A new National Association of Automobile Manufacturers of South Africa (NAAMSA) confidence index, which anonymously canvassed the opinions of each of the chief executives (CEOs) of the seven automotive original equipment manufacturers in South Africa, revealed that 64.7% of them believe investment expenditure declined in the third quarter of 2020, compared with the same quarter in 2019.
In addition, 47% of the CEOS believe investment expenditure will be lower in the next six months compare with the prior period.
Naamsa CEO Mike Mabasa said the continued high levels of capital expenditure are due to investment projects by manufacturers in terms of the Automotive Production and Development Programme, which are normally spread over multiple years, and the higher levels of production for export markets.
But Mabasa said the sentiment expressed by the Naamsa CEOs relating to automotive business conditions over the next six months remains pessimistic.
However, a few CEOs representing specific brands or specific vehicle categories do expect an improved performance over the short term. “The uncertainty of the impact and extend of Covid-19 persists as an ongoing concern and it remains imperative for automotive companies to adapt to the new operating and trading environment going forward,” he said.
Mabasa added that the automotive industry is not only the largest manufacturing sector in South Africa’s economy, comprising nearly one third of manufacturing output, it also invests billions of rand every year and provides nearly 500 000 direct jobs.
He said even with an anticipated rebound of the economy and new vehicles sales in 2021, the growth outlook remains weak and “the next six to 12 months will be a defining time.”
Mabasa stressed that vehicle exports will depend largely on the recovery of the domestic automotive industry’s main export regions, particularly Europe, which accounted for three out of every four domestically manufactured vehicles exported in 2019.
He said vehicle exports into all major regions declined by 37.6% or 112 011 units during the first nine months of 2020 compared to the corresponding period in 2019. Econometrix chief economist Azar Jammine believed investment that was geared towards increasing production capacity was most at risk of being delayed.
Jammine anticipated that production capacity investment was planned originally to cope with an expectation of growth in the world economy of 3.5% or 4% per year – but the GDP growth of Europe and North America will probably only be back to where it was in 2019 by the end of 2022.