Africa Automotive: Budget for electric vehicles and free trade

The 2024 Budget Review: Consolidated Spending Plans document, which was released in conjunction with Finance Minister Enoch Godongwana’s National Budget Speech, revealed the Department of Trade, Industry and Competition (DTIC) has reprioritised R964-million for the transition to electric vehicles. This move aligns with the New Energy Vehicles White Paper, which was approved by the Cabinet in 2023.

Finance Minister Godongwana detailed South Africa’s financial standing during his budget speech at the Cape Town City Hall. He explained the reprioritised funds complement the funding secured for the Just Energy Transition Investment Plan and the implementation plan for electric vehicles.

Mampho Modise, Deputy-Director General: Public Finance at National Treasury, clarified the reprioritisation would not impact the DTIC’s incentive programmes. Instead, most of the reprioritised funds would come from a Special Economic Zone (SEZ) fund. The decision to stop establishing new SEZs and focus on improving existing ones was made some time ago.

Christopher Axelson, National Treasury’s Deputy-Director General for Tax and Financial Sector Policy, further elaborated on the potential impact of the incentive. He predicted it would lead to large investments and a revenue forgone of R500-million in 2026/27 as those investments start to take place.

South Africa’s focus on new energy vehicles (NEVs) comes as automotive manufacturers worldwide are accelerating the push towards electric vehicles, moving away from combustion-based ones. NEVs utilise alternative energy sources instead of traditional fossil fuels. They are designed to be more environmentally-friendly and energy-efficient, aiming to reduce greenhouse gas emissions and dependence on non-renewable resources.

By the end of 2022, South Africa had 4 764 NEVs on local roads, according to the National Association of Automobile Manufacturers of SA.

Last year, during the medium-term budget, Godongwana stated the country’s transition to a low-carbon economy should be integrated into a comprehensive green growth strategy and industrialisation plans. He noted that the government plans to implement tax and expenditure measures to support the automotive sector during this transition.

In his budget speech, the finance minister said: “The Electric Vehicles White Paper outlines our strategy to transition towards a broader new energy vehicle production and consumption in South Africa, starting with electric vehicles.”

The African Continental Free Trade Area (AfCFTA) agreement, ratified by the majority of African countries, aims to consolidate 55 economies into a single, competitive mega-market of more than a billion people. This would make it one of the largest free trade areas globally.

The AU projects that the agreement will stimulate revenue growth and lift 30-million of Africa’s extremely poor out of poverty. However, despite the excitement surrounding the treaty, the implementation has been delayed, pushing back potential benefits and raising questions about the AU’s ability to execute the plan effectively.

The AfCFTA, first agreed upon in July 2019, is a cornerstone of the AU’s 50-year strategy to bolster Africa’s economic growth. It seeks to deepen economic integration in Africa by facilitating the flow of goods and services between countries, promoting cross-country investments, eliminating trade barriers, and advancing open visa policies.

The AU also hopes to use the plan to boost local manufacturing and secure a larger share in global trade, where Africa currently contributes only 3%.

All AU member states, except Eritrea, have signed the agreement. They will be represented through the eight recognized regional economic blocs, including the South African Development Community (SADC) and the Economic Community of West African States (ECOWAS). The treaty became operational in January 2021.

Collectively, the agreement represents a united African market of 1,3-billion people, worth approximately $3-trillion, roughly equivalent to India’s gross domestic product. The AU aims to reduce or eliminate tariffs on 90% of products and generate an additional $450-billion in revenues for Africa by 2035. If the agreement proceeds as planned, the AU estimates Africa’s economy will expand to $29-trillion by 2050.

The AfCFTA agreement presents significant opportunities for the Moroccan automotive sector, one of the best-developed on the continent, particularly for its affordable inputs, finished exports, advantageous labor, and reduced customs tariffs. This is according to the 9th edition of the CFC Africa Insights report.

The report, titled “AfCFTA: Unlocking the Potential of Intra-African Trade,” suggests increased trade integration with African partners, especially in North and West Africa, could lead to economies of scale. Morocco is well-positioned to benefit from the establishment of cross-border value chains, and the sector also holds promise for economies across the region.

In 2022, international automotive trade reached $1,6-trillion, surpassing that of crude oil and natural gas. The report underscores how automotive supply chains, spanning across borders, enable numerous countries to contribute to vehicle production.

Under the AfCFTA, the Moroccan automotive sector stands to gain two key opportunities: access to low-cost inputs and an outlet for finished goods exports. By integrating Morocco’s automotive sector with neighboring economies, Moroccan producers can capitalize on lower labor and material costs in Africa.

The report highlights Nigeria’s current tariff on unassembled cars stands at 5%, but is anticipated to decrease to 0% by 2030. This shift could generate employment opportunities and stimulate economic growth.

In his Budget speech, South Africa’s Finance Minister emphasised: “It aims to transition the automotive industry from primarily producing internal combustion engine vehicles to a dual platform that includes electric vehicles, by 2035.

“To encourage the production of EVs in South Africa, government will introduce an investment allowance for new investments, beginning March 1, 2026.

“This will allow producers to claim 150% of qualifying investment spending on electric and hydrogen-powered vehicles in the first year.

“The incentive will be implemented in addition to the existing support under the Automotive Production Development Programme.”

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 More investment as C-Class rolls of the East London production line

With the manufacture of the latest generation Mercedes-Benz C-Class having started at the company’s East London plant, it has also announced an additional investment of R3-billion. 

The plant upgrades feature environmentally-friendly buildings including a technologically advanced paint shop, body shop, assembly and logistics warehouse. 

Jörg Burzer, Member of the Board of Mercedes-Benz Cars, responsible for Production and Supply Chain Management says: “South Africa is an important location in our global Mercedes-Benz production network. The team in East London made a remarkable contribution to the international ramp-up of the new C-Class that we produce through efficient, flexible, digital and sustainable operations.

 

Thanks to the exceptional work of our colleagues in South Africa and all over the world and their first-class cooperation, our modern plants are able to produce outstanding vehicles like the new C-Class. With our additional invest of R3-billion in East London Plant, we underline our commitment to contributing to the South African economy and the Eastern Cape region."  

Commenting on the additional investment and start of production of the new C-Class, the Minister of Trade, Industry and Competition, Ebrahim Patel, said: “the launch of this new Mercedes-Benz C-Class, the latest generation to grace the roads of South Africa and the world, positions Buffalo City and the rest of Eastern Cape to continue its legacy of advanced manufacturing. Through the South African Automotive Masterplan, and the Automotive Production and Development Programme (APDP), we have created a platform for investment in the industry, deepening our technological expertise, creating local value chains, and securing jobs.”

Since the investment announcement in 2018, the R10-billion investment was utilised for a wide modernisation of the East London plant. The plant upgrades include a new Body Shop, which has been designed for higher capacities and features more than 500 ‘Internet of Things’ Industry 4.0-enabled robots. To allow the East London Plant to increase volume outputs, optimise the assembly line and achieve commercial synergies, a new Body Shop has been built at the East London Industrial Development Zone (ELIDZ), where vehicle parts for the New Generation C-Class are manufactured. 

More than 700 tons of steel have been installed for the additional three lines in the assembly shop and a new logistics warehouse. Utilising new methods such as art application technology, the new paint shop is now even more energy efficient and more environmentally-friendly. 

Overall, the new buildings comprise an area of approximately 100 000 sq/m. This reflects an addition of two thirds of the already existing buildings for the passenger vehicle production. At the Mercedes-Benz Learning Academy, additional robotics were installed for training. The Mercedes-Benz Learning Academy (MBLA) is a flagship and sustainable Public Private Partnership in cooperation with the National Treasury and the Jobs Fund.

 

Commenting on the successful ramp up of the New Generation C-Class, CEO of Mercedes-Benz South Africa and Executive Director of Manufacturing, Andreas Engling said: “Despite a tough year in 2020, we were able to accomplish what we had planned. To date, all of our buildings are complete and we are ready for the production of the new generation C-Class in full force.” 

With Ambition 2039, Mercedes-Benz strives for a fully networked and completely CO2 neutral vehicle fleet in less than 20 years, aiming to have plug-in hybrids or all-electric vehicles to make up more than 50% of its sales by 2030. 

In support of Ambition 2039, locally, the Mercedes-Benz Plant in East London has embarked on numerous initiatives to help preserve the environment for future generations. The new paint shop is more energy-efficient, reducing energy consumption per vehicle by 25%. The new buildings have been equipped with energy efficient LED lighting, which uses up to 90% less energy per lumen output. 

Additional plant sustainability initiatives include battery storage containers; rainwater recycling with a water storage of 1-million litres; green areas which have been installed on the corridors and the roofs as well as soluble labelling which is being utilised on production parts packaging to minimize waste reduction. 

“At Mercedes-Benz South Africa we are committed to an environmentally-friendly production. As such, we focus our efforts on the efficient use of resources. Through the certification and carbon offset strategy, the East London Plant will become CO2 neutral as of January 2022. As an organisation, we remain committed to a sustainable present and a bright and hopeful future,” added Engling.