De-industrialisation: The choices we make today can make or break South Africa’s automotive sector
De-industrialisation: The choices we make today can make or break South Africa’s automotive sector
Siyabonga Mthembu, Automotive Sector Lead, BDO South Africa
Australia’s experience is often used as a cautionary case study of what can happen when a country loses a major automotive manufacturing base. And for South Africa, this is a pertinent lesson for the automotive sector which is currently experiencing significant structural and competitive challenges.
Growth in the sector is being affected by headwinds such as import competition, uneven localisation, and chronic infrastructure weaknesses, while global transitions, particularly the shift to New Energy Vehicles (NEVs), are reshaping the competitive landscape.
In Australia, the last vehicle assembly plants operated by Ford in 2016, Toyota in 2017 and Holden/GM in 2017 closed, bringing an end to large-scale passenger vehicle manufacturing in the country. Economic modelling projected that the closure of the industry could result in almost 200,000 job losses nationwide when direct, indirect and induced effects are included, together with an estimated reduction of approximately A$29 billion in national economic output, equivalent to roughly 2% of GDP at the time.
But this not simply a story about factories closing. It is a story about the consequences of failing to support local production and failing to create the conditions that allow local manufacturers to compete globally. It’s also a lesson for South Africa, where government policy and regulatory support is critical to protect and grow the country’s automotive manufacturing base, which risks losing competitiveness to countries such as Morocco.
Picture two factories competing for the same global production allocation. The first factory operates in a country with policy certainty, efficient ports, reliable infrastructure, deep supplier networks, and lower energy and logistics costs. The second factory operates here at home. It employs world-class engineers and produces to global OEM standards. Yet it carries the burden of high energy costs, logistics inefficiencies, port delays, municipal service delivery challenges and policy uncertainty.
Now imagine that the second factory begins to lose production volumes. At first, the impact may not be immediately visible. A production shift is reduced. Overtime disappears. A supplier delays a hiring decision. A logistics company parks a truck. A toolmaker decides not to replace ageing equipment. What begins as a production decision in one sector quietly starts to create a broader economic ripple effect.
A small reduction in local production volume may appear manageable at first, but it quietly affects shifts, overtime, suppliers, logistics providers and future capital investment. Before long, manufacturing's contribution to GDP begins to decline and unemployment starts to rise.
The numbers matter. South Africa’s automotive sector contributes approximately 5.3% of GDP and accounts for approximately 21.9% of manufacturing value added. It supports more than 110,000 direct manufacturing jobs and more than 300,000 indirect jobs across the broader value chain.
It is also one of South Africa’s most important export engines. Vehicle and automotive component exports reached approximately R270.8 billion in 2023, representing about 14.7% of total South African exports and serving as a critical source of foreign exchange earnings.
Now consider a 20% fall in local vehicle production. Such a decline would not remain confined to the automotive sector. It would likely trigger the following economic consequences: a potential loss of around 1 percentage point in automotive-related GDP contribution, assuming the decline flows proportionately through the value chain; a loss of annual income of approximately R75 billion to R80 billion from direct automotive activities, with a wider potential impact of R100 billion to R120 billion once related economic activity is considered; and direct job losses would likely fall within the range of 20,000 to 25,000, with indirect job losses potentially reaching 60,000 to 80,000 across suppliers, logistics, services and related sectors.
The Eastern Cape would likely feel the shock first. Nelson Mandela Bay, given its concentration of automotive activity, could see between 24,000 and 32,000 direct and indirect jobs placed at risk.
More than that, the ripple effect would be felt across the economy, and would include lower payroll taxes and VAT collections; reduced municipal revenue; higher unemployment costs; declining export earnings and a widening trade deficit.
Even more devastating would be the ripple effect across the wider economy. What begins as a sector-specific issue quickly becomes a broader economic issue. The banker, insurer, and logistics provider feels it. Even sectors such as hospitality will feel the impact, as would municipalities. In short, the effect would be felt across the entire economy.
This shows that South Africa’s automotive sector is at significant risk, and if we allow the decline to continue, the consequences will be felt for generations. We may well be judged as the generation that stood by while one of South Africa’s most strategic industries weakened.
But this is not simply a debate about local vehicles versus imported vehicles. Rather, the real question is whether South Africa wants to remain a country that manufactures, exports and competes globally. That is where the opportunity lies.
To avoid de-industrialisation, there is need for the sector to invest its way into becoming Africa’s next manufacturing powerhouse. The challenge lies in ensuring that the automotive industry not only retains its current scale and importance, but evolves fast enough to remain relevant in this changing environment.