Auto component sector will take a knock if Agoa is not extended – Naacam

South Africa’s automotive component manufacturers have highlighted the importance of the African Growth and Opportunity Act (Agoa) and warned of the negative consequences to the sector and the domestic economy if the trade agreement is not extended.

The current agreement in terms of the Agoa Act expires in 2025.

Agoa was approved by the US Congress in May 2000 with the aim of assisting eligible sub-Saharan African economies to improve economic relations between the US and the region by providing duty-free access to the US market for thousands of products.

National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Renai Moothilal said Agoa is extremely important to auto component manufacturers, both in terms of supply to original equipment manufacturers (OEMs) that assemble vehicles and export them into the US and as independent exporters.

Moothilal said total South African automotive industry exports to the US totalled R24.1 billion in 2022, of which R8.78 billion comprised independent component exports to the US.

A total of 20 566 light vehicles valued at R15.3 billion were exported to the US in 2022. Moothilal said SA-produced components were also fitted into those vehicles.

“Overall, the vehicle export numbers plus the independent component export numbers show that the auto component manufacturers are heavily influenced by what happens in the US market,” he said after the Agoa Exhibition in Johannesburg last week.

SA’s only US automaker supports the agreement

Neale Hill, president of Ford Motor Company Africa region, told Moneyweb last week at Ford South Africa’s 100th birthday celebration that as the only American manufacturer in South Africa, it is important for Ford South Africa to support Agoa.

Read: Ford to invest billions more in SA

Hill said Ford SA’s use of Agoa has decreased over the years but, from an industry perspective, it is very important because there are also suppliers that supply Ford SA and other OEMs that benefit from Agoa.

“So we continue to see the ongoing importance of Agoa for South Africa,” he said.

‘Bedrock of trade relations’

The 2023 Automotive Export Manual said Agoa “has served as the bedrock of trade relations between the US and sub-Saharan Africa, specifically in the support of regional integration and the stimulation of regional value chains”.

It said the continuity of Agoa will strengthen further trade relations between southern Africa and the US, and improve the scope of employment creation, industrial growth and development in Africa.

Read: US cuts off Ethiopia, Mali, Guinea from Africa duty-free trade programme

The manual said US business interests are well represented in South Africa, with most of the leading multinational corporations actively participating in the South African economy.

“South Africa’s continued eligibility in terms of Agoa is crucial, since it does support the continued growth and development of the automotive industry in South Africa,” it said.

Moothilal noted that there are other markets to which South Africa exports automotive components and vehicles but “the loss of a huge consumer market like the US will negatively impact component manufacturers”.

“You can expect that there will definitely be to some extent employment losses, there will be loss of production contracts and more importantly – because South Africa accounts for less than 1% of global production volumes – any losses of production will tend to have a compound effect, meaning any volume impacts competitiveness of future production,” he said.

Some automotive component manufacturers, particularly those that have links with global automotive component manufacturers, have established operations in South Africa to benefit from Agoa and the trade agreement with the EU.

Moothilal confirmed that if Agoa benefits are no longer available to these automotive component manufacturers, it could impact the viability and sustainability of these operations.

“Both the US and the EU markets are significant consumer markets and our preferential trade relationships into those large markets have been a positive influence on the business cases for production in South Africa over the past 20 years.

“Removing one of those large markets, such as the US, will obviously negatively impact future production decisions of component manufacturers,” he said.

It was announced in September this year that 16 automotive component manufacturers in South Africa had pledged at the Naacam Show to invest R4.86 billion into the domestic economy by December 2024, with these investments expected to create and maintain more than 10 000 employment opportunities.

Moothilal also believes it will be difficult for SA-based automotive component manufacturers to penetrate the US market without the preferential trade benefits that flow from Agoa.

If Agoa is not extended, it will negatively impact the competitiveness of these component manufacturers.

Moothilal added that Agoa is also not a one-way “beneficiary experience in that only South Africa benefits from the relationship”.

He said the US economy benefits from having South African automotive products exported into the US.

“From a consumer perspective, the American consumer is benefitting from receiving high-quality auto production, and particularly components, into the replacement and aftermarket coming in at reduced duty rates, so there is consumer benefit.

“There are also manufacturing jobs in the US that are supported by having South African value chain integration.

“If you think, for example, of components that are exported into plants in the US for final manufacture, I know of components that are going into some very high volume assembly lines in the US,” he said.

Moothilal said there is a manufacturer of wheel hubs in South Africa, with its products eventually finding their way into the highest volume pickup truck assembly plant in the US.

“From an overall relationship perspective, the US will also be negatively impacted if South African automotive exports are excluded from the Agoa mix,” he said.

Moothilal said Agoa has also facilitated regional integration in sub-Saharan Africa and there is clear evidence of this in some of the components manufactured that have found their way into the US market as a result.

He cited the example of an automotive glass manufacturer that sources input material from Mozambique and Botswana which is then processed into automotive glass in South Africa before being exported to the US.

Moothilal said other examples included a tyre manufacturer using natural rubber from central Africa and wire harnesses being produced in Botswana that are shipped to South Africa for assembly into vehicles that are exported to the US.

Moothilal said the US Congress ultimately has to take a decision on the extension of Agoa and that he is cautiously optimistic this will happen.

“Those who attended last week’s Agoa Exhibition, including the parties from the US, the benefit of Agoa in an African context, and also to South Africa within that wider relationship, was made very clear to them,” he said.

“The case was very strongly made, in my opinion.”

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