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Should Local Companies be Rated on their Commitment to Import Substitution?

Import substitution in the local automotive industry is crucial for the growth of the South African economy.

Stoney Steenkamp, Managing Director of Hudson Rubber Company, a Hammanskraal-based Rubber and Plastics manufacturer which has been in operation for 64 years, says while the perception is changing regarding locally produced automotive components, more needs to be done and at a much faster pace.

“Although the quality of a large proportion of locally produced automotive components are on a par with imported components, import substitution is still a barrier for many local companies,” he says.

“Local substitution saw a significant increase during Covid due to the disruption of overseas distribution channels, forcing local companies to source components at home.  Since then, when speaking to a number of Auto component manufacturers, import substitution has grown.”

“Covid ushered in this change because local manufacturers have the resources and are able to adapt to adversity. But going forward it also requires South African companies to display the will. Although Government is participating in the initiative, it is not up to them alone to force the change but automotive and related companies to make localisation a reality for South African companies.”  

“World-class high-tech machinery, innovative manufacturing, good quality products that meet international standards, and a reputation for adhering to deadlines are all positives for the local industry,” he notes.

“Businesses are generally aware that purchasing locally means shorter lead times, better cash flow, less administration and none of the complications experienced with importing. However, businesses would rather invest in negotiating with foreign suppliers on issues such as improved terms, lower costs and more reliable shipping methods than invest the same time and effort with local manufacturers. In the cases where some local companies do not react to support local customers, their actions are most likely justified, however this cannot be generalised.”

Localisation can benefit buyers because it provides opportunities to customise or make changes to product in a relative short space of time, adapting to country-specific requirements. Import substitution can also increase innovation which in turn generates better engineers to the benefit of the economy, he says.

Mr Steenkamp adds that the vision of the National Tourism Sector Strategy is for a ‘rapidly and inclusively growing tourism economy that leverages South Africa’s competitive edge in nature, culture and heritage, underpinned by Ubuntu and supported by innovation and service excellence’.

Why can’t we extend this strategy to the automotive and other industrial sectors, to rapidly and inclusively grow industrialisation that leverages South Africa’s competitive edge, culture and heritage, underpinned by Ubuntu, supported by service excellence,” Mr Steenkamp says.

He cities an example of local public transport. “The vehicles that are locally built should contain locally sourced products that are competitive and on par with imported quality. “Why are imported parts still used in locally built vehicles that are used to transport millions of our workers each day? Especially when local suppliers are competitive in their costs, provide short lead times, offer cash flow benefits and create much needed local jobs.”

“The funds stay in the country, although it is understood that this may not be as simple because designs are not always the local client’s design but owned by international suppliers.”

Mr Steenkamp believes that more can be done to ensure local manufacturing under license with assistance from local clients. There needs to be an urgent and strong emphasis for companies to commit to at least considering import substitution, and with this, the incentive of job creation and economic growth.

“In the rubber and plastics industry for example Hudson has the expertise and machinery to provide a variety of solutions to the local OEM vehicle market. However, as with a number of other industries, OEMs are either not under pressure to buy local products or are restricted by their overseas principals to only source from their global supplier network.”

“Willing local suppliers have a lot to offer. They are wanting purposeful and committed engagement from OEMs that will make localisation a reality, for the barriers to be removed and to build local capacity. OEMs do have capacity and the capability to make this a reality.”

“With Hudson being a member of National Association of Automotive Components and Allied Manufacturers (NAACAM), they are advocating for, and creating the bridge between OEM and local component manufacturers. However, more can be done to increase the success stories and make localisation an outcome of committed policies.”

“As a company, and we know many local auto manufacturers are as committed as we are, it is not in their nature to give up. They should continue to pursue opportunities in the automotive industry as well as any import replacement that is in their capability. And many are prepared to invest to support the economy,” he concludes. END

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