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ECDC annouces R15 million investment in automotive sector

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September 17, 2013 – In a move aimed at further increasing local content in the Eastern Cape automotive components manufacturer industry, the Eastern Cape Development Corporation (ECDC) today announced it has approved a R15 million investment into an East London based global automotive company TrelleborgVibracoustic-Ikhwezi.

In the last year alone the East London Industrial Development Zone (IDZ) has announced investments amounting to some R640 million by three global automotive components manufacturers aimed at increased local content. These are the R380 million investment into the expansion of the Johnson Controls current plant at the IDZ, R180 million investment into the IDZ by German automotive component manufacturer Friedrich Boysen GmbH and Co. KG as well as the R80 million investment by international supplier R G Brose. The decision to localise content is influenced by discussions with government on extending the value chain and local content of the South African automotive sector.

TrelleborgVibracoustic (TBVC) currently supplies several suspension mounts for the C and E class and has recently been nominated on the next generation C Class (W205), which is scheduled to start production in 2014. The bushings and suspensions are supplied to Mercedes-Benz plants worldwide as well as locally in East London.

Late last year, TrelleborgVibracoustic (TBVC) announced it had entered into a majority owned R36 million Joint Venture with East London-based Ikhwezi Investment Holding to locally manufacture chassis bushings for the Mercedes-Benz C and E class to support South Africa’s leading supplier of automotive suspension systems, Foxtec-Ikhwezi. The plant covers an area of 4000m2 and production began in 2013. It will initially employ 22 people increasing to around 55 once peak volumes are reached. Ikhwezi has a 30% share and will provide support services such as recruitment, finance and information technology management. TrelleborgVibracoustic (TBVC) will have full product design and manufacturing responsibility.

“ECDC”s investment of R15 million into this multi-million rand JV operation is well timed. With this investment, ECDC has ensured that modern technology is brought into the Eastern Cape and this will improve skills for the economy and job opportunities in the car manufacturing sector. Currently the TBVC plant in Port Elizabeth supplies bushes for the current model which is manufactured in Poland.

“With this investment we have swung the manufacturing philosophy and technology of the plant towards increased local content. Disbursement started at the beginning of the current financial year. We have also leveraged on other export trade opportunities to the European markets. We are proud of the fact that we have used the incentives from the Jobs Stimulus Fund to further boost local employment opportunities at the plant,” says ECDC chief executive Sitembele Mase.

The new automotive incentive, the Automotive Production Development Programme (APDP) has also played a central role in the localisation of content.
Mase explains that the APDP provides fantastic opportunities for the Eastern Cape which forms the backbone of Africa’s automotive sector. With a refined programme like the APDP, there exists an opportunity to increase local content from the current levels of 40% to 65% through various support mechanisms. With all its successes, the MIDP did not go far enough in supporting component manufacturers. The APDP strengthens this area, which is the lead player for creation of the much needed jobs in the country. As at 2011, about 68 000 people were employed by component manufacturers whilst the OEMs employed about 28 000.

“The programme will include a local assembly allowance (LAA) which makes it possible for vehicle manufacturers with a plant volume of at least 50 000 units per annum to import 20% of their components duty-free, reducing to 18% over three years. The APDP provides for stable import tariffs of 25% for completely built-up vehicles from 2012 and 20% for components used in vehicle assembly. An automotive investment allowance which would take the form of a direct grant of 20% of the project over three years exists. This will be used to support investment into new plants and machinery,” says Mase.

The bedrock of the Eastern Cape economy, the automotive sector has undergone a metarmophosis in recent years with a move towards increased local content in the sector. Currently, the Eastern Cape is home to automotive giants such as Mercedes-Benz, Ford, Volkswagen South Africa and General Motors. The changes in the sector are also influenced by the new incentive for automotive manufacturers, the Automotive Production Development Programme (APDP). The APDP has two major objectives. It aims to increase volumes to 1.2 million vehicles a year by 2020 and to diversify and deepen the components supply chain.

All of these companies are investing in increased capacity. In the Eastern Cape, the automotive industry provides 30% of the jobs in the province’s manufacturing sector and accounts for 32% of gross added value. Half of South Africa’s passenger vehicles are made in the Eastern Cape and 51% of the country’s motor exports originate there.

Author: Lunga Mtshizana

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