Middle-class growth seen as key to lifting car sales in SA

Fifteen years ago, you could tell who fell within the middle-class income bracket from the cellphones, television sets and fancy radios they bought.

That has since changed, according to Deloitte’s MD of emerging markets and Africa, Dr Martyn Davies, who says the bar has been raised, with the ability to buy a new car being the new indicator.

Davies was speaking at the Eastern Cape Automotive update session on Tuesday.

“I’m saying go back 10 to 15 years ago, we used to say that the best proxy indicator for middle-class citizens was the purchase or ownership of a nice television or hi-fi, but not so any more.

“That’s an obsolete measure because of the China price.

“The significant deflation on the product side, largely because of the China (Asia) price from product value chain, means stuff [tradeables] has become cheaper.

“Tradeables, stuff you can export and sell across borders, has become cheaper because of the China price. .

“Non-tradeables, things like your children’s school fees, personal insurance, health care, have become significantly more expensive.

“The proxy indicator now for real middle-class is a car because the other stuff is so cheap and affordable for people.

“People live in a very dire state. It’s socially and politically unacceptable but guess what, they’ve all got DStv on the roof,” Davies said.

Davies said the peak of the automotive industry in terms of car sales coincided with the peak of the middle-class, which meant that  for car sales to increase once more, the middle-class had to do the same.

“The peak for auto was 2007/2008 and there were probably 200,000 car sales. The peak of middle-class South Africans was probably around 2007/2008.

“We’re in a middle-class trap now,” he said.

The event was hosted by the Automotive Industry Development Centre, a wholly owned enterprise of the Eastern Cape Development Corporation that is mandated to assist the automobile industry to remain viable and become more globally competitive.

The AIDC Eastern Cape engaged role players in the automotive sector to share key insights that would drive growth and the achievement of specific targets outlined in the SA Automotive Masterplan 2035.

Davies said for the past 10 years SA had been on a structural decline, which had resulted in a middle-class plateau.

To fix and to grow the automotive market Davies said governments in Africa needed to close off their economies and better manage the importation of vehicles into their countries.

“They have to have a productive trade policy by blocking imports to Africa for the industrial policy to succeed.

“Structural, predictable income results in the middle-class being created, which results in more cars being purchased,” he said.

AIDC board chair Weza Moss said the briefing was an account to stakeholders of progress on the strategy that was introduced to industry almost precisely a year ago.

“The briefing was also aimed at moving the Eastern Cape’s supply chain towards an approach that is essential to growth, where this is measured by the attainment of targets set in the SA Automotive Masterplan 2035,” he said.

AIDC Eastern Cape CEO Hoosain Mahomed said a push from the Association of African Automotive Manufacturers and others to develop a regional manufacturing supply network in Africa, which was key to job creation and economic growth on the continent, created fresh opportunity for SA manufacturers.

“This drive for a regional manufacturing capability attached to the recent Free Trade Agreement of African nations opens up a significant potential market,'' Mahomed said.

He said the development of advanced manufacturing skills, which “foresees the major technology disruptions that will impact automotives” was a priority of the AIDC Eastern Cape.

Nelson Mandela University professor and member of the 4IR Presidential task team  Chris Adendorff spoke about the impact of the Fourth Industrial Revolution (4IR).

“The changes coming from 4IR will be felt more than those of the three previous industrial revolutions combined,” he said.

“The first three industrial revolutions made our lives easier and 4IR will also assist our lives, but people’s mindset is that it’s going to happen tomorrow.

“However, according to the World Economic Forum, 4IR started in 2012 already so we’re already seven years into it.”

Adendorff said 4IR was driven by systematic transformation of technology, information and innovation on a global scale.