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South Africa's automotive industry roadmap, lessons for Iran

Dr. Seyed Mehrdad Siadat Nesab

Former commercial adviser of the Islamic Republic of Iran in South Africa

Due to its role in the economy and employment and its connection with more than 60 related downstream industries, the automotive industry has been one of the strategic plans of the Minister of Industry in the 13th government. And in the presented program, while trying to remove the obstacles and challenges and activate the empty capacities in this industry, the production of more than one million six hundred thousand cars by the car manufacturers along with improving the quality and increasing the competitiveness in the next year and developing its exports are targeted. Given that South Africa is the largest car manufacturer in the African continent and the 22nd car manufacturer in the world in 2020, the experience of this country in the car industry can contain useful lessons for the car industry of our country.

The importance of the automotive industry in South Africa

The South African automobile industry is an export-oriented and competitive industry, and in 2019, the country ranked 22nd in the world with the production of 632,000 vehicles, which decreased to 450,000 vehicles in 2020 due to the severe effects of Covid-19. At the same time, the automobile industry, as the largest and most important industry in the economy of South Africa, had a share of 6.9% in the country’s gross domestic product in 2019, which decreased to 4.9% in 2020 and included 18.7% of industrial production and 14% of South Africa’s total exports.

South Africa's automotive industry at a glance (figures: billion dollars)

2019 2020 2021 Forecast 2022 Forecast
Car market size 35.57 32.31 34.38 35.15
The amount of domestic production (devices) 631.921 447.218 525.000 570.000
Export 13.83 10.68 11.20 11.60
Import 11.98 7.76 9.62 11.32
Number of exported cars (devices) 387092 271288 --- ---

The South African government's view of the automotive industry

The South African government considers the automotive industry as a key industry in its economic growth and many large global companies such as Benz, BMW, Volkswagen, Nissan, Toyota, Ford and Isuzu from South Africa to produce parts and Car assembly is used for consumption in domestic and international markets and 430 component companies are also active in the market of this country. Considering that the increase in demand in the domestic market alone cannot be the answer to the sustainable growth of employment in this sector, the export growth program of 2 to 3 percent to guarantee employment and attract a new model of investment or increase the export of existing units is predicted and is being implemented. Accordingly, the production of 1.4 million cars has been targeted by 2035. It is also planned that the level of internalization of this industry will increase from the current 40% to 60% by 2035, and the direct employment of this sector will double from the current 110,000 people to 220,000 people in 2035.

The role of the automotive industry in South African exports

According to the statistics of the South African Automobile Industry Association, in 2019, this country had about 14 billion dollars in exports and 12 billion dollars in imports of cars and parts, while in 2020, due to the effects of Corona on the car market, exports will be about 10.7 billion dollars and imports will be about 7.8 billion dollars, the dollar has fallen. This is despite the fact that our country produced about 992 thousand cars in 2019, but according to the customs statistics of Islamic Republic of Iran in the seven months of this year, Iran has exported about 80 million dollars of cars and parts, and in the past years, we have exported an average of 200 million dollars in this sector. In other words, in 2019, South Africa exported about 70 times more cars and parts than Iran, which indicates the difference in the level of quality and competitiveness of the car industry of the two countries in the global markets.

An important point regarding South Africa’s car exports is tariff-free exports to 28 EU countries and the free trade agreement with 15 SADC member countries.

(Southern African Development Community) as well as the Agua agreement with the United States

(African Growth and Opportunity Act), which has facilitated and helped the development of export of various goods, including cars. Accordingly, South Africa exported cars to 151 destinations in the world in 2020, and England, Germany, Japan, America, France, Italy, Belgium, the Netherlands and Australia were the most important export markets of South Africa in terms of car exports in 2020.

The basis of the South African automotive industry is based on the relationship between imports and domestic production, and this trade policy encourages domestic manufacturers to increase exports to obtain economies of scale and create a competitive environment in the market, and its ultimate goal is to satisfy customers through Bringing the power to choose between domestic and imported products and a wide variety of different models in a very competitive environment in terms of price.

Lessons from South Africa's auto industry for Iran

According to the above, in general, Iran’s automobile industry is an industry with a series of advantages and disadvantages, which has been unable to understand the global market and change production thinking due to the existence of a closed commercial environment and the existence of a non-competitive environment; Therefore, an important point that is less addressed in this industry is having a long-term or even medium-term business horizon and unsuccessful presence in export markets. Therefore, considering South Africa’s experience in exporting half of its products to 150 markets in the world, it is suggested to identify the opportunities and threats facing the automobile industry on the one hand, and the strengths and weaknesses of the automobile industry on the other hand, and finally using the experiences of other countries (including South Africa) to develop a suitable strategic direction for this industry in the framework of the requirements of entering the global markets.

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