TRALAC - Trade Law Centre

South Africa: New East London motor plant to fuel exports and jobs

Tuesday, 13 October 2009

Source: Business Report (South Africa)

The announcement that a new greenfield vehicle manufacturing plant is on the cards for the East London industrial development zone is an exciting development. The facility, to be operated by an outsourced assembler, will have the capacity to produce 50 000 vehicles a year for several newer entrants to the local market.

It will be the first original equipment manufacturer (OEM) automotive facility set up in South Africa in the past four decades, and will boost foreign investment, create jobs and bolster exports.

OEMs apparently interested in using the facility include Tata and Mahindra from India, Hyundai from South Korea and five Chinese manufacturers, including Cherry, Great Wall Motors and Chana.

A 50 000 unit a year plant means it will meet the qualifying production threshold for incentives in the government's new Automotive Production and Development Programme (APDP). However, doubts exist over whether the outsourced assembler and/or manufacturers will qualify for incentives and support available under the APDP, so this could be problematic.

If this issue can be amicably resolved, competition in South Africa's motor industry is likely to become even fiercer, hopefully to the benefit of consumers.

Another benefit to any vehicle brands that decide to go this route is that they will become eligible to gain export benefits provided by the US's Africa Growth and Opportunity Act (Agoa) and South Africa's automotive agreement with the EU.

Agoa and the automotive trade agreement with the EU will provide manufacturers with attractive incentives to export into the American and European markets. This is likely to boost production volumes and therefore employment in the automotive sector in South Africa.

The improved export performance of the automotive sector in recent years has had a positive impact on the sector's trade balance, reducing the industrywide trade deficit to about R6 billion last year from R35bn in 2007. Additional exports from new manufacturers should further aid the automotive sector's drive to cut its negative trade balance.

Cellular squeeze

Today Parliament will hold long overdue public hearings on cellular interconnection rates. This will assist the Independent Communications Authority of SA (Icasa), which held similar hearings three years ago but failed to regulate the rate.

The regulator is under pressure from all quarters to force operators to reduce the rates. This time around, there are indications that it will happen.

However, there are already concerns raised regarding the November deadline. Some industry commentators feel that it is unlikely to be met given that Icasa has to follow a process. There are also concerns that if that regulatory framework process is not followed, it might lead to litigation.

The operators are feeling the pressure and will probably not litigate for fear of being seen as stalling the process.

The weekend comments by the Department of Communications that it would push forward the deadline highlights how fed up it is with the operators and - to an extent - the regulator, which for years lacked the muscle to reduce the rates that it approved nine years ago.

The networks' lobbying and legal powers have outgunned those of Icasa. Unfortunately it never received the backing of the previous cabinet.

Arthur Goldstuck, a managing director at World Wide Worx, argues that cellular networks were given their near-monopoly on the basis that they were providing an essential service to South Africans, and that monopoly position would enable them to generate the revenue they needed to build up their networks and the profits they needed to satisfy their shareholders.

The interconnect fee was intended to merely cover their costs of allowing other networks to terminate calls on their networks. It was never intended to be a source of profit.

If the networks have built their revenue models on the interconnect fee, they have built instability into their businesses.

In short, they have very little basis on which to mount a serious moral or logical challenge to the department's directive, and should they attempt to do so, they will position themselves as being antagonistic to the needs of the population as a whole.

Globalisation's ebb tide

That suspect old adage about a rising tide lifting all boats has been challenged quite persuasively by a report compiled by the World Trade Organisation (WTO) and the International Labour Organisation.

The results of their study, titled Globalisation and Informal Jobs in Developing Countries, suggest that if a rising trade tide is to lift all boats then governments have to intervene and help in directing the flow of the tide.

The report calls into question some of the earlier claims about the benefits for employment creation as a result of stronger growth and trade integration.

In the absence of co-ordinated government policies there appears to be substantial risk of a sort of "ghetto-isation" process developing.

In this process low-skilled workers remain trapped in the informal economy, serving some of the needs of the formal economy, but never being able to make the transition from informal to formal. There seems no limit to how large this informal ghetto can become; no matter how large it becomes it never spills over into the formal economy. And so, while informal workers may be a little better off in the sense that they have secured some form of work, their skilled counterparts in the formal economy are significantly better off and getting even better with each day of work.

An aspect of the report, which was written for all 153 members of the WTO but which might resonate with our own government, is the call for "close collaboration between ministries". This, say the authors, can foster further information exchanges.

Edited by Peter DeIonno. With contributions from Roy Cokayne, Thabiso Mochiko and Ann Crotty.

East London IDC: http://www.elidz.co.za



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