The clock is ticking; with just hours left until the potential imposition of a 30% import tariff on SA goods entering the US market.
While the implementation date of this Friday appears to be firm, the SA government is still negotiating on rates and a new trade framework with the US, so we may potentially see further shifts and ongoing uncertainty in the coming months.
Trade, industry and competition minister Parks Tau announcement last week of a pre-deal agreement signed with the US offers some hope of a slightly softer landing, though few countries have managed to conclude more favourable deals with Washington, and they have had to put generous terms on the table.
However, as vital as this issue is for our local economy, with our anchor sectors of automotive manufacturing and agriculture expected to be hardest hit, the current focus on the US tariffs obscures much wider global issues threatening local industry.
There is no doubt the US tariffs have upended global trading systems and relationships between long-standing trading partners as countries move to protect their own interests and domestic economies.
But this is just the latest move in a fast-changing world economy responding to rapidly advancing digital technology, climate change and sustainability pressures, with shifts in manufacturing technologies and locations, geopolitical tensions, and increasingly protectionist economic and industrial strategies — which directly threaten the future of manufacturing in the Bay.
The influx of cheaper vehicles imported from Asian countries, particularly China and India, due to their shifts in export focus and high domestic subsidies to incentivise manufacturing, is disrupting traditional automotive manufacturing, and its associated employment, from Europe, the US and through to SA.
The rapid rise of these imported brands in SA has seen sales of locally-built vehicles declining from 46% of domestic vehicle sales in 2018 to 37% in 2024.
Five of the 10 top-selling passenger cars in the local market are now brands manufactured outside SA, with Chinese imports rapidly gaining in market share.
At least five new Chinese bakkies are set to be launched in the SA market in the coming months, but we are not seeing significant growth in consumer demand for new vehicles.
The cake is not growing; rather, it is being sliced thinner and the distribution of slices is favouring cheaper imports from brands that do not assemble vehicles locally, and as such do not create significant local direct and indirect employment opportunities.
Even more concerning is that localisation levels — the proportion of locally-manufactured components in vehicles sold in SA — have dropped by 10% in just two years.
The Asian vehicles are either imported fully built-up or in semi-knocked-down (SKD) form, effectively a “kit” of partly-built chassis and components assembled at destination, with limited job creation.
By contrast, completely knocked-down (CKD) manufacturing, as performed by the locally-based, multinational original equipment manufacturers (OEMs) such as Volkswagen Group Africa, Isuzu Motors SA, and Mercedes-Benz in the Eastern Cape, creates jobs not only in the plant itself but through the levels of suppliers of raw material and components.
Incentives to increase local content in vehicles support localisation of component manufacturing, supporting further job creation in Tier 1 and Tier 2 suppliers.
It is estimated that each job in top-tier manufacturing creates another four jobs through the supply chain, with substantial socioeconomic impact as each employed breadwinner supports about 10 people in extended families and communities, and spends their income at local businesses.
The economic ecosystem around CKD manufacturing goes much deeper than it does in SKD assembly, and goes beyond the component manufacturers and suppliers, extending into the logistics and transport sectors, and indirect suppliers to each plant — from office supplies, workwear and tools to services such as banking, IT, cleaning, catering, security, maintenance, marketing, and so on.
Tourism, hospitality, real estate, events and conferencing, retail, education, personal services — all benefit from the ripple effects of a strong local manufacturing base.
Effectively, every kind of local business is impacted, even the smallest and those with no exposure to US markets or concerns about how the rise of cheap imports and the global shift to new energy vehicles impacts on local automakers.
What we are seeing currently is that the influx of new entrants into the SA vehicle market is not creating the value that CKD manufacturing does, and is displacing sales of local manufacturers, which impacts negatively on the volumes and scale required to make local manufacturing viable.
SA’s free trade rebates to importers and SKD assemblers, along with provisions of the Automotive Production Development Plan, make SKD manufacturing a more attractive proposition than full CKD manufacturing, with a ripple impact on components manufacturers and the entire automotive ecosystem.
What do we want to see happening?
Government needs to step up and act fast to protect local manufacturing and put us on a much more level playing field with global competitors.
We need much more effective anti-dumping regulations and tariffs, such as the steps taken recently to protect local washing machine manufacturing against imports dumped by Asian countries into the local market.
Retaliatory tariffs are not a solution, likely only to provoke further rounds of counter-tariffs.
Rather, the government needs to better support and strengthen local manufacturing through incentives that encourage CKD rather than SKD manufacturing, and tariffs that favour locally manufactured vehicles over imports.
More favourable investor incentives are needed, and incentives that promote localisation of components, along with policy that requires importers to localise once they reach a specified threshold of local sales.
We need to strengthen our trading partnerships with the EU, Southeast Asia and in Africa through the African Continental Free Trade Agreement.
Our trade on this continent needs to become much more collaborative, enabling other countries to also be niche manufacturers.
We currently do not have specified free trade agreements in place with Brics markets and our trade with these countries tends to be orientated around SA providing unbeneficiated raw materials and these countries in turn providing us with finished manufactured products.
This equation needs to become more balanced so that SA also provides manufactured goods, thus enabling the creation of meaningful local jobs.
Actions such as these can work not only to protect domestic manufacturing and employment, but also to open up new opportunities.
The strength of the manufacturing sector is the lifeblood of every business in the Bay — we need to take fast action to save it.
Denise van Huyssteen is chief executive of the Nelson Mandela Bay Business Chamber
The Herald
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