South Africa’s automotive industry has welcomed government’s plans to implement tax measures and reprioritise funds to support the implementation of the new energy vehicle (NEV) roadmap.
This, after finance minister Enoch Godongwana stated during his Medium-Term Budget Policy Statement (MTBPS) presentation in Parliament this week that government plans expenditure measures to support the automotive sector’s transition towards a low-carbon economy.
However, there is industry disappointment at the lack of further detail, with an overall feeling that the minister bought himself more time by deferring further announcements on the NEV policy to the 2024 Budget Review.
Godongwana said the evolution of the motoring industry will be integrated into a comprehensive green growth strategy and industrialisation plans.
“In automotives – a major export and source of employment – the transition to NEVs poses an existential threat to South African vehicle production.
“This transition will require balancing domestic market demand, establishing renewable energy-based charging infrastructure and supporting production. The goal is to make sure the sector remains a major contributor to the industrial development of the domestic economy,” explained Godongwana.
He did not provide details on how much would be allocated, noting more information will be provided in the 2024 Budget Review.
Reacting to the minister’s budget speech, Mikel Mabasa, CEO of the National Association of Automobile Manufacturers of South Africa (NAAMSA), comments: “NAAMSA is pleased to hear the National Treasury plans to implement tax and expenditure measures to support the industry’s transition to NEVs.
“Consumer interest in NEV products in our market is gaining some welcome traction. It is our considered view that a clearly articulated government support intervention would undoubtedly go a long way in stimulating more demand, and it will also accelerate investment and much greater interest in NEV technology and solutions.”
According to Mabasa, tax relief will boost local NEV production and lower the costs of NEVs, further promoting consumer uptake locally.
The main barrier to increased NEV uptake in SA is the high upfront purchasing cost of NEVs, he adds.
This is exacerbated by the effects of the value-added tax; the ad valorem excise duty, which is more than double that of the average price of a new internal combustion engines vehicle of a similar model; and the import tax of 25%. Internal combustion engines attract import duties of only 18%, says NAAMSA.
Many countries across the globe offer fiscal support and tax incentives to stimulate market uptake of NEVs, including Norway, Sweden, China, Iceland and the US.
Zambia, Kenya, Mauritius and Rwanda have either introduced tax incentives, or reduced various tax duties for NEV ownership.
“The economic muscle of the South African auto sector cannot be underestimated nor underplayed. Many countries introduce carbon pricing mechanisms to make emissions more expensive and incentivise emissions reductions,” adds Mabasa.
Government's impetus will go a long way in assisting the industry’s efforts to grow local production, as set out in the SA Automotive Masterplan 2035; supporting the global competitiveness of the South African automotive exports; and the move to greener mobility, Mabasa points out.
Renai Moothilal, executive director, National Association of Automotive Component and Allied Manufacturers, states: “Godongwana’s additional plans for greater tax and expenditure allocation are encouraging; however, it lacks detail on how this will work and this is not helpful at this stage.
“SA has a strong and agile manufacturing base and there is opportunity to continue and grow auto production across a range of vehicle propulsion systems with already committed investments to leverage on. But the longer the sector waits to respond to a policy framework, the more it excludes itself from future assembly awards.”
According to NAAMSA, the local automotive industry contributes 4.9% to SA’s annual GDP. The industry employs 497 408 people formally and informally, which is 2.9% of the 16.2 million people employed in SA.
Godongwana further said that as SA’s traditional trading partners intensify their decarbonisation plans, the country’s transition to a low-carbon economy will involve assessing policy conditions, challenges and opportunities for diversification and investing in new industries.
“Part of the broader strategy includes collaborating with other African countries to develop battery production capacity on the continent by pooling the critical-mineral resource base that Africa is endowed with.”
Godongwana noted announcements on NEV policy implementation will be made in the 2024 Budget Review in February.
Mabasa expressed disappointment in the lack of detail on the NEV policy in Godongwana’s tabling of the MTBPS. “We expected more from the minister after numerous engagements we had with government on policy implementation leading to the budget announcement.
“Government understands our challenges as a vehicle-producing country with bigger ambitions to grow our global influence as we move to NEVs. Effectively, the minister has bought himself more time to announce details for the NEV policy.”
The Department of Trade, Industry and Competition published the Automotive Green Paper on New Energy Vehicles in May 2021, and the policy proposals were submitted to Cabinet for consideration by October 2021. However, the finalisation of the policy framework is yet to be announced.
The draft policy seeks to develop a framework upon which a comprehensive and long-term automotive industry transformation policy on NEVs can be developed.
According to Mabasa, further delay of the long-awaited NEV policy could result in SA facing the threat of losing significant investment from local multinational players, such as BMW, Toyota and Mercedes-Benz SA.
According to the industry body, consumer interest in NEV products in the local market resulted in total 2022 NEV sales reflecting a significant year-on-year increase of 421.7% from 2021.
Sales of battery electric vehicles breached the 500 units per year mark in SA, with 502 units sold last year.