Despite uncertainty Toyota SA to resume production at its Durban plant

Vehicle manufacturer Toyota South Africa Motors (TSAM) will resume normal production at its plant in Prospecton in Durban on Tuesday (July 20) following an eight-day disruption to its operations caused by the unrest and looting in KwaZulu-Natal and Gauteng.

TSAM senior manager for corporate communications Clynton Yon confirmed this on Monday, and said no damage was caused to TSAM’s plant or equipment during the unrest nor was there any damage to the new cars at its vehicle distribution centre in Durban.

Read: The scale of the destruction

Impact on FDI?

Azar Jammine, chief economist at Econometrix, said on Monday the answer to questions about the possible impact of last week’s unrest and looting on foreign direct investment “is not as obvious as it sounds”.

Jammine said on the face of it, one would have thought it would be very negative and the outlook for South Africa would be seen as being entirely bleak.

“But what I have determined is that foreigners are actually viewing the Constitutional Court’s resistance to Zuma flouting it as an endorsement of the respect for the rule of law in South Africa – and that aspect is looming almost as a counter to the negativity about where is it all going …

“Foreigners are regarding very favourably the stand that the [President Cyril] Ramaphosa regime is taking on the flouting of the constitution and see this as being different to what they often see in the rest of Africa,” he said.

Perspective

Jammine admitted that there will need to be investment to replace the infrastructure that has been damaged and destroyed but said the scale of what happened should not be exaggerated, with no more than 15% of the economy directly affected.

Jammine said there are also questions about where this is heading politically, adding that one view suggests that “we are going to see the Zuma faction so vilified by so many after this that they will struggle to regain any form of power within the ANC”.

He said that might lead to Ramaphosa gaining more power within the ANC and being able to enact the type of structural reforms that are really needed “to get this economy right”.

“Seen in this light, there is a positive that could come out of this,” said Jammine.

“Far from investment being detracted, one could well see investment turning around and starting to pick up again in the longer term. But it’s still very uncertain. It’s not necessarily just a one-way bet downwards.”

Questions about government’s capacity

However, Jammine admitted there is also a big question mark over the government’s capacity and ability to control what is going on because of the decimation caused by state capture.

Jammine’s comments follow TSAM sending a strongly worded letter to eThekwini Municipality Mayor Mxolisi Kaunda on Thursday in which it voiced uncertainty about the future of its investment in KwaZulu-Natal.

Toshimitsu Imai, chief operating officer Africa region for Toyota Tsusho Corporation and general manager Africa support division for Toyota Motor Corporation, said the company’s manufacturing operations in Durban were forced to close and have remained closed since July 12 and they are uncertain when it will be safe enough for them to resume operations.

“This closure jeopardises [TSAM’s] future sustainability as they embark on their recovery following the Covid pandemic,” wrote Imai.

Read: SA’s auto industry in a fight for its survival post-pandemic

“The loss of production over the past week means that TSAM will more than likely lose some of this business to one of our other global Toyota affiliates because our European customers will not wait for their orders.

Shipping

“Built up vehicles destined for the export markets also cannot be shipped due to the closure of the port,”  he added.

Read: Vital links taken out of the supply chain by unrest and looting

“The closure of the N3 to Gauteng means that TSAM will be unable to deliver vehicles to customers in Gauteng. Thus we expect sales to drop by as much as 10% in July [2021].”

Imai also referred to TSAM being in the final stretch of preparing for the launch of its first locally produced new energy vehicle this year.

He said this is a graduation project for TSAM to demonstrate its ability to produce other alternative energy vehicles in Durban.

“However, given the uncertainty around the current unrest, they risk missing key deadlines and the opportunity to challenge for other new products.

Read:

Toyota invests close to R3bn for production of new SUV at its Durban plant

“While the local management team have been working closely with the leadership of the City, they are unable to provide us with any clear direction/plans on how the City intends bringing stability and order back to the City,” he said.

Toyota’s manufacturing presence in the south Durban industrial basin reportedly makes it the largest  single rates payer to eThekwini Municipality.

‘Positive engagement’ following Imai’s letter

TSAM subsequently clarified its position regarding the letter to the mayor’s office, stressing that the aim was to voice concern over the future risk of conducting business in KZN and to understand what local and provincial government is doing to address long-term stability issues.

“Since issuing the letter, TSAM can report that there has been positive engagement with national government in particular and that this has gone a long way to allay the fears and short-term concerns that TMC [Toyota Motor Corporation] expressed.

“TSAM is wholly committed to working with government nationally, regionally and locally (city) in order to successfully create a business roadmap to secure long-term interests,” it said.

Impact on component manufacturers

National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Renai Moothilal confirmed on Monday that some of its member companies have been impacted, from both a looting and a damage to plant and equipment perspective.

Moothilal said this is apart from the obvious impact of not being able to produce given the wider impact of the unrest across the value chain.

He said he was not in a position to name these companies.

Moothilal claimed other original equipment manufacturers (OEMs), apart from Toyota, have rescheduled their production plans in line with the disruptions last week and the impact across the entire value chain.

‘Serious disruption’ limited to Toyota

However, Mikel Mabasa, CEO of automotive business council Naamsa, said he was unable to confirm this, adding the information Naamsa has is that only Toyota had serious disruption to production last week and all the other OEMs are still “fully operational”.

Yon said all TSAM’s warehouses are based in Gauteng and ran as normal during last week’s unrest.

He said the biggest impact has been because local suppliers were unable to transport components to TSAM’s warehouses last week because of the closure of the N3.

Yon added that he has not received any feedback from TSAM’s management on whether the disruption to production at the Durban plant and ports will result in any vehicle stock shortages.