Transformation will help turn the wheels of automotive sector
By Renai Moothilal | April, 16, 2018 | Conference Themes
When the word “transformation” is mentioned, the first thought for many is of a broad-based black economic empowerment (BBBEE) scorecard. But meaningful transformation is far more significant and powerful than an organisation ticking off compliance checkboxes to avoid penalties and secure contracts. It is an opportunity for companies, especially within the automotive industry, to play a greater role in the overall development of SA. To be the “empowering supplier” mentioned so prominently in BBBEE codes of practice.
When Trade and Industry Minister Rob Davies spoke in 2017 at the National Association of Automotive Component and Allied Manufacturers (NAACAM) event about transformation of the automotive industry being non-negotiable, there were no doubt some concerns, even if that pushback occurred at the psychological level. No one enjoys feeling threatened, particularly if settled in current business practices.
Similarly, implementing value-adding and sustainable transformation activities does come at a cost to businesses.
Yet, transformation must happen. Davies made valid points about the pivotal economic role the automotive sector plays in SA. The wider industry contributes a hefty 7.5% to GDP and its domestic vehicle assembly and components supply subsector directly employs more than 110,000 individuals.
Transformation is important to ensure long-term stability in the sector and its associated levels of support by ensuring that the greater population has an economic investment in having automotive products manufactured in SA.
The sector faces many challenges in implementing elements of transformation legislation in SA. It is commonly known that the vehicle assemblers, as well as most of their direct suppliers, are multinationals.
Similarly, the high turnover and contract values in the sector make finding the right equity equivalent and preferential procurement partners difficult. Yet these are issues to be solved, through planning and in partnership with our stakeholders.
It is public knowledge that there are discussions with the government on transformation-linked venture capital funds to be set up by the vehicle assemblers.
This must be welcomed, and if implemented with clear purchasing obligations, there will be opportunities created in the local supply chain. It will also be important that as the mechanics of such funds are decided on, multinational component manufacturers have the option of using similar structures. In the interim, NAACAM has created a facilitation mechanism to match black investors and fund managers with opportunities that arise for transformation-linked business opportunities within the existing supplier base.
There is also best-practice guidance and recommendations for suppliers looking to embark on transformation activities and potential ownership transactions. This is in addition to the support offered to our members to aid black supplier development through various initiatives across all the regional hubs for automotive manufacturing.
Implementing activities linked to transformation needs has seen some NAACAM firms increase their spend in this space up to 10 times in response to changes brought about by the amended generic codes of good practice that began in 2015.
As businesses tackle the needs of transformation, the government should be lauded for committing itself to supporting their efforts.
In the automotive sector there is real opportunity to use measures that increase localisation rates of domestically assembled vehicles to unlock the business opportunities for local component production and black supplier development.
This will help solve many of the practical challenges faced by smaller, locally owned manufacturers trying to make headway in a global value chain and supports the views of Joan Fubbs, chairwoman of the parliamentary portfolio committee on trade and industry, who, in responding to the president’s state of the nation address, recognised the importance of greater localisation in creating a more inclusive economy.
Ultimately, transformation need not be a trade-off or a grudge decision. It should be built into a strategy of growth and success for building vehicles and components. This includes developing a broad-based, empowered, skilled and technologically capacitated cache of manufacturing businesses that create employment.
It also includes the ability to access the needed levels of state support that anchor our ability to continue producing automotive products in the global context.
Well-structured transformation plans will ensure the sector does its bit to grow the local economy, one opportunity at a time.
Moothilal is Executive Director at NAACAM.
This article originally appeared in Business Day (https://www.businesslive.co.za/bd/opinion/2018-04-11-transformation-will-help-turn-the-wheels-of-automotive-sector/)