliers and a heavy cost burden to carry stock and inventory that could be rendered obsolete with the passage of time. Such challenges deny local component manufacturers the opportunity to follow international best practice and reduce costs.
Moreover, until the arrival of BAIC, all the OEMs in South Africa were wholly owned subsidiaries of multi-national enterprises. This poses a risk to our economy because when we celebrate that an investment has been made, offshore a celebration of a different kind takes place over time, thus rendering us merely as factors of production without any meaningful role in the ownership of the means of production.
Flight of capital takes place through dividend payments and expatriation of profits for decades after an investment has been made. There is a great deal that Bhisho and Pretoria can learn from Beijing in this regard.
This being the start of a new growth trajectory in the auto sector, certainly it is not a bad one. A vibrant auto sector has the potential for spin-offs for other sectors such as logistics, property, transport, services and retail.