Leading car manufacturers have a responsibility to source their parts locally to drive job creation and engineer economic growth, Eastern Cape finance MEC Oscar Mabuyane said.
He said he plans to engage with all leading automotive companies to discuss the value of contracting more local suppliers to manufacture equipment and parts needed by the global firms operating in the region.
But limited cost advantages, design rights, technology and capability constraints are just some of the inhibitors for localisation of supply.
Isuzu Motors South Africa’s executive for technical services, Dominic Rimmer, said the country only produced 0.6% of vehicles globally – resulting in competitiveness constraints for local suppliers, mainly due to economies of scale.
Rimmer said there were no price advantages for locally sourced raw materials such as steel, aluminium and platinum as these were traded at London Metal Exchange market prices.
“Automotive companies generally operate as low-margin businesses and therefore need to source components as cost-effectively as possible to make sure that their businesses are viable,” he said.
At present, 30-40% of Isuzu SA’s light commercial vehicle components were sourced from local suppliers.
Speaking after his meeting with Jendamark managing director Quinton Uren in Port Elizabeth on Tuesday, Mabuyane said new investments should not mimic what Chinese investors were doing.
“It is important that we correct those things now.
“The new investments that are coming in must not come in the way we are hearing the Chinese investment is doing here,” Mabuyane said.
“We want something that is going to be sustainable for our country – that must create a base for development of young people who are at school but also help us reskill our human resource in SA.
“If we don’t regulate this matter and we just invite investors into our space without channelling them right, we will not be able to grow our economy,” he said.
Mabuyane said the country continued to struggle with tier one, two and three suppliers within the value chain.
Components companies dealing directly with vehicle manufacturers are classified as tier one suppliers.
They are provided with subcomponents by tier two, who rely, in turn, on tier three.
Rimmer said developmental suppliers were typically large multinational companies which were sufficiently resourced to invest heavily in the research and development of new technologies and capabilities.
He said design rights and technologies were predominantly the intellectual property of suppliers in other countries and were not readily shared with third parties.
But Rimmer said key benefits for localisation for the sector included less exposure to currency fluctuations.
“Sourcing with competitive, capable local industrialists who have access to required technology and design rights enables us to meet our supplier transformation plan objectives, reduces exposure to foreign currency fluctuations, entrenches the automotive industry and, very importantly, this supports the overall development of the economy,” he said.
Automotive Industry Development Centre chair Weza Moss said original equipment manufacturers (OEMs) must take their development funding and put it into the work done by SMMEs in the sector.
Moss said the success of automotive OEMs was dependent on the strength of their supplier base.
“The objectives of the automotive 2035 master plan speak to increasing production output from 0.6% to 1% [of global output] – doubling jobs by 2035 to 224,000 from 112,000 – and improving the competitive levels of suppliers.
“The deepening of the value chain is very critical and that is where jobs are going to be created. When you deepen it you take most of the stuff to the suppliers,” Moss said.
Aligned with its strategy to support the master plan through training and localisation, the Automotive Industry Development Centre has proposed to establish an academy to develop skills to support the automotive sector with access to technology and skills pertinent to Industry 4.0 (fourth industrial revolution).
“Manufacturing is the biggest driver of jobs in the Eastern Cape, which is why investment in skills must be a top priority,” Moss said.