Dark clouds gather for one of South Africa’s biggest employers

 ·23 Feb 2024

High interest rates, the cost of living crisis, port congestion, and container backlogs have depressed the automotive industry in South Africa, and CEOs in the sector don’t expect things to get any better for at least the next six months.

The automotive industry is the largest player in South Africa’s manufacturing industry. In 2021, it contributed close to 5% of the country’s annual gross domestic product.

Depending on data sources, it directly employs nearly 500,000 people formally and informally, which is 2.9% of total employment.

The auto industry also exports products to 152 markets, generating R227.3 billion in export revenue last year.

However, the tide is starting to turn for the industry, with some job losses experienced in the last quarter and more expected to come as business conditions remain down.

According to Naamsa’s Quarterly review of business conditions, aggregate new vehicle sales during the fourth quarter of 2023 recorded a decline of 5.4% compared to the corresponding quarter of 2022 and 3.5% compared to the third quarter of 2023.

As of January 2024, new vehicle sales continued the five consecutive months of decline up to the end of 2023 in the new vehicle market.

As a result, according to Naamsa’s CEO Confidence Index, CEOs generally reflect a negative, cautious and uncertain outlook for all of the industry’s key performance indicators over the next six months.

The CEOs noted that the financial strain on consumers due to high interest rates and a sluggish economy negatively impacted new vehicle demand.

However, the upward momentum in vehicle exports supported vehicle production in the case of some light vehicle OEMs.

Additionally, the supply chain disruptions caused by the port challenges on vehicle production and sales during the quarter exacerbated the dampened consumer and business confidence further due to the cost impact on the economy.

Due to this, 55% of the surveyed CEOs expected general vehicle business conditions to get the most over the next six months.

50% expected employment to remain muted, while 30% noted the industry could cut more jobs as the year progresses.

According to Naamsa, influencing factors such as the country’s upcoming National and Provincial elections, the persistent threat of load-shedding and logistics constraints, oil prices, and currency fluctuations along with geopolitical conflicts still pose significant risks to the overall economy.

“A notable improvement in South Africa’s economic growth outlook is unlikely for 2024, but at a projected 1.2% by the SA Reserve Bank, it would still be stronger than 2023 in line with the expected start of an interest rate cutting cycle, as well as lower inflation on average,” it said.

“CEOs of selected imported brands as well as some CEOs in the heavy commercial vehicle segment expressed more upbeat prospects for their companies over the next six months,” it added.

The association pointed out that although there may be a start to a cycle of cutting interest rates in the second half of the year, there may be some relief for consumers due to easing core and food inflation, and improvements in the country’s energy and logistics infrastructure.

This could potentially create some momentum in the new vehicle market.

Read: The industries responsible for the uptick in South Africa’s unemployment rate

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