South Africa's auto industry at a crossroads: VW's unanswered letter to President Ramaphosa

When Volkswagen Group Africa (VWGA) chairperson and managing director Martina Biene wrote directly to President Cyril Ramaphosa just before Christmas, it was an attempt to inject urgency into a process that she says has been dragging on for too long, with very real consequences for South Africa’s automotive future.

“I wrote a letter to the President prior to Christmas,” Biene said at the annual VW Media Indaba at the company’s plant in Kariega. “I mainly outlined that for us as VWGA, this year is crucial for getting an investment decision from VW head office for the next project that’s on the way.”

Essentially, she asked for clarity. Not only for the economics of future projects, but also on whether South Africa’s policy environment is moving in the right direction to justify long-term capital investment.

Need a good business case

“For getting this investment decision, they look at the economics and the business case,” she said, “but also, headquarters look at what happens in this country. And another non-negotiable they stressed is that we need to see some improvement in South African policies.

“You might have a business case,” Biene warned, “but there are better business cases elsewhere because we don’t know whether that is a sustainable way to spend money.”

“This year for us is make or break,” she admitted.

Industrial graveyard

That warning was echoed by Professor Adrian Saville, economist and strategy specialist at GIBS. Responding to the broader question of whether a major manufacturer could realistically leave South Africa, Saville was unequivocal.

“Could a specific business leave? Absolutely. Capital can go anywhere,” he said. “There are 200 markets that you can choose to allocate capital to. There’s nothing special about South Africa.”

Saville said that South Africa’s industrial history is littered with examples of once-significant manufacturers that have disappeared. “South Africa is an industrial graveyard, no company is too big, too established or too important to walk away if conditions deteriorate.”

No response

Despite the importance of the message, Biene says Ramaphosa did not respond directly. “The unfortunate thing is that the President didn’t reply to me,” she confirmed.

As a caveat she added: “A lot of action was happening now on the Automotive Business Council (Naamsa) side with his staff,” she noted, saying that possibly the letter did at least succeed in triggering some activity behind the scenes.

Whether that action will translate into concrete policy movement remains an open question. “Am I satisfied with that? I don’t know,” she admitted.

Policy uncertainty 

Saville argues that policy certainty alone is not enough if the policy itself is flawed. “Policy certainty over a policy that doesn’t work is a death blow,” he said. “We’ve got a knife at a gunfight.”

Still, they’re not ready to throw in the towel. Both point to the Automotive Production and Development Programme and the South African Automotive Masterplan as evidence that the country can get policy right – when it chooses to act decisively.

The problem, as Biene says, is speed. “We don’t have the luxury of two or three years of debating and deliberating. The requirement is urgent.”

Her letter to the President was meant to underline exactly that. Whether the message is heard is not only important for Volkswagen, but the entire vehicle manufacturing industry in South Africa.