Ladies and gentleman,
Representatives of the BAIC Group in China.
We are standing in what used to be a warehouse facility until a few months ago. It received imported motor components and distributed these in South Africa. From January 2013, this warehousing facility will be converted into a manufacturing facility – a taxi assembly plant, employing 470 people.
This is a concrete step towards government’s programme to reindustrialise South Africa and to move it away from a trajectory it had been on for some time – that is, an ever-increasing reliance on imports of manufactured goods, with the export principally of raw materials, resulting in South Africa losing a significant part of its manufacturing base.
The New Growth Path and its manufacturing driver, the Industrial Policy Action Plan, has set out a strategy to reverse this trajectory. These policies set out how our economy can rediscover its roots in the productive sectors of the economy, in manufacturing, mining and agriculture.
Last year we concluded a Localisation Accord which commits government to support efforts to develop South African industry. With the global economic slowdown and the weakness in European markets, which account for a considerable part of South African motor exports, it is vital that we find more opportunities in the domestic and regional markets.
The country has seen a significant investment commitment from companies in the auto sector, demonstrating a confidence in long-term growth prospects in the economy.
BMW has invested in the new 3-series manufacturing plant, Mercedes Benz has selected South Africa as a site for the production of the new C-class vehicle and Ford is producing its Ranger vehicle locally for export to more than 100 countries. Toyota made a significant announcement recently to expand its production capacity in Durban.
This announcement today follows on these commitments and helps to strengthen South Africa’s location as the auto-hub of the African continent.
The state industrial agency, the Industrial Development Corporation, has partnered with Beijing Automobile Works (BAW), an established Chinese Original Equipment Manufacturer (OEM) and China Automotive Manufacturers to develop and set up this taxi assembly plant in South Africa. A new 16-seater minibus taxi, designed and developed by BAW, will be assembled here.
The launch of this plant today represents several important stories: stories about job creation, about industrialisation, about import substitution, about localisation and the implementation of the Localisation Accord, about investment, about the role of our development finance institutions, about Chinese-African relations and about South-South cooperation.
Industrialisation and DFIs
Since 2007, South Africa has not manufactured any of the taxis that its citizens travel in every day. It meant that South Africa’s entire annual demand – about 22 000 to 23 000 minibus taxis – was imported.
As this annual demand is expected to increase to about 28 000 by 2015, the level of imports of minibus taxis would have increased sharply in the next few years. In the space of a few months, this is changing.
In April 2012, Toyota’s minibus taxi assembly line opened at Toyota South Africa’s manufacturing facility at Prospecton in Durban. Today, this BAW taxi assembly plant is being launched in Springs, and will start production in January 2013. The result will be that about two-thirds of the annual demand of taxis will be assembled in South Africa from next year.
This is a solid achievement over a short period. We see the assembly of taxis as a step towards full localisation and manufacture of taxis in South Africa. It is envisaged that this project will not only supply the South African market. It will also create export opportunities to the rest of Africa – a consumer base of one billion people on a continent registering some of the fastest growth rates in the global economy.
While there are about 200 000 taxis on the road in South Africa, it is estimated that there are a further 100 000 in the rest of Southern African Development Community (SADC), with an annual demand of about 12 000 taxis or about 50% of the annual demand in South Africa. The minibus taxi sector is a vital part of our public transport system, providing a commuting service to millions of working South Africans.
We require affordable, safe and reliable vehicles to provide transport to our people. The opening of this BAW plant is one of the first projects under the IDC’s local bus, truck and minibus programme, which was initiated in 2010 to facilitate and actively develop projects supporting the development of the local Medium and Heavy Commercial Vehicle industry in South Africa, with the intention of creating jobs and enhancing production capacity, as well as promoting skills transfer in the industry.
The skills transfer and skills development in this project will include extensive training of employees by BAW over the first two years, as well as employees receiving training at BAW's plants in Beijing.
Investment and SA-China relationship
The equity investment by Beijing Automobile Works (BAW) is a private sector vote of confidence in our economy. With the support of the IDC and local investors, the total project investment will be about R200 million from all shareholders, with the IDC, contributing about a quarter of the equity, as well as debt facilities of almost R100 million to the project.
We welcome BAW to South Africa, as we welcomed Toyota’s decision to set up a taxi manufacturing plant in the country. It will create competition on the domestic market between two local manufacturing plants, which we hope will help to spur innovation and price competition and improved product and service support.
BAW owns three plants within Beijing, including a recently completed sedan manufacturing facility and a CKD plant for trucks in Russia, with a manufacturing capacity of over 400 000 vehicles per annum. BAW is a subsidiary of Beijing Automobile Industry Holding Company (BAIC), the fourth largest OEM in China, manufacturing and selling over 1.5 million vehicles annually, close to three times the total automotive manufacturing capacity of South Africa.
BAIC also manufactures Hyundai and Mercedes vehicles in China. This investment is significant. It is one of the first major investments by a Chinese OEM in the South African automotive industry and, we trust, the first step in the establishment of a strong manufacturing presence by China in the local market.
President Zuma has shared with his Chinese counterpart South Africa’s concerns about the composition of trade between the two countries. This plant can contribute to a more balanced trade profile, in which more value-added goods are made in South Africa.
It is an opportunity to avoid the colonial model of trade, where we send our raw materials elsewhere, only to import finished goods. This is neither sustainable nor beneficial to our relationship. The government recognises the importance of the motor industry and the motor component manufacturers to create jobs, grow the economy, export, introduce and develop new technology, skill our workforce and beneficiate South Africa’s raw material base.
We have developed a programme to support the automobile and auto component sectors, including investments such as these by BAW. But it is not only because of government’s support that we see these investments. It is also because the South African industry has consistently met the quality standards required by parent companies.
Localisation
In government’s economic strategy, localisation plays a central role in revitalising our manufacturing sector and creating jobs. BAW has advised that it intends to proceed from this semi-knocked down plant to a Phase 2 which will entail the establishment of a new Complete Knock Down (CKD) plant, including the installation of the assembly line, welding line and painting booth.
Should this second phase be implemented, it will mean a considerable increase in the level of localisation in the manufacture of the taxi. This phase will be initiated upon BAW reaching the necessary volumes to allow sufficient economies of scale to support the feasibility of the second phase.
Phase 2 will require total project funding of close to R2-billion, and could assist in the creation of a further 1 500 direct jobs within the plant. With sufficient volume reached during Phase 2, BAW will support the establishment of component manufacturers to supply the plant directly, providing opportunity for a significant number of indirect jobs to be created through lower tier suppliers.
BAW has advised that proposed components to be manufactured locally include batteries, windscreens and seats. Further jobs will also be created through the support of dealership and service centres throughout the country, with the IDC estimating that total job creation will be over 5 000 jobs on full production.
Conclusion
Government is committed to drive to local manufacturing and to strengthen South Africa as a manufacturing platform for global markets. Together with local and international investors such as BAW, South African investors and the IDC, we will continue to actively pursue such projects.
Thank you!
Enquiries:
Ayanda Shezi
Cell: 082 445 0009
E-mail: ashezi@economic.gov.za
Dougie Oakes
Cell: 082 045 1167
E-mail: doakes@economic.gov.za
