In the May 2014 issue of aBr I reported on my visit in April 2014 to the Automec show in São Paulo Brazil, and the broader part of my visit, in investigating the Brazilian automotive market, in many of its aspects. I was also there to see if there were any opportunities for the South African component manufacturers, in the form of alliances and co-operation.
My report was pretty extensive, so I will quote just two sentences from the macro section, “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.” Then, further on in the report, when I zero in on Brazil and South Africa, this is what I said, “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.”
Now, one year later, after a Brazilian delegation visited South Africa in May 2015, primarily to participate in the Automechanika Johannesburg, but also to evaluate the South African market, and to network with South African component manufacturers and distributors, I would not change one word of my initial report, and I reiterate that co-operative alliances is the way to go. The synergies are there, and the similarities of the two markets are profound. Despite Brazil being a much larger country, with 200 million people, versus South Africa’s population of 52 million, and vehicle production in Brazil six times that of South Africa, let us look at what we share. Both countries suffer from unnecessary red tape and suffocating government bureaucracy, and both countries have stifling logistics costs. Brazil and South Africa also have high labour costs, which impacts on their competitiveness, but Brazil does have high levels of productivity, whereas South Africa has the double whammy of high wages and low productivity.
In the muscle flexing stakes, both countries are the economic powerhouses of their respective continents, even though South Africa is now in a neck and neck race with Nigeria. Then, from a socio-economic point of view, both countries have unacceptable high Gini co-efficient ratios, and as a result Brazil has its ubiquitous Favelas, with South Africa suffering from rampant expansion of squatter camps. With regard to unemployment levels, Brazil has won the battle, with unemployment at record lows of 6%, while South Africa has an official unemployment rate of 26%, but unofficially a disgraceful 37%.
So, the similarities are there, with stark differences. Brazil is bigger and better, but therein lies the opportunity for South Africa. We should link up economically, and feed off our bigger BRIC brother. All it requires is a positive and forward looking mind-set, and the shedding of our pathological fear of competition. The challenge to our automotive component manufacturers is to seize the moment.