The influence of government policy interventions on the performance of the South African automotive industry

Abstract

The South African automotive industry before the dawn of democracy was inward looking, with policies such as the local content programme policy, which governed the industry at the time and created trade barriers and a restrictive trade environment. Subsequently, the democratic government repealed policies that were implemented by the then government and introduced the Motor Industry Development Programme (MIDP) on 1 September 1995. The MIDP was introduced to structurally shift government policy and the trade regime, as well as integrating the country’s automotive industry into the global automotive sector. Thereafter, several policy intervention programmes such as the Automotive Production Development Programme, and more recently the South African Automotive Masterplan were implemented to enhance the performance of the domestic automotive industry and improve investor confidence.

Following policy interventions by government, the South African automotive industry has undergone various and significant changes since the dawn of democracy in 1994, as the country’s automotive industry is now considered to be the largest vehicle manufacturer and components supplier on the African continent, which houses seven (7) global vehicle manufacturers. Drawn from this brief background, the study is undertaken with the aim of addressing questions and providing an understanding of to what extent policy interventions developed and implemented by government lead to a successful automotive industry, and how these polices mentioned above have influenced the performance of the domestic automotive industry since 1995. In addition, we zoom into the challenges impacting on the performance and optimisation of the automotive industry and propose additional policy interventions needed to address inefficiencies.

Therefore, it is against this backdrop that the primary objective of this research study is to provide insight on the importance of the global and domestic automotive industry and to critically evaluate the county’s industrial policy through the lens of the MIDP, the APDP, and the SAAM. The study also aims to determine the economic and social impact of the domestic automotive industry in addressing socio-economic challenges affecting South Africa, while proposing policy reforms and recommendations to ensure the sustainability of the domestic automotive industry. The study employed a qualitative research approach as the most suitable approach, as the study intends to provide an in-depth analysis of the effectiveness of policy interventions implemented by the government to enhance the performance of the industry, as well as to determine what the country has accrued from supporting this industry.

Following the analysis of various policies and data gathered from participants, the study found that despite policy intervention efforts, the country’s automotive industry performance remains below the global benchmark of 1% of production, which forms an integral part of the SAAM policy regime. More importantly, the study found that the South African automotive industry will not survive without government support, while drawing parallels to the demise of the Australian automotive industry. However, government policies such as the MIDP and the APDP were important in establishing a viable business case for local production, and the sustainability and competitiveness operating in the country, even though government’s policy monitoring and evaluation mechanisms are still inadequate.

Based on these key findings, the study proposes several key recommendations which focus on government placing an emphasis on Tier 2 and 3 components supplier companies and localisation. In addition, the study also recommends that government review its targets outlined in the SAAM, expediting the transition to New Energy Vehicles (NEVs), as well as addressing inefficiencies in State-Owned Companies such as Transnet and Eskom, which cause bottlenecks in the country’s automotive industry value chain.