Multinational strategy, structural change and supply chain development in the South African auto industry

Abstract:

 State – business bargaining, localisation and supply chain development in the South African auto industry

Within South Africa’s industrial development, its auto industry has been considered one of the most promising sectors. It has attracted considerable state support and has been the recipient of targeted policies and investment. Addressed by different auto plans, evolving from the initial protective strategies during the apartheid era to progressive liberalisation promoted through the MIDP (1995) and the APDP (2013), the sector was increasingly consolidated and achieved undeniable success, especially in terms of export orientation. Today, it can definitely count on a more mature productive structure, on more efficient technologies and on a broader integration in global markets.

However, the expansion of the sector also entailed some costs, and occurred despite some structural weaknesses that still remain. Indeed, the growth in export levels was not accompanied by increasing local content, investment is still modest, employment creation was not significant, and the development of the supply chain still reflects an historical concentration of capital and productive capabilities towards large multinational firms. In addition, imports are still high and the industry continues to run a significant trade deficit. Overall, the SA auto industry never managed to become a proper leading sector, neither a major international hub.

Trying to draw on a critical assessment of previous auto policies, in light of the very recently developed 2035 Masterplan, the present paper focuses on two main inter-related issues, or challenges. On the one hand, it reflects on constraints to localisation, by looking not only at structural impediments that hamper the process (i.e. market constraints, infrastructure, capital & skills availability etc.) but also at the negotiation of power between state, business institutions, and firms, and at the distribution of power along the chain. In particular, the question of bargaining between state institutions and multinational OEMs is explored, in order to better understand the leading power SA OEMs hold and the way these firms managed to influence policy choices, heavily conditioning the leeway of the state and accordingly determining an imbalance of power along the supply chain.

The second aspect that the paper analyses is the potential and limitations for further deepening the value chain, considering the current availability of resources, manufacturing infrastructure and productive capabilities. With regard to both questions, the paper also considers issues related to Black Economic Empowerment (BEE) or transformation within the industry. Given apartheid induced disparities in ownership and management representation, this has become an important policy imperative. These developments are examined  from the viewpoint of different actors operating in the sector, including both OEMs and suppliers.

In terms of methodology and data, the paper draws upon an incredibly rich set of data available thanks to the direct involvement of two of the authors in the formulation of previous and current auto plans, including the 2035 Masterplan. In addition, the work leans on additional field research on localisation and supply chain development, conducted with business associations (NAAMSA and NAACAM), the government – funded Automotive Industry Development Centre (AIDC, Gauteng), and the Automotive Supply Chain Competitiveness Initiative (ASCCI, KwaZulu – Natal).