By Dr Tinashe Kapuya, NAACAM Trade Advisor

The coronavirus (COVID-19) continues to have a profound effect on world markets and the global trading system. The full impact of the pandemic is yet to be determined, but indications already point to a significant economic downturn. The impact of the crisis on emerging markets such as South Africa will inevitably be far-reaching, and the automotive components will not be spared.

While we await trade data on Q1:2020, trends from 2019 show that the automotive components industry exports declined by 2% year-on-year to US$2.8 billion, from US$2.9 billion in 2018. South Africa’s largest automotive component markets – The EU – declined by 0.3% year-on-year. Eastern Europe and the Middle Eastern markets showed strong growth, but these regions consist of a relatively small share of South Africa’s auto component exports (i.e. they account for an average of 2%, respectively).

From a trade policy perspective, indications from data point to Brexit having a major impact in 2019, with automotive component exports to the UK declining by 21%. The largest component export – catalytic converters – fell by 32% from 2018 to 2019, with its share of also dropping 10 points from 72% to 62% of the value of exports to the UK.

In Africa, the Continental Free Trade Agreement (AfCFTA) seems on track with negotiations on the rules of origin still on-going. The industry position has been to allow for free trade in Africa, but under current SADC rules which allow for 40% local content. Other African partners seek more flexible rules that allow for a much lower local content requirement, but this, as the industry argues, will erode value addition potential for the future development of the automotive industry in the continent.

Meanwhile, in February 2020, the United States designated South Africa as a developed country which not only subjects the country to America’s countervailing duty law but also triggering renewed concerns around AGOA eligibility. In addition, on-going consultations by the United States Representative around the Copyright Amendment Bill, as well as suggested amendments to Section 25 of the Constitution to allow for expropriation without compensations present a risk for South Africa’s GSP and AGOA status in the future. The United States accounts for an average of 9% of South Africa’s automotive component exports, but exports have declined by 7% between 2018 and 2019.