Sovereign Africa Ratings

European markets are moving away from the type of vehicles that South Africa is manufacturing. South Africa has a robust market for the assembly of vehicles powered by internal combustion engines (ICE). If South Africa’s industrial development strategy does not change in line with one of the largest export markets and develop electric vehicles, this would be credit negative for the export industry.

As of 2021, the automotive industry in South Africa dominates the manufacturing sector, accounting for 17% of manufacturing output and 18% of total exports. It employs over 110,000 people directly across its various levels of activity, ranging from component manufacturing to automobile assembly. When indirect jobs in related industries are factored in, it is anticipated that the industry is responsible for more than 500,000 formal sector jobs in the South African economy, making the automotive industry a significant employer in the economy.

According to the Automotive Green Paper published on 18 May 2021 by the Department of Trade, Industry, and Competition, total automotive export revenues decreased by R26 billion, or 12.9%, from 2019's record R201.7 billion to 2020's R175.2 billion. From 2019's record of 387,092 units to 2020's 271,284 units in vehicle exports, a decrease of 115,804 units. This decrease in export sales indicates a need for government and industry intervention to accelerate growth.

The majority of South Africa's major export markets intend to restrict the sale of new ICE vehicles as early as 2025. The United Kingdom has been the leading export destination for automobiles since 2014. In late 2020, the United Kingdom announced that the ban on sales of traditional gasoline and diesel automobiles would be extended to 2030, five years earlier than originally planned. 25% of South Africa's automobile exports are sold in the United Kingdom and 24% to the rest of the European countries.

These developments should facilitate the nation's adaptation to the global shift toward e-mobility by modifying the automotive and industrial strategies. South Africa risks losing the bulk of its automotive exports unless the government implements policies to create an electric-vehicle manufacturing industry. South Africa relies on the automotive industry for about 18% of its exports and has lured major car manufacturers with a government incentive plan to set up local plants. The intention is to transition and keep the market in Europe, which obviously requires investment and some changes in policy and approach. If not, South Africa will lose its primary import and export markets for automobiles as this may lead to lost revenues and opportunities for export growth. Author to avoid emotive language. A decline in key exporting regions is a credit negative. This also has a negative impact on the capacity to collect taxes.

The legislative environment in South Africa is in its infancy and has no subsidies or incentives to stimulate the growth of the electric vehicle market. Thus, South Africa has not yet joined the ranks of nations experiencing a rapid increase in the development of the electric vehicle manufacturing ecosystem and value chain revolving around EVs. South Africa must enact regulations that facilitate the production and assembly of electric vehicles.