Before we look at the second
challenge, we need to analyse why
global trade is slipping. There are many
reasons – Europe is still struggling
with its debt crisis, emerging markets
are slowing down, and the American
economy is going through a profound
shift. And the Chinese are going
through their own midlife crisis, with
a super-heated economy eventually
bringing some chickens home to roost,
in the guise of a financial crisis of epic
proportions. And the Japanese may
have had a spurt last year with the aid
of Abenomics, but the fun is already
coming to an end. The end result of
all this, is that markets which have
been converging for decades are now
diverging along national and regional
lines. And therein lies the opportunity
for South Africa and Brazil, but back
to that later. Let us now look at the
second challenge facing South Africa
and Brazil. And this is home-made,
and cannot be blamed on global
difficulties – it is a competitiveness
problem, cause primarily by high wage
costs. The Lula Moment came with
the doubling of wages in less than a
decade. South Africa has had a similar
trajectory, with the added problem of
no concomitant increase in productivity.
Thus, both South Africa and Brazil,
whilst being defined as emerging
economies, have an unrealistically high
wage structure, which means both have
become expensive places in which to
manufacture.
And finally, red tape. The administration
involved in red tape in both countries
is clearly too high. I am not an expert
on the red tape in Brazil, but in South
Africa it is reaching stratospheric levels.
Government is pushing forward bills
that are introducing tougher affirmative
action and black empowerment rules,
which while laudable taken from a pure
philosophical perspective, it increases
the cost of doing business, and just
piles on the administrative pressure on
companies already under the yoke of
just too many administrative obligations.
Solutions
There are no simple solutions to these
three challenges. However, flexibility,
innovation, strategic thinking and plain
common sense will go a long way in
assisting in the solutions.
➲ Glamour at the show
Let us examine a few thoughts:
1. Global slowdown:
Brazil and South Africa should see the
global slowdown as an opportunity.
The new era of globalisation has seen
countries turning inward. Complaints to
the WTO are increasing , all revolving
around new trade barriers, protectionism,
and intellectual property theft. The walls
are going up, but South Africa and
Brazil should be looking at all this as an
opportunity. They are part of the BRICs
alliance, after all. Why not see each
country as an extension of each other?
In a volatile and unpredictable world,
how about seeing the BRICs alliance as
a regional entity, and begin to evaluate
extended value chains and supply chains,
with the philosophy that co-operation
and capacity utilisation is the new game
in town. Having analysed the respective
automotive industries and markets, it is
clear to me that there is a good fit.
Both have about 25% idle capacity, and
both have significant negative trade
balances in their global automotive
components activities. Uncannily, both at
about R50 billion per annum. Both have
proportionately high employment levels
in their automotive component industries:
| words in action
61
Brazil directly employs some
220 000 people, whilst
the South African figure is
75 000 people. Both rely
heavily on OEM business,
whilst exports are lagging. For
instance, Brazil’s component
industry business comes
from 70% to OEMs, 15% to
the aftermarket, 8% exports,
and 7% intra-trade. From an
export point of view, both
South Africa and Brazil rely
heavily on continental trade,
but imports come from the
bigger industrialised countries.
Brazil’s vehicle production
figures are impressive at
over 3,7 million vehicles,
and 1,7 million motorbikes.
South Africa manufactures a
more modest 600 000 vehicles.
But the synergies are there, and
ironically the size differential
provides an opportunity. South
Africa is too small to pose a
realistic threat of competition,
whilst Brazil is too big and too
reliant on the South American,
Central American, and North American
markets to really worry South Africa.
Here lies the big opportunity. To look
for co-operative alliances, to look for
synergies and intra- trade opportunities
and to buck the global trend. Just a
thought.
2. Competitiveness:
The big elephant in the room is high
labour costs. This can only be solved
by labour market reform, which is both
the prerogative and responsibility of
government. But business and labour
can also play a role, through pragmatic
and imaginative initiatives. There are
so many aspects to this, but I want to
mention just one example. My visit to
the Escola SENAI “Conde José Vicente
de Azevedo” in São Paulo was an eye
opener. This is a government sponsored
technical college, utilising funds from the
industry (similar to our Merseta scheme),
and what I saw at this college astounded
me. The Brazilians are clearly light years
ahead of South Africa when it comes to
government funded technical colleges,
so why not learn from the Brazilians.
They have obviously identified education
and skills training as a vital ingredient of
competitiveness.
may 2014
Brazil Automotive Industry
Special Report