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BMW workers inspect a 3 Series vehicle at the companys Munich plant

South Africa Plans for New Auto Plants ... But With Whom?

April 13, 2016
The possibilities are still many for South African officials, who want to lower the country’s 25% unemployment rate, in part, by landing more investment for new auto plants. BMW, Ford and Volkswagen have poured in close to $1 billion since August.

South Africa is in talks with five vehicle manufacturers about a proposed new assembly plant in the port city of East London, a potential boost for an industry that’s using government incentives to attract investment from companies including Ford Motor Co. and BMW AG.

East London IDZ SOC Ltd., which operates an industrial park, is seeking to sign three producers within a year to assemble vehicles in a shared facility, Tembela Zweni, the state company’s executive manager for zone development, said in an interview in the city on South Africa’s southern coast. Interest in the site from international companies has increased since South Africa announced last year it will extend its automotive-incentive program, which encourages vehicle production in the country through tax breaks, he said.

“Suddenly we are getting more interest from companies,” Zweni said, declining to name specific carmakers. “They will save on start-up costs because we would have this huge facility.”

South Africa set up the East London IDZ in 2002 to boost investment and create jobs in an economy that’s grappling with an unemployment rate of about 25%. The vehicle production threshold for benefiting from government incentives has been lowered to 10,000 units a year from 50,000 and support for the industry will be extended beyond 2020, the Department of Trade and Industry said in November.

BMW, Ford and Volkswagen AG have announced 13 billion rand ($891.32 million) of investment in South Africa in the past eight months, adding production of models such as BMW’s X3 sport-utility vehicle and Ford’s Everest.

While the industry sees domestic new-vehicle sales slumping in 2016 for a third consecutive year, demand will probably increase from next year, the National Association of Automobile Manufacturers of South Africa said March 2.

Transport equipment was the third-largest category of South African exports by value in 2015, after mineral products and precious stones, according to the nation’s revenue authority. Exports of vehicles climbed 21% in 2015 from a year earlier, Naamsa said.

While about 60% of the companies in the IDZ are in the automotive industry, mostly supplying parts and services to the nearby Daimler AG plant, the zone is attracting other investment, such as renewable energy, Zweni said. A new wind farm may be operational in a year and there are plans for a solar-equipment production facility, he said.

By Liezel Hill

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Licensed content from Bloomberg, copyright 2016.

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