Export boom for South Africa's automakers
Ford South Africa is the latest automaker to announce new export plans having secured a €12.5 million investment from headquarters in Detroit.
It is planned to export two vehicles built at the company's Pretoria plant under the Ford or Mazda brands. The two will be a commercial vehicle at a rate of 27,000 a year from the third quarter of next year, and a new passenger car, at a rate of 41,000 vehicles a year by 2005.
It is an investment the South African plant has been fighting for some time. It does not want to waste the opportunity. South Africa's 'stock' in the world automotive sector is building. Already a number of the world's vehicle makers are present there while others are watching the situation closely.
With its own right hand drive market, South Africa is ideally placed as a low-cost production centre for more than 30 other RHD markets around the world, including many of those in the Middle East, Far East, Australia and the UK.
RHD centre of production
German manufacturers BMW, also in Pretoria, and Volkswagen in Port Elizabeth picked up on this in the late 1990s. Pretoria is now a centre for BMW's worldwide right-hand-drive (RHD) production of the 3 series, while VW has moved on even from that.
Initially VW South Africa exported the Golf III GTI to the right hand drive market in the UK, but such was the demand all over Europe for Golf IV that the Port Elizabeth plant started assembling left-hand-drive models for export also.
Mercedes-Benz exports right-hand drive C-class models from its plant, in East London.
Exports are vital for manufacturers in South Africa, which also include Toyota, Nissan, DaimlerChrysler and GM unit Delta Motor Corp among the major players. In total there are 29 manufacturers and importers present in a market that has remained static at around 250,000 vehicles a year for the last 30 years.
To understand why, you need to look at the demographics. South Africa is a country of 40 million people, 55% of them are under 20 and clearly not in a position to buy cars. Add in other issues such as the situation in Zimbabwe, the AIDS epidemic which is depleting the working age population, plus an ever-increasing refugee problem as people move south from the poorer African nations.
In fact people still talk of the 'boom' in the early 1980s when sales reached the heady heights of 301,000. The only way to make use of installed capacity and increase sales is to send cars abroad.
VWSA, for example, produces the Golf, Caddy, Polo and Jetta at a rate of 78,000 vehicles a year in Port Elizabeth - 30,000 of them for export. Capacity can be raised with a third shift to 100,000 vehicles a year.
Logistics set to improve
However, South Africa's exporters have faced logistical problems at the country's ports, which have been plagued by congestion problems. This could be eased from 2005 with the flooding of a new deep water port at Coega, part of a massive, 11,000 hectare infrastructure project, the largest development in Africa and one of the largest currently under construction in the world.
As well as the port the project includes a huge logistics center and an automotive park in an area already known as the "Detroit of Africa". Coega is 20kms from Port Elizabeth which as well being home for VWSA, also hosts the Delta Motor factory, a Ford engine plant as well as more than 300 auto suppliers. While the port is scheduled to be flooded in 2005, it can't come too soon for the South African manufacturers.
They see it as opening up new opportunities for exports as well as encouraging high technology suppliers. There is no shortage of suppliers in South Africa, but they tend to be low technology such as tyres and battery makers, although 40% of the world catalytic converters are produced around Port Elizabeth.
Achieving higher than 55% local content by value is difficult for vehicle makers. They want to see more high value, high technology suppliers from Europe, the United States and Japan. The Coega development could help achieve that.
Port Elizabeth area held back during apartheid era
The money being poured into the Coega is also very welcome in Port Elizabeth, traditionally a stronghold of the African National Congress during the apartheid years and, as such, it was held back in terms of development. The fact that the area did as well as it did is testament to the industry that established itself there. VWSA for example refused to bow to the government by allowing black union membership and apprenticeships for coloured people.
South Africa's trade and industry minister Alec Erwin acknowledged that exporters faced logistical problems at the country's ports. These will be eased by the development project which could also become an important staging post for vehicle movements worldwide.
Eugene Heeger of the Coega Development Corporation, said: "We are seeing an increasing number of imported vehicles into the country following a change to import duties, we envisage a much better utilization of car-carriers between here, Europe, the Far East and the United States."
The Development Corporation is eager to attract business and the development area has been designated a duty-free zone with its own dedicated customs infrastructure.
Existing road, rail and sea links have ready access to the African market and these links are being upgraded as part of the project. Construction of the port itself, for both container and bulk traffic, is being fast-tracked for 2005.
Coega is being developed as part of the Nelson Mandela Bay metro project. The
area has a population of 1.4 million people and improvements are being made
to the private and public health services and schools while there are plans
for a new university, technical colleges and an international airport.
When completed Coega will be one of the first zones in the world to qualify for both ISO 14001 environmental certification and ISO 18001, which focuses on health and safety.
In detail: Ford's billion rand export programme
Ford has joined the list of global manufacturers to invest in export capacity in South Africa - the first US-based company to do so, writes Dave Cumming. Deborah Coleman, CEO and group managing director of the local Ford operation, has announced a 1 billion rand (£86.5 million; $US135.6 million) programme, which will see the company exporting a commercial vehicle in the third quarter of next year and a passenger vehicle in the first quarter of 2005.
Target volumes are 2,700 and 30,000 vehicles respectively but no details of what models will be involved are being revealed at this stage. However, there is strong internal speculation that the passenger car will be a new Ford "world model" which is still under wraps.
Coleman says the move will also provide the company's component suppliers with a considerable boost. They will export production parts for 70,000 vehicles a year and will also supply Ford's global manufacturing network with service parts.
Ford will now join DaimlerChrysler, BMW, Volkswagen and Toyota in using South Africa as an international manufacturing base. Its choice of the South African operation over competition from Ford plants worldwide is seen as recognition of the plant's ability to meet international quality standards.
Coleman believes the company's proven track record in supplying catalytic converters (2.2 million a year) and the 1.3 and 1.6-litre RoCam engines (240,000 a year) within quality, cost and delivery targets counted strongly in its favour. It has received certification in terms of a variety of international quality standards, including the motor industry-specific TS16949 for its assembly plant at Silverton (Pretoria), which will produce the new vehicles.
The increased volumes associated with the project are expected to provide economies of scale for local content, productivity improvement, state of the art equipment and the associated technology transfer.