Botswana SA Presidential Business Roundtable 3rd – 4th August 2022
NAACAM represents approximately 150 component manufacturing brands, the type of companies that this forum is looking to have more of in Botswana. The automotive sector has been a mainstay of South Africa’s manufacturing sector for decades, and a success story of the government’s targeted industrial policy, in current years, under the guise of the South African Automotive Masterplan 2035 (SAAM35), directed through Minister Patel at the dtic.
One of the objectives of the SAAM35 is a localisation level of 60% from its current less than 40%. That will be the key to unlocking the true benefit in the component value chain, as we all know that jobs, innovation, technology and skills transfer opportunities are found there mainly, as opposed to duplicating highly capital-intensive OEM assembly plants within close proximity to South Africa.
Importantly, opportunities for transformation and new business entrants are realistically to be found by growing localisation and that is where the opportunity for the Southern African regional component sector lies opportunities. That is where the SACU region, and particularly Botswana can anchor itself.
And it is already happening. We know that the bulk of electrical wiring harnesses used in South Africa are supplied by companies located in Botswana, including Delta Automotive and Kromberg & Schubert. An export value of approximately ZAR1.9bn and likely increasing over the next 12-18 months, from Botswana fitted into vehicles assembled in South Africa shows the value of being in SACU and using the APDP, which benefits the region as a whole, as opposed to interpreting localisation only as “Made in South Africa”.
The programme in South Africa known as the “APDP” is customs-based. So, its application extends across SACU. The value of production done by Delta Automotive in Botswana is counted in the incentive calculation of OEM customers in SA. That is fundamental to the development of the electrical wiring harness sector in Botswana. This is exactly how CMs in SA are rewarded, through the indirect demand created. No different to here in Botswana and is an industrial partnership model that should be further developed.
The era of the AfCFTA is one that we should jointly work on by having SACU become a strong industrial region built on value chains that can be used for real intra African trade at least in the autos context, and nothing new needs to be developed in terms of a specific autos industrial policy. It exists.
So where do the opportunities sit to unlock this:
1. Materials Beneficiation projects. Right now, there is opportunity for automotive-grade leather to supply the high-end seating systems. Same with copper rod beneficiation for the wiring harness sector. The grades used by South African OEMs tend to be imported, despite the high prevalence of the materials found within SACU.
2. Infrastructure and institutional support. Energy, road and rail logistics, border openings, supplier parks, etc. These are key. The autos sector is 24/7 and losing the time border posts are closed at night is the equivalent time of having up to 200 vehicles rolling off a high-volume production line.
3. Coordinated Southern African localisation and export business case development. Component localisation is not easy. Supplying to OEMs is complex and exacting. Unlocking this needs focus and identifying specific OEM purchasing strategies
4. Shopfloor competitiveness programmes etc, using the experience of South African institutions such as AIDC. In fact, there may be opportunity to work on an automotive-specific institution to direct the sector across SACU, in much the same way we see in the ASEAN region, again using APDP and the South African-based assemblers as an anchor. This is where coherence on policy is crucial. Think AfCFTA context and rules of origin. We can’t have lower AfCFTA rule of origin than what applies currently. All that a lower rule of origin does is attract low level SKD assemblies, made up of high imported content. But importantly no component companies invest to support SKD plants.
5. OEM volume development. Grey imports into SACU countries including Botswana, kills volume for local OEMs. Low volume means less component supply to those platforms, both from the perspective of existing components, but also stopping new localisation. Component companies need OEM production volumes.
This issue of volume and competing with the grey market allows me to conclude with a note on the future. There is much excitement and hype around electric vehicles. If the Southern African region truly wants to take advantage of that, then the policies to support this need to be local component and systems focused. The New Energy Vehicle (NEV) transition is already happening. Component companies respond to technology changes all the time. In South Africa we have component companies already exporting into global NEV assemblies. The incentive policy is neutral and supports any technology, EV or ICE. A company like Delta Automotive will be as relevant in an EV space and typically can be ready for that change within 12 months. Give them volume, they will get the technology agreements in place globally and become value adding suppliers to OEMs.
Renai Moothilal Executive Director: NAACAM