TRALAC - Trade Law Centre

Export Growth Could Be Eroded, Says BMW Boss

Tuesday, 05 March 2002

Source: Business Day

THE high prices charged for steel, aluminium and other dollar-linked materials that are essential inputs to the SA automotive industry could stifle its phenomenal export growth, BMW SA boss Ian Robertson warned last night.

The auto industry is SA's biggest export success, thanks largely to the Motor Industry Development Programme, which rewards export success of vehicles and components with tariff reductions on imports.

Almost half of BMW's local production is exported to the US, making the manufacturer the largest beneficiary of America's Africa Growth and Opportunity Act (Agoa).

However, Robertson, who is also the president of automotive industry body Naamsa, warned yesterday that SA may be becoming less competitive due to a series of factors that include the strengthening currency and import parity pricing on many locally produced inputs from plastic to steel to aluminium.

Robertson said that BMW SA would soon start tooling up for a new as yet unidentified export model, which has been awarded to SA "against competition from around the world".

However, he noted that a number of suppliers of raw material to the automotive industry had been increasing their prices "substantially", eroding SA's competitive advantage.

"The advantage of manufacturing in SA is taken away when you price in dollars," he charged.

He noted that the stronger rand was already having an effect on SA's attractiveness as an exporter, but he said most economists predicted there would be a correction in the local currency and he would not be surprised if the rand was trading at about 10 to the euro and to the dollar by the end of the year.

Robertson said that the issue was being tackled by the two automotive industry bodies the manufacturers' group Naamsa and the component manufacturers' body Naacam.

The CE of component manufacturer Metair, Alan Plummer, echoed Robertson's concerns, and suggested that while many SA suppliers had import parity pricing they had yet to match this "with import parity quality and supply".

"There are products they can't supply locally to the automotive component industry, and issues of quality and product availability need to be addressed."

Both Naamsa and Naacam have been engaged in lengthy talks with SA's largest steel producer Iscor.

Iscor's corporate affairs executive, Phaldie Kalam, said yesterday that negotiations with the automotive industry "are still under way". He said that in terms of the company's international parity pricing policy, steel prices in the domestic market continued to be among the lowest in the world.

Earlier, Robertson said that BMW was actively considering moving its export vehicles through Mozambique, instead of sending them south to SA ports, once Mozambique's infrastructure has been upgraded.

"We are seriously looking at using Mozambique in 2004," he said.

He said that without port or rail costs, it cost about $550 on average to send a vehicle from SA to the US more than double the $200 which a European exporter would pay. "It is a function of competitiveness there is very little competition on the SA route."

"Agoa brings benefits of $600 per car (in import duty savings), but half of this is consumed by extra freight costs.

"The problem facing smaller SA exporters and ourselves is getting things in and out of the country."