SA joins race to electric cars, but state policy means it’ll end with a crash

Trade and industry’s green paper fails to support local production, increase local content or promote employment

01 June 2021 - 19:58 By Alex Mohubetswane Mashilo and Dinga Sikwebu
An electric vehicle being charged.
PLUGGED IN An electric vehicle being charged.
Image: Reuters

As countries unveil plans to realise net-zero greenhouse gas emission targets by 2050, momentum in different industries and sectors to shift to low carbon production also builds up. Even in sectors such as transport in which fossil fuels are dominant, decarbonisation measures are beginning to gather pace. An International Energy Agency (IEA) report from a COP26 NetZero Summit held in March this year gives a scenario where electric vehicles will constitute about 35% of global passenger car sales by 2030, and close to half of all sales in 2050.

Last month as a response to global developments in the automotive sector, the department of trade, industry and competition (DTIC) issued a green paper on the production of electric vehicles (EVs) in SA. The aim of the proposed policy is to develop a regulatory framework to increase SA’s competitiveness in the “global race to transition from the internal combustion engine era into electromobility solutions and technologies”. For consideration, the paper lays out a menu of short and long-term policy options.

In the short term, the government document calls for “sunset clauses” for certain EV parts. The key pillars of the special dispensation are lower or zero-rated import duties for components that are considered not candidates for localisation. Although to be exempted from the 20% tax on imported components, for the calculation of the volume assembly localisation allowance that tax and revenue authorities grant to final manufacturers, the special parts will be deemed to be locally produced. Motor vehicle manufacturers use the localisation allowance to reduce the value for tax purposes of original equipment components sourced locally and within the Southern African Customs Union (Sacu).

The publication of the green paper for public comment is definitely an important step towards aligning the country’s motor manufacturing with the global shift towards EV production.

To accompany the sunset dispensation will be a dedicated localisation development plan, so that the manufacturing of electric vehicles in SA is not dependent in perpetuity on imported components. For EV components and beyond the sunset period, government proposes to amend the existing production incentive factor that is used to issue duty credit certificates and rebates. The draft government policy framework includes other alternatives that facilitate importation of components to be used in EVs. If endorsed, credits obtained could be used to offset duties on imported EVs or components used in the assembly of completely knocked down units.

The publication of the green paper for public comment is definitely an important step towards aligning the country’s motor manufacturing with the global shift towards EV production. Though tightly integrated into global value chains, SA’s vehicle sector remains a very small player on the car manufacturing stage. Failure to adapt may leave significant productive capacities in the country stranded, leading to job losses both in car assembly and in component manufacturing. But more importantly, the shift to new energy vehicle production is essential, in view of the catastrophic contribution of the transport industry and its internal combustion engine technologies to climate change. According to the 2015 National Greenhouse Gas Inventory Report, transport as an economic sector is the third highest contributor to the total gross national greenhouse gas emissions in SA. The value of the proposals in the green paper must therefore be measured by the extent to which they promote socio-economic development on the one hand, and facilitate a just energy transition on the other.

Unfortunately, a close interrogation of the policy options presented in the green paper reveals that the document fails on both counts. The paper’s framework fails dismally to promote a just transition in ways that support local production, increase local content and promote employment, based on the decent work agenda and value addition. Instead of focusing on how to deepen the value chain, the green paper proposes to incentivise the vehicle assembly largesse at low local content levels. Government proposals can also be seen as directly incentivising job creation in other countries. The effects of the proposals in the green paper will be to hollow out the supplier base, which is where job creation takes place in automotive manufacturing.

The Automotive Production Development Programme (APDP) and its predecessor, the Motor Industry Development Programme, offered a delicate balancing act of assembly and localisation incentives. But when implemented, the import-export complementarity in these programmes benefited vehicle assembly and few results trickled down to suppliers and component manufacturing. As a result, the country’s localisation levels have regressed in the past 10 to 15 years. It is out of this bitter experience that the new negotiated South African Automotive Master Plan 2035 pushes for better localisation outcomes by excluding recognition of foreign content in assembly incentives and introducing a vehicle assembly localisation allowance. It is therefore not clear why the DTIC is dressing up as progress a colonial division of labour where SA continues to be an importer of value-added goods.

When one reads the green paper, a conclusion may be reached that the draft policy is the first climate change and just transition framework for the transport industry. The DTIC document makes no reference to government’s Green Transport Strategy for SA 2018 to 2050, that provides a road map for the country’s low carbon transport policy. Developed by the department of transport, the 2018 strategy foregrounded in its proposals the principle of eco-mobility, which promises to provide transport infrastructure without harming the ecosystem. Unlike the DTIC green paper that sees the electric vehicle as a techno-fix, the green transport strategy had detailed suggestions to promote alternative fuels and kick off a shift from individual private passenger cars to public transport such as buses and rail. It spoke about transport modes powered by renewable and clean energy, including trains, electric and hybrid-electric vehicles. The green paper is clearly not visionary in its approach. It is a knee-jerk reaction propelled by fears of automotive original equipment manufacturers who are frightened of losing market shares in developed economies. 

In moving towards the white paper, the policy proposals in the green paper need to be revised. A vision of eco-mobility must anchor the white paper, a prognosis where new energy vehicles are part of a multi-modal transport system with a public charging infrastructure. The revised document must be based on an analysis of what would be the impact on local jobs and localisation levels of any attempt to change the duty regime that underpins the new Master Plan 2035. The shift to EV production must stimulate holistic value chain growth and create deep, embedded local capacity, innovation and employment in components manufacturing. The policy must be aggressive in forcing localisation of components to be used in new energy vehicles. To achieve these objectives, the use of smarter tax and capital investment incentives to foster investment and local innovation need exploration. Thinking is also required on how to use the Special Economic Zones package of support, and investment and training incentives linked to section 12(i) of the Income Tax Act, to build the domestic electric vehicle components sector. It is through building the local EV component sector that we can ensure that jobs are created and that the transition to new energy vehicles is not unjust.

Dr Mashilo and Sikwebu are research fellows at Southern Centre for Inequality Studies, University of the Witwatersrand.