Gauteng Economic Indaba 8 th June, 2016 NAAMSA Presentation PARTNERSHIP ON AUTOMOTIVE INDUSTRY DEVELOPMENT 2

STRUCTURE Auto Industry Macro realities Micro-Gauteng-considerations Joint initiatives to support Auto Industry Growth and Development and create additional Employment Opportunities 3

AUTO INDUSTRY MACRO REALITIES The vehicle and component manufacturing industries represent a key driver of economic growth and employment creation. The SA auto industry in 2015 contributed 7.5% to South Africa’s Gross Domestic Product up from 7.2% in The industry contributed 33.5% of South Africa's manufacturing output in 2015 up from 30.2% in South Africa is ranked internationally as 21 st in terms of production and comprises about 0.7% of global production of 90 million vehicles. The aim is to grow SA vehicle production, principally through exports, to at least 1.0% of global production by The 7 major vehicle producers in South Africa depend on some 400 component manufacturers producing a wide range of parts – catalytic converters, exhaust systems, trim, harnesses, electronics, just-in-time assemblies, bearings, shocks, filters, machined and plastic components, tyres and glass. 4

AUTOMOTIVE PRODUCTION DEVELOPMENT PROGRAMME : ACHIEVEMENTS  The APDP provides a clear, albeit ambitious vision for the SA automotive industry through The Programme was formulated on the basis of extensive consultation with industry stakeholders. The APDP represents a carefully structured set of provisions to support the future growth and development of the industry by balancing the interests of consumers, the broader auto industry and governments’ objectives.  The APDP target of 1.2 million vehicle production by 2020 was formulated in 2007 – prior to the global financial and economic meltdown which severely impacted on the global economy and on South Africa. A more realistic target – based on current global realities, existing vehicle production plans as well as the possibility of new entrants – is probably around vehicles produced by

APDP ACHIEVEMENTS  Massive investment by multi-national vehicle manufacturers (and component suppliers) in manufacturing facilities & enhancements. Capital expenditure by the seven major vehicle producers over the last five years amounted to over R24 billion. Projected capital expenditure by the OEMs for 2016 is R7.6 billion (2015: R6.6 billion ).  Significant model rationalisation has resulted in a reduction from 42 platforms produced in South Africa 20 years ago to 12 platforms today. This in turn has contributed to substantially higher volumes per model produced and has generated economies of scale benefits and reduced complexity for suppliers.  Employment in the vehicle and component manufacturing sectors has held up well. Employment by vehicle manufacturers, on the back of higher production numbers, has increased by to over jobs over the past 15 months People are employed in the Component Industry.

APDP ACHIEVEMENTS  The industry’s trade deficit has started to decline as a result of strong growth in vehicle exports is on target for record industry vehicle production of around units, inclusive of export vehicles.  Official figures confirm continued and sustained growth in component supplier’s sales to vehicle manufacturers. Domestic value creation has increased dramatically over the past two years on the back of additional localisation and higher production. In fact, total local APDP value addition rose from R41.8 billion in 2013 to R47.0 billion in 2014 – an increase of over R5 billion or 12.3% in the first two years of the Programme. 7

 Stability in the automotive industry developmental policy framework is a key imperative to drive industry investment and future growth and development. In the final analysis, strong global linkages, supplier development and competitiveness improvement will remain critically important to support sustainable future development of the SA automotive industry.  Competitive suppliers are and will remain strategically important to the future of the industry. In this regard, NAAMSA initiated the Automotive Supply Chain Competitiveness Improvement (ASCCI) Programme aimed at deepening the local component supply chain, growing local value addition and specific interventions such as the pooling of manufacturer’s volumes to enhance localisation opportunities and supplier competitiveness improvement initiatives. 8

ROADMAP TOWARDS 1.0 MIL VEHICLES AND ACHIEVING INTERNATIONAL COMPETITIVENESS 900, ,000,000 vehicles 9

SUCCESSFUL REALIZATION OF 2020 APDP VISION: REQUIREMENTS APDP VISION 2020: PRODUCTION OF VEHICLES Stable Industrial Relations Environment Stability in official automotive policy Progressive, sustained supplier competitiveness improvement Effective beneficiation strategy Reductions in infrastructure, logistics and other input costs Market growth through review of vehicle taxes Introduction of Euro V fuel quality Incentives for low / zero emission vehicles Support for strategic sectors Development finance at preferential rates Preferential procurement

 Access to Africa  South Africa is Africa’s second-largest economy  Sophisticated financial services & business sector  Well-developed logistics  Relatively good infrastructure  Industry is part of global sourcing  Flexible production capability  Excellent quality of locally produced vehicles  Government support and policy certainty – successful MIDP and APDP  South Africa’s Free Trade Agreements  Skills development support programmes - especially by OEMs AUTO INDUSTRY STRENGTHS 11

 Difficulties in achieving economies of scale  General competitiveness gap with competing global manufacturing and assembly locations  Distance from major export markets  Lack of manufacturing competitiveness of South African automotive component manufacturers  Wage increases not matched by productivity improvements  Shortage of appropriately skilled people at local assembly plants and suppliers AUTO INDUSTRY WEAKNESSES 12

Geographical location – access to Africa South Africa is Africa’s second-largest economy A growing share of urban households Solid business environment Sophisticated financial services sector Strong culture of developing proprietary technology Comparable levels of economic productivity Relatively low production costs Relatively well-developed logistics Relatively good infrastructure compared with the rest of Africa SA automotive industry is part of global sourcing networks First world production testing Flexible production capability Excellent quality of locally produced vehicles Abundance of raw material (most valuable competitive advantage) Active stakeholder interaction Government support and policy certainty - MIDP and APDP represent some of most innovative and successful programmes to retain domestic vehicle & component manufacturing industry South Africa’s free trade agreements Skills development support programmes - especially by OEMs AUTO INDUSTRY OPPORTUNITIES  Attracting new vehicle assembly opportunities through improved competitiveness and exports  Increased localisation of components  SA’s participation in BRICS: build manufacturing base & trade and investment  Expand vehicle and component exports  Increased exports to Africa  Building partnerships with parastatals – Eskom/Transnet to improve efficiencies and reduce costs  Establishment of more R&D, engineering & testing facilities  New Trade Agreements  Produce more “affordable” cars  Growing SA middle class  Beneficiation of steel, aluminium, chrome & PGMs in metal products fabricated for automotive industry  Introducing more environment- friendly & fuel efficient vehicles  Electric vehicles 13

AUTOMOTIVE INDUSTRY THREATS  Slowdown in global markets  Volatile currency movements  Delay in introducing cleaner fuels  Competition from the fast growing automotive industries in some emerging markets  Development of other African automotive industries  Rising cost of labour  Rising cost of electricity  High cost and low efficiency of logistics  Security and stability of electricity supply  Unstable labour environment and strikes 14

MICRO-GAUTENG-CONSIDERATIONS Gauteng occupies a pre-eminent position in the SA Auto Industry with the largest concentration of automotive manufacturing in the country. Three large OEMs – BMW, Ford, Nissan – and around 40% of national component manufacturing are located in the Province. Gauteng accounts for about 24% (13 million people) of South Africa’s population but accounts for 39% of all vehicles in the country, 35.5% of new car sales, 31.2% of light commercial sales, 36% of truck sales and 43.2% of vehicle exports. The medium term future of the Gauteng Automotive Industry is closely linked to the performance of the 3 vehicle manufacturers and their component suppliers. Whilst significant opportunities for critical mass and economies of scale for component manufacturers exist, the Gauteng Automotive Industry – dependent on increasing levels of exports – is disadvantaged by lack of proximity to a port. 15

MICRO-GAUTENG-CONSIDERATIONS/CHALLENGES Whilst location close to South Africa’s main market is an advantage, the cost of logistics/transport in respect of exports represents an impediment. Improving logistics processes and reducing costs is a key competitiveness requirement. Stability of electricity and water supply to the Automotive Industry is critical. As is the need for good quality road infrastructure and efficient traffic flow management systems. Improved levels of competitiveness of component suppliers is crucial to the success of the broader Automotive Industry, particularly in Gauteng. The minimum objective of the Provincial Government should be to maintain Gauteng’s contribution to the National Automotive Industry around 36% of production and to facilitate further growth to 40% plus by

INITIATIVES TO SUPPORT AUTO INDUSTRY The Provincial Government, the Dti and the Industry should continue to focus on competitiveness improvement initiatives in the Automotive Value Chain – particularly component manufacturers and logistics. Expand existing support through the Automotive Industry Development Centre (AIDC) and the Automotive Supply Chain Competitiveness Initiative (ASCCI). The AIDC has contributed positively in a number of areas including enterprise development (incubation projects), supplier development, skills development, supplier parks and supporting empowerment projects. ASCCI has contributed positively in supplier competitiveness improvement projects, introduction of world class manufacturing initiatives and localisation projects. There is a need for the industry to work with the Provincial Authorities and the Dti to boost, on a coordinated basis, technical skills, supervisory and management development programmes. 17

CONCLUDING REMARKS The track record and performance of the SA Automotive Industry to date has been impressive. Going forward, the industry will have to cope with a number of challenges, however, none of them are insurmountable. The growth potential of the SA Automotive Industry (including Gauteng) remains above average and with the right policies, interventions and goodwill by all auto industry stakeholders – the industry can go from strength to strength and, in the process, realize the objective of higher vehicle production in South Africa, making a positive contribution to the future growth and development of the country and creating sustainable employment. Strategic alignment between Gauteng Municipalities, Provincial and National Government, the Unions, Suppliers and vehicle manufacturers requires ongoing focused attention. 18

Contact details NICO VERMEULEN NAAMSA T F E W 19