New investments into manufacturing need to come with export markets

At the sixth SA Investment Conference last month, President Cyril Ramaphosa announced that an initial R890-billion in investment pledges had been secured towards a target of R2-trillion over the next five years.

The “opening position” of this next phase of SA’s investment drive would create over 230,000 permanent jobs, he said.

However, as welcome as announcements of new investments and promises of job creation are, a question that does not seem to be asked of new industrial investors is whether they are planning to service only the limited local market (in many cases simply displacing existing local production), or are they bringing export orders and access to new markets with them?

Exports play a significant role in the South African economy, for a number of reasons:

• Despite being only a “middle power” on the global economic stage, one of the reasons we continue to be taken seriously is our high-value exports – of raw materials led by gold and platinum group metals in particular, also chromium, gems, coal, iron and manganese ores; together with agricultural products led by citrus fruits, agro-processed products such as wine, wool and mohair; and manufactured goods led by passenger and commercial vehicles, trucks and automotive components;
• As Africa’s largest economy, South Africa’s annual exports account for about 20% of the value of all exports from the continent and we are the most diversified in terms of value-added and manufactured products and destination markets, while countries such as Nigeria, Angola, Algeria and Egypt are heavily reliant on oil and gas reserves to drive their export values;
• Exports are key drivers of economic growth that supports job creation, with SA’s exports of goods and services at just more than 30% of GDP in 2024;
• Exports add value to the national balance sheet by generating foreign currency earnings; and the rising value of exports over the past few years has ensured a relatively consistent widening of SA’s trade surplus – exports valued at R2.078-trillion in 2025, according to the SA Revenue Service, generated a positive trade balance of more than R200-billion;
• Exports of value-added and finished goods, such as vehicles, bring localisation of production and value chains, and transfer of skills and technology to meet the requirements of global partners; and
• Exporting enables local companies to achieve economies of scale and grow beyond the limitations and size of the local market, driving innovation and technology investment to meet the demands of global competitiveness and generating more local employment. Diversifying export markets and products improves SA’s overall economic resilience and reduces vulnerability to global and regional crises that disrupt trade.

These are strengths that South Africa can’t afford to let go of.

Manufacturers that can balance servicing both domestic and export markets are better shielded against slow local economic growth and global risks, and better able to take advantage of opportunities that might emerge from global crises or emerging, high-growth markets.

Is SA doing enough to encourage new investors to consider export markets?

Turning the focus specifically to automotive and components manufacturing, which contributes almost a quarter of SA’s manufacturing output – with exports of passenger and commercial vehicles, parts and accessories the largest contributor to exports of manufactured products (as opposed to raw materials such as gold and platinum).

Since late last year, there have been a number of announcements of new and upcoming auto investments, primarily by Chinese manufacturers.

These include Chery’s purchase of the Nissan plant in Rosslyn, Tshwane; Foton’s announcement that it has commenced completely knocked down (CKD) manufacturing of its Tunland bakkies in the Coega Special Economic Zone; Geely’s re-entry into the local market and signing an agreement with China National Building Materials South Africa for coordinated development of “localised supply chains”; and reports that GWM is weighing options for local manufacturing, either by sharing or acquiring an existing facility.

South Africa’s domestic market is too small to sustain the production volumes required to deliver economies of scale, and the success of the “traditional” original equipment manufacturers (OEMs) in the country has been tied to their ability to secure orders from their global headquarters for vehicles to be manufactured here for export to markets in the UK, Europe, the US, South America and Asia.

For example, the VW Polo is manufactured in Kariega for all the company’s right-hand drive markets across the world, similarly the Mercedes C-class in East London and the BMW X3 and Ford Ranger in Tshwane, while Toyota’s Durban plant is one of its global hubs for building Corolla, Fortuner and Hilux models.

The scale of exports, coupled with technology transfer, is what has enabled the local automotive industry to be globally competitive and has driven the localisation of component manufacturing, which supplies the local OEMs as well as exporting parts globally. This is where the bulk of employment creation and economic value addition in the automotive manufacturing sector is located.

SA’s vehicle exports grew almost 6% in 2025, to a record high of 414,268 passenger and light commercial vehicles exported to 109 countries, despite the dramatic slump in exports to the US as a result of the increased tariffs.

This export orientation, with 70% of locally manufactured vehicles destined for global markets, is vital on several fronts – retaining the contribution of the auto sector to SA’s export values and balance of trade; ensuring the sustainability and competitiveness of CKD manufacturing with its deep impact on local value chains; and underpinning the growth of the components sector.

Without export orders, it is doubtful that incoming investors will have much growth potential, and all they are likely to do is displace domestic vehicle sales – in other words, cutting the existing cake into smaller slices.

Further, new manufacturers undertaking CKD manufacturing, but with wholly imported parts, represent a risk of eroding the base of local components manufacturing, which is a vital support to exports along with localisation and employment generation.

The new generation of vehicle manufacturers, driven by Chinese government efficiency incentives and subsidies, tend to own their entire supply chain and have excess capacity, and thus have little interest in supporting South African component manufacturers.

The economies of scale, and importance of exports, required for a business case to make sense, possibly don’t apply to heavily government-subsidised manufacturers.

On the upside, the entry into the local market of manufacturers performing local assembly, where previously their imports have swung the balance of domestic vehicle sales towards imports over locally manufactured vehicles, is potentially a positive development for confidence in the local market.

SA’s enabling environment and incentives don’t match up

The Automotive Production Development Plan (APDP) was formulated some years ago, on a forecast of SA’s market growing to 1 million vehicles per annum – we are still way off this target.

The 60% local content goal has not been achieved.

While local vehicle sales and exports are on the rise, hitting record highs in some cases, we have still not hit the APDP targets of production volumes, local content and employment, and are nowhere reaching these by the end-date of 2035.

Automotive industry leaders have been pleading for the last few years that the APDP and SA Automotive Masterplan need updating and review in line with current global industrial and market conditions.

Particularly, local incentives need to shift to support both localisation of components and export-driven manufacturing.

An unplanned consequence of automotive industrial policy that incentivises little value-adding semi-knocked down assembly (vehicles fully imported as a kit to be assembled locally) urgently needs to be reversed.

Enabling environment for exporters

At the same time as encouraging new investors to adopt an export-oriented focus and contribute to the drive to grow SA’s exports, it is vital that the enablers of global competitiveness and local ease of doing business are enhanced.

The upending of the global trade order since the US’s imposition of the “Trump tariffs” last year and retaliatory and protectionist moves by other countries, along with the temporary extension of African countries’ beneficial access to US markets under the African Growth and Opportunity Act only until this December, has highlighted the need for South Africa to move with speed to secure new trade agreements that provide preferential access to key and new, emerging markets. These include securing and formalising mutually beneficial trading relationships with BRICS countries and markets in eastern Europe and Southeast Asia, as well as leveraging the opportunities presented by the African Continental Free Trade Area.

This would be to the benefit of existing exporters as well as making exports an attractive prospect for new investors.

Encouraging export-driven investment and economic growth goes hand-in-hand with addressing the multiple challenges that face South African businesses and that hinder competitiveness and smooth trade flows – logistics infrastructure and capacity; excessive red tape and a lack of ease of doing business; and the enabling environment of infrastructure and reliability of electricity and water supply.

Further, local job creation and localisation of supply chains by incoming investors must be enabled through development of industry-ready technical skills, and incentivising investments in technology in order to future-proof local manufacturing. These are also key enablers of the skills and technology transfer expected of global manufacturers setting up shop in South Africa.

The kind of incoming investment that South Africa needs, and should be encouraging, is that which doesn’t just slice the local market cake into thinner slices, but grows economies of scale, production volumes and export markets.

That is where real, sustainable job creation and economic growth lies.

When welcoming new investments, there are some vital questions to ask, to determine whether investments will add long-lasting value to the local economy – or just satisfy short-term promises. DM