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Loss of ‘bedrock’ AGOA will hurt South African motor industry, warns new report

Published date:
Saturday, 02 September 2023
Author:
DAVID FURLONGER

Loss of access to US trade benefits through the African Growth and Opportunity Act (Agoa) would hurt not only the SA motor industry but also many more across Africa that depend on it for their future growth, says a new report. 

Attempts to create a pan-African motor industry and quintuple the size of the continent’s new-vehicle market could be undermined if the SA industry, the strategy’s main driver, is weakened, the report by motor industry association Naamsa says. 

The SA government’s flirtations with Russia, most notably its failure to criticise its alleged war criminal President Vladimir Putin or the invasion of Ukraine, has angered some US government officials, who have suggested that SA be removed from the list of sub-Saharan African countries enjoying preferential trade through Agoa. 

The programme, which allows certain goods, including vehicles and components, duty-free access to the US market, was created in 2001. Originally planned to run for 10 years, it has undergone successive extensions, the latest of which is due to end in 2025. While it is widely expected to be continued — African governments have pushed for a 20-year extension — there is no guarantee SA will remain on the list of beneficiaries. 

At the end of last week, Naamsa published a report titled, Agoa and the SA Automotive Industry, outlining the potential outcome of such an eventuality. It describes Agoa as the “bedrock” of trade relations between the US and Sub-Saharan Africa. 

The programme’s continuity has “strengthened trade relations and improved the scope of employment creation, industrial growth and development in Africa”. 

SA is the biggest single beneficiary of the programme. In 2022, says the report, two-way trade with the US was worth R312bn: SA exported R178bn of goods to the US and imported R134bn. 

The motor industry accounted for a big share of this. In 2022, the SA industry exported R24.1bn of vehicles and components to the US and imported R18.3bn. That was more than 10% of total automotive exports of R227.3bn. The US was SA’s second-biggest market, after Germany. 

SA has accounted for more than 99% of African automotive exports to the US since Agoa’s inception, says the report. In 2022, BMW SA and Mercedes-Benz SA (MBSA) dominated SA vehicle exports to the US. From a total of 20,566, BMW SA exported 11,273 X3 sports utility vehicles, MBSA 10,088 C-Class cars and Ford SA 105 Ranger bakkies. In return, the US sent 4,799 vehicles — 2,192 BMWs, 1,263 Mercedes-Benz, 1,095 Jeeps and 249 Ford Mustangs.

SA components exports to the US were dominated by catalytic converters, which clean exhaust emissions from internal combustion engines. 

Morocco, the only other African country with a motor industry comparable in size to SA’s, is aimed squarely at the European market. The US is an afterthought. Otherwise, says the Naamsa report, countries such as Kenya, Nigeria, Cameroon, Sierra Leone, Tanzania and Mauritius export some automotive products to the US, but in tiny quantities. 

That could change. The report states: “Agoa does stimulate opportunities for a chain of collaborative arrangements between the SA automotive industry with manufacturing companies from sub-Saharan African countries, to access the US duty free.” 

Those opportunities could dissipate if the SA motor industry is weakened, the Naamsa report suggests. Plans to create a pan-African motor industry are progressing slowly but surely, say industry executives. The idea is to create four, interlinked industries, in east, west, north and Southern Africa. 

They would probably be based, respectively, in Kenya, Ghana, Egypt and SA. Ethiopia, considered a major manufacturing base of the future, could fit into either north or east Africa. The theory is that one country in each region would be the vehicle manufacturing base, with neighbours providing components, raw materials, technology and services. 

This growth would depend on a huge increase in demand for new vehicles. In 2022, Africa’s population of about 1.4-billion bought just more than 1-million. That is a fraction of sales of dumped, used vehicles from the northern hemisphere, mainly Europe and the US. 

Dave Coffey, CEO of the African Association of Automotive Manufacturers (AAAM), believes that, by cutting off the dumping pipeline, annual new-vehicle sales could reach at least 3-million by 2035. Mike Whitfield, AAAM’s president, says the number could go as high as 5-million. Whichever target is reached, it would create the volumes needed to justify gradual development of an African motor industry. 

SA is at the heart of the process. In 2022, it was responsible for 54.4% of Africa’s total vehicle production. With 100 years of manufacturing history, it has the experience and expertise to make things happen. AAAM, representing vehicle and components companies and financial institutions, is headed by SA-based executives. SA companies are responsible for the creation of several automotive assembly operations in other African countries. 

Indeed, one of the priorities of SA’s 2021-35 Automotive Master Plan is to help develop a continental motor industry. That goal is aided by creation of the African Continental Free Trade Area (AfCFTA), which sets out to create a single market. So far, 47 countries have signed up. 

The World Bank estimates that the AfCFTA will increase Africa’s income by $450bn by 2035 and increase intra-African exports by more than 81%. It will also encourage industrialisation. The motor industry is recognised as one of the most successful ways to generate general industrialisation in developing economies. The Naamsa report says: “The domestic automotive industry has been earmarked as one of the drivers of industrialisation, not only in SA but also on the African continent as a whole.” 

Any weakening of the SA motor industry could slow that progress, says Naamsa. “It will be adversely affected should ... SA’s continued (Agoa) eligibility be discontinued”. Rather, a stronger relationship would help build “a major economic partnership between the US and Sub-Saharan Africa”.

 

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