It is often said that freedom brings prosperity. For South Africa, that has certainly been the case. Since the end of apartheid in the mid 1990s, South Africa has been growing into one of the global economy’s rising stars.
For much of the past 20 years, South Africa has been mentioned as a member of the BRICS group. BRICS is an acronym for a group of countries (Brazil, Russia, India, China and South Africa) who are deemed to be at a similar stage of advanced economic development. And until recently, these BRICS nations were outperforming the global economy as a whole. In South Africa’s case, the economic growth has been dramatic, with gross domestic product (GDP) rising from US$ 144 billion in 1996 to more than US$ 723 billion by 2015. That’s more than 500 percent growth in less than 20 years.
The automotive industry has been among the industries to have prospered during these boom times. Overall, the industry employs about 100,000 people in original equipment (OE) assembly and parts manufacturing, and an additional 200,000 people in the aftermarket and retail segments.
However, with a population of approximately 53 million people, South Africa has a modest vehicle parc of only 6.6 million vehicles. Nevertheless, that is the most vehicles of any nation in Africa. South Africa’s 10-year compounded annual growth rate for vehicles in operation of 4.4 percent slightly lags the rest of the continent, which is at 5.8 percent.
The car parc is incredibly diverse for such a small market. In 2015, 37 different brands, representing 344 unique models were sold, comprising an annual sales volume of just over 620,000 units. Overall, the market was down by 4.1 percent from 2014, when sales were 646,716 units. The market is dominated by five brands that represent 67 percent of new units last year.
Toyota, which has led in market share for many years, comprised 19.9 percent of the market, and was followed by Volkswagen Group (15.9 percent), Ford (12.7 percent), Hyundai-Kia (9.6 percent) and General Motors/Isuzu (9.5 percent). Amongst the top five manufacturers, only Ford saw growth in sales during 2015, up by 5 percent.
Popular vehicles in South Africa are either small vehicles, such as the Toyota Corolla or the Volkswagen Polo Vivo, as well as mid-size pickup trucks. In fact, five of the top 10 best-selling models in South Africa are pickup trucks, led by the Toyota Hilux (5.8 percent share) and the Ford Ranger (5.5 percent share). The lack of highway infrastructure outside the major cities, plus the various uses pickup trucks have in agricultural and mining industries makes these highly sought after vehicles.
With the top 20 models comprising nearly 50 percent of 2015 sales, the balance of 320-plus models make up the rest of the market. For parts suppliers this can make product portfolio planning difficult.
Jeffrey Guenther, VP of business development for Hastings Manufacturing Co., a piston ring manufacturer that has a strong export business to South Africa, said “the range of applications is incredibly diverse for the size of this parc – to have 80 percent or more of the engine applications you better have a very full line.”
For manufacturers seeking to invest in South Africa, there are numerous programs to aid the growth of the automotive sector, and in particular exports. Exports are important to the automotive sector in South Africa, as they allow economies of scale that support local (in-country) automotive trade activities, and provide a better return on capital investment. The most popular of these programs is the Automotive Products Development Program (APDP). The APDP focuses on local value-added development for the industry, and it reinforces the government’s long-term policies on the automotive sector. Both of these factors are important to draw long-term investment in plants and equipment.
However, manufacturers and exporters who are seeking opportunities in South Africa without investment in a manufacturing plant still have options. In a June 2016 report, the U.S. Department of Commerce issued a “best prospect” alert for South Africa’s automotive specialty equipment segment. Performance and accessories distributors and retailers are looking to expand ties with U.S.-based manufacturers and suppliers of these products.
According the Commerce Department report, many inquiries from this market go unanswered. Listed in the report were such items as, “intercoolers, ball bearing turbos, octane boosters, gauges, racing bolts, performance water injection systems, high-flow injectors, racing clutches, metal head-gaskets, racing tires, nitro fed boosters, racing pistons, calipers and racing disk kits, high-pressure fuel kits, gas flow cylinder heads and dynamometers.”
One barrier to potential sales in South Africa might be the overall softness in their economy. As with the rest of the world, there has been a general economic slowdown the past several years. According to Guenther, “The economy [is] overall soft to poor, although nowhere near the train wrecks such as Venezuela, Brazil and other South America markets.”
That weakness has caused a strong decline in their currency, the rand, against the U.S. dollar. During the past three years, the rand has depreciated nearly 40 percent against the dollar, falling from 10 rand to $1, to nearly 14 rand to $1 today. However, that is an improvement since January of 2016, when the rand bottomed out at nearly 17 to a dollar.
Distribution channels in South Africa are not always easily found. “The aftermarket has a few, but strong distribution options exist,” says Guenther. Often these connections are made through direct contact through websites and at trade shows.
The largest trade show in South Africa is the Automechanika Johannesburg show, which is next scheduled to occur September 27 to 30, 2017. According to Automechanika press figures, South Africa represented almost US$ 333 million of U.S. aftermarket parts in 2014. Like most international trade shows, the U.S. had a small pavilion at the last show, with nine companies representing the U.S. export and manufacturing community.
After finding the right distribution partners, it is very important to follow up with careful planning for this immensely diverse market. Having the right portfolio, or at least the right elements of a portfolio, will be critical to sales success. Guenther adds that distributors are, “starving for technical information and [the] sharing” of data and other resources. He adds that while it is often a difficult and long journey in getting there, it is worth it because of the great people.
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