It starts with education, basic services and access to the market. Investors don’t come to South Africa for Table Mountain or the Kruger National Park. They come here for opportunities and infrastructure.

Speaking at the Mercedes-Benz stakeholder dialogue at its East London manufacturing plant about issues in the automotive industry and its supply chain, economist Thabi Leoka said: “Investment’s like a beauty contest: you have to be the prettiest.”

To be the most attractive, you need to offer investors stable electricity and water supply, security and access to ports, not require investors to become suppliers of their own services.

A new company coming into South Africa does not want to be an electric energy-creating company or a water-maintenance company before it can become a manufacturer. It wants to invest in the country, employ skilled people, produce an export and also sell locally.

What would attract investments? “It’s very, very simple. Remove the burdens that we have; let’s fix the energy crisis expeditiously. Let’s fix the water crisis because it is bubbling along before it becomes a massive crisis. Let’s fix the unemployment crisis,” Leoka said.

It’s a reality check for the country’s authorities and an opportunity to collaborate with the private sector, to create an environment that is attractive to investment, globally competitive and sustainable.

SA should also be nurturing its trade relations, she said, and prepare for any eventuality to position it for the future. “If it wasn’t for Agoa, the expansion of South Africa’s automotive industry – which has a strong employment multiplier effect – would not have been possible, because SA is not competitive against countries with less expensive labour costs and in closer proximity to the United States, such as Mexico.” 

Andreas Brand, Mercedes-Benz South Africa CEO, told delegates that the brand had a rich manufacturing heritage in the country. “For the past 65 years, we have had a substantial impact on the South African automotive industry and supply chains. Through today’s stakeholder dialogue we intended to bring together key stakeholders to exchange new insights, strengthen existing relationships, build new connections and collaboratively problem-solve to lead innovative solutions to ensure the automotive industry and supply chain is better equipped to face future challenges.”

This year, Mercedes-Benz marks 65 years of manufacturing in South Africa, with a history dating to 1896, with the import of the Benz Velo. SA’s first Daimler-Benz branch opened in 1954.

In June 2021, MBSA announced a R13-billion investment for the expansion of its East London plant and the production of the current C-Class. 

Growth potential

Comparing the automotive industry to an “anchor tenant”, Leoka said the industry should be measured by how many other industries it created and how many entrepreneurs emanated from the region.

Growing the economy was not possible without a stable electricity supply, access to water and ports, high numbers of skilled workers and security. 

Bigger companies had bigger budgets to cushion themselves against local, national and international crises, but not smaller secondary companies that were critical to the industry. “Big companies can use solar panels for instance, and they can talk to the mayor about their water issues. The smaller company may not have that access to the mayor’s office and may not afford the solar panels. All these bigger issues are killing other secondary companies that should be supporting the major tenant. So once you get those issues sorted locally, you can deal with government regulatory issues, and then the international ones as a matter of being competitive.”

Labour was a further concern: If 64% of the younger generation are not at school or not in training, investors are frightened off because they question who they will employ if skilled labour is so scarce. “This is a problem for a company that comes to South Africa, wants to expand, wants to employ more people and train more people, but it can’t… we need to do something about this to enable that spirit of entrepreneurship to enable South Africans, especially the young, to be suppliers to some of these big companies and be trained by them,” she said.

Citing the example of Switzerland, where only 30% of Swiss have university degrees and 30% undergo apprenticeship, she said it showed how good their basic education was because a matric certificate allowed the Swiss to find work in companies like Mercedes-Benz, where they go on to study while working. “That’s the model that we should be following as a country.” 

The sectors that were supposed to be employing en masse – manufacturing, agriculture and mining – were not growing. In 1994, manufacturing added 21% to SA’s GDP: today, it was 12%. 

Input costs were exceedingly high, Leoka said, particularly the costs of labour and electricity, which had killed many smaller manufacturing companies, so companies were forced to mechanise. “The unions need to think about what they can do to capacitate those people who are being replaced by machines because this is going to happen very quickly, with the introduction of AI, and digitalisation.”

Seize tomorrow’s opportunities

Mercedes-Benz aims to go all-electric by the end of the decade, depending on local market conditions. It also anticipates that by 2026 electric vehicles will contribute 50% towards total sales.

In 2022, Mercedes-Benz launched a diverse range of EVs in the local market, including the EQA, EQB, EQC, EQE and EQS. By the end of this year, the Mercedes-EQ portfolio will increase with two new additions: the EQE SUV and the EQS SUV.

Brand said they didn’t know the distribution of internal combustion engine, hybrid and full EVs over the next few years, but they believed it was their responsibility to shape the future. MBSA was a player in all three markets. “I would love to see a country which is fully using its potential from raw materials to full batteries being assembled here, as well as the drivetrain of a fully electric car. 

“That’s where the beauty lies in the countries, we can embrace an opportunity that is currently not existing because most of us import our engines. Let’s change that mindset instead.” DM