The motor industry bleats pitifully at new trade and industry minister Parks Tau. The government teat is not providing enough milk, the piglets cry.
Frequently hailed as the jewel in the crown of South African industrial policy, the automotive industry is once again whining for more support from the government against companies that can produce vehicles that South Africans prefer because they are more competitively priced.
Competition, despite being in the name of the Department, is a bad thing, see.
South Africans are buying less expensive vehicles from overseas – predominantly from our BRICS trading partners China and India. This raises the standard of living and increases business productivity for millions of South Africans.
Multinational corporations with operations in South Africa, however, are grumbling. They don’t want South Africans to have access to cheaper cars. They want government to intervene to ensure their own, more expensive cars, get a larger share of the local vehicle market.
The only way government can do so is either by throwing money at the multinationals, or by making imports even more expensive than the present 25% tariff already makes them.
The word “competition” in the name Department of Trade, Industry and Competition (DTIC) has a very particular meaning. That department seeks to enable hand-picked crony capitalists to “compete” against companies that do not enjoy the patronage of the government. It isn’t about competition in the abstract; it’s about competition for friends and family.
Piglets
Parks Tau, the new minister in the cruelly misnamed department, knows about glad-handing friends and family, so perhaps the auto industry thinks he’ll lend them a sympathetic ear.
The latest piglet to demand more milk from the government teat is Andrew Kirby, the CEO of Toyota South Africa. Speaking at an industry event hosted by his company, he said the current Automotive Production and Development Programme II, which is aimed at incentivising local manufacture, did not do enough to support local market penetration by carmakers.
“Simply, the number of imported vehicles into South Africa is increasing as a percentage, and the average local content from the seven [original equipment manufacturers] is declining,” he said, according to MoneyWeb. “That is a definition of deindustrialisation. We know [the industry] will go through cycles, and these are early signs, but this is something we need to take very seriously.”
The gall of the fellow. This is an industry that has been a millstone around the South African consumer’s and taxpayer’s necks for going on 30 years. Since 1995, it has been pandered to, subsidised, coddled and protected.
Even so, the humble Toyota Corolla, once the choice of the frugal everyman, now costs well over half a million rand (R549 300). After a 10% deposit, the five-year repayments (R11 390) are a third of the income level that puts you in the top 5% of income earners in South Africa (R30 000 to R35 000), according to Stats SA.
I couldn’t dream of affording one.
Drag on economy
Initially, government support for the nascent vehicle manufacturing industry and the associated component manufacturing industry was supposed to last seven years. That is consistent with the theory that protectionism can be justified in exceptional cases to permit infant industries to find their legs.
But industrial policy plan followed industrial policy plan, turning years into decades. Perversely, instead of increasing employment, the automotive manufacturing sector shed 22.5% of its jobs between 1995 and 2020.
The components sector made up for that, but the net effect on jobs was an increase of just 11%, or 11 300 jobs, in a quarter of a century. By comparison, South Africa’s population grew by 33.7% and its GDP grew by 97% over the same time.
The automotive sector as a whole has been a drag on South Africa’s economy. And this is what they hold up as the jewel in the crown of industrial policy? It beggars belief.
Forty years
The latest policy, which the DTIC grandly describes as a Master Plan, in true communist central-planning style, will, we are told, bear fruit by 2035 – forty years after industry support began.
Forty years is the time it took to go from single-seater biplanes to jet airliners. Forty years is the time it took to go from the very first liquid-fuelled rocket in Robert Goddard’s backyard to landing a man on the moon. Forty years ago, the very first Apple Macintosh with a mouse and a graphical user interface was released.
I do not believe the industry will have found its legs even then. This is an industry that will always be on government support, because it has become dependent on subsidies and protection. It can only exist with that protection.
That support has cost the taxpayer R76 billion just in the last eight years. Of that, a pitiful 1% went to black-owned businesses, and 2% went to small- medium- and micro-enterprises. The rest went to big fat foreign corporations to subsidise cars that rich people buy. That’s where South Africa’s communist trade and industry ministers are sending the people’s money. You cannot make this up.
Business is tough
Admittedly, business is tough right now in South Africa. Whiny piglets like Kirby have to operate in an environment of high-risk premiums, unreliable power supply, inflexible and expensive labour, a transport and logistics sector in terminal crisis, and a local economy in the doldrums.
Other piglets, like Ford South Africa President Neale Hill and Volkswagen’s global brand CEO Thomas Schäfer have also raised red flags about the dire straits in which South Africa finds itself, and the difficulty of continuing to operate here.
Perhaps if they had been weaned from the government teat 20 years ago, they might have developed the efficiency and flexibility to weather tough trading conditions. And perhaps the intractable anti-business policies of the ANC government would have prevented that anyway.
After all, the rest of us have to adapt to the terrible economy foisted upon us by the ANC government (and the automotive industry). The rest of us have to adapt to changes in technology and market conditions. And we have to do it ourselves, with what little we have left over after we’ve fed the piglets.
Go back home
There will never come a time when the local automotive industry will stop asking for more support.
That support will continue to burden not only the South African taxpayer, who gets jack squat for their money, but also the South African consumer and small business owner, who pay a premium for their personal or business vehicle just so cars manufactured in South Africa can be more competitive in rich-country markets overseas.
My expectation is that Tau will cave, and will throw some more incentives at the piglets, to make sure they don’t close their South African operations.
Frankly, they should close them.
Go back home, to Europe, or Japan, or wherever you came from. Sell your local operations to South Africans who want to give it a go. Start scaling back the protections and subsidies, with a firm sunset deadline of, say, 2035.
Let us buy our cars from wherever we want, without paying a premium that goes straight to the bottom line of foreign profiteers who exploit South Africa for subsidies.
The jewel in the crown of South Africa’s industrial policy is a lump of coal.
[Photo: Toyota Corolla.webp – The Toyota Corolla, once the choice of the frugal everyman, now costs well over half a million rand, the five-year repayments for which are a third of the income level that puts you in the top 5% of income earners in South Africa. Image: Toyota South Africa.]
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