South Africa’s auto sector most likely to attract more German investment

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Through the Southern African–German Chamber of Commerce and Industry, the German government on Thursday hosted a Baden-Württemberg Meets Gauteng business forum, to promote further trade and investment.

Baden-Württemberg is the third-largest state in Germany and has as a gross domestic product (GDP) of about €600-billion, accounting for 15% of Germany’s GDP.

Automotive and technology brands home to Baden-Württemberg include Daimler, Audi, Porsche, Festo, Bosch, Heidelberg, Wurth, SAP Stihl and Trumpf.

Market opener organisation Baden-Württemberg International CEO Dr Kai Schmidt-Eisenlohr said the state had the highest density of world market leaders, with 401 global market-leading companies based there.

The state is highly focused on innovation, with 5% of GDP spent on research and development yearly.

Baden-Württemberg has a strong industry landscape, comprising mostly automotive, mechanical engineering, electrical engineering, life sciences, information technology and creative industries, renewables and environmental technology companies and sustainable mobility suppliers – these industries make up more than half of the state’s workforce.

Baden-Württemberg’s exports are valued at about €200-billion a year, while imports are valued at €176-billion a year, with Africa only accounting for 1.4% of the state’s trade activity. 

The state has 758 companies that are active in South Africa, while South Africa has four companies active in Baden-Württemberg.

Baden-Württemberg Economic Affairs, Labour and Housing Minister Dr Nicole Hoffmeister-Kraut says the country is increasingly looking for investment opportunities on the African continent, since it is largely an untapped market in terms of trade.

“We often talk about Africa as the continent of growth and opportunity and, coupled with having a young population and immense raw material reserves, it is clearly a market of the future,” she says, adding that South Africa has particular potential, being the second-largest economy in Africa and the only African member of the Group of 20 developing nations.

In 2018, Baden-Württemberg exported goods to the value of €1.3-billion to South Africa, which mostly comprised motor vehicles and parts, while South Africa exported goods to the value of €1.5 billion to the German state, also mostly comprised of motors vehicles and parts, as well as machinery.

The Minister said small companies were indispensable and contributed to the success of large corporates. Of the state’s 500 000 companies, 87% are classified as small or medium-sized enterprises.

Former South African politician and In Transformation Initiative director Roelf Meyer points out that South Africa’s automotive, tourism and agriculture sectors are prime opportunities for German investment.

He says the automotive sector has a particularly good relationship with government, resulting in South Africa performing “above its weight” as an automotive producer to the world. South Africa is on track to produce 400 000 new automotive units by the end of this year.

“That can be seen as an example of what can be achieved if public and private sector work together. There is now an investment climate in South Africa that did not exist before,” says Meyer.

National Association of Automotive Component and Allied Manufacturers executive director Renai Moothilal states that the automotive sector is by far the biggest contributor to manufacturing output in South Africa, producing 30% of the total manufactured output and accounting for 15% of the country’s export basket.

He says the automotive sector enjoys the most government support in the form of tariffs, incentives and duty rebates.

“We now have seven light motor vehicle original-equipment manufacturers (OEMs) based in South Africa and 180 Tier 1 companies supporting the sector. About 350 companies are participating as suppliers.”

Moothilal explains further that more than $10-billion in fixed investment was committed to the industry last year.

“The sector is primed for growth on the back of policy certainty and significant OEM and Tier 1 supplier investment into the sector. However, the depth of localisation still lacks.

“As we move to implementing the Automotive Master Plan, we need to get the country up to 60% localisation, compared with 38% localisation currently. The big opportunity for investors currently lies with Tier 2 supplier companies to Tier 1. We need to introduce new capacity and partnerships in the Tier 2 space,” he avers.

Source: Engineering News