South Africa Mission Report
Kenichi Ohno
GRIPS Development Forum
Tokyo, Revised May 16, 2016
Working days:

25-29 April 2016

Places visited:

Pretoria & Johannesburg, Durban, Cape Town

Visitor:Accompanied by:

Kenichi Ohno (GRIPS Development Forum)
Keiji Ishigame, Shigeko Inaba (JICA South Africa, all meetings); Naoki

Izumi, Chihiro Kiyonaga (Japanese Embassy South Africa, Pretoria only); Yasushi Naito(Counsellor and Consul, Cape Town only)
The mission would like to also thank Ambassador Shigeyuki Hiroki, Counsellor Isamu
Yamaguchi, and other members of the Japanese Embassy and JICA in South Africa for their
hospitality and cooperation.
1. Objective and SummarySouth Africa under the current Zuma Administration seems unable to execute industrial
policy—especially automotive policy—effectively to solve existing problems and plan for
future development. This appears to be a combined result of the lack of quality leadership,
limited policy knowledge and capacity, and conflict of interests among some of the foreign
car makers. Moreover, South Africa has neither labor advantage nor rapidly expanding
demand for automotive production which are necessary for the robust growth of the industry.
While recognizing the past achievement of emerging as a medium-sized automotive
producer country by attracting a number of multi-national producers, future prosperity oreven survival of the automotive sector looks uncertain under fierce global competition. The
difficulty is not insurmountable, but a breakthrough will require a fundamental policy reform
accompanied by a strong commitment of national leaders, relatively high-quality industrial
policy, and close cooperation with stakeholders. Does South Africa have the political will andadministrative capacity to initiate such a policy reform? And is Japan—both the government
and the private sector—willing and able to support South Africa’s effort to upgrade its
automotive industry? These are the central questions addressed by this policy research
mission.
There was a request from Mr. Ishigame (JICA South Africa) for us to speak at seminars inSouth Africa. We replied that we were not really interested in just giving seminars but wewould be more willing to visit the country if the purpose was to investigate the above issue,
examine the current status of organizations and firms concerned, and propose policy
actions. To prepare this mission, we received useful materials from the Japanese Embassy
and JICA South Africa, discussed with Mr. Igari (METI) and Ms. Hotta (JETRO) in Tokyo,
and organized a TV conference with the Japanese Embassy (Mr. Izumi and Mr. Kadowaki)

1and JICA South Africa in advance. The mission spent only five working days in South Africa,
one of which was a national holiday, and visited three locations in the country, which did not
permit us to do full policy research. However, we were more or less able to achieve the main
objective mentioned above. We would like to thank the Japanese Embassy, the Office ofConsul of Japan, and JICA South Africa for arranging a mission in line with our requests.
To sum up the conclusion of the mission, we believe it is both appropriate and timely forJapan to start necessary actions in cooperation with the South African government to map
out a new development strategy for the South African automotive industry despite the factthat the industry is likely to face great difficulty in the absence of serious policy reform andthat there is a chance that policy reform may fail. Instead of sitting on the fence, Japanese
private firms and government should step forward to positively form such policy coalition
with carefully chosen South African partners.
Politically, President Zuma now appears to be weakened over a past corruption case.
Looking a few years ahead, a government more proactive to industrial policy may emerge.
This is a time for preparing future policy actions and informing and working with future
leaders. The mission was unable to meet DTI Minister Rob Davies but exchanged views
with key persons in charge of the automotive policy at DTI. They were in principle willing andready to renovate policy in line with Japanese ideas but wanted JICA’s cooperation to fill the
gap in local policy capability. DTI should be more than happy to work with us if we
responded positively. At Toyota, the leading Japanese car maker in South Africa, werequested the management to consider working with DTI to produce future scenarios andnumbers that could convince politicians to support our proposed policy reform.
The Japanese Embassy and JICA South Africa are willing to cooperate in the automotive
sector, and a number of Japanese cooperation projects are already in place1. What Japanneeds to do in the future, in addition to these projects, is initiation of action, leadership andcoordination in automotive policy design in close cooperation with DTI. For this purpose,
active involvement of the Ministry of Economy, Trade and Industry (METI) and the Ministryof Foreign Affairs (MoFA) in Tokyo are also essential and the use of the TICAD VI framework
is highly desirable. It will be ideal if we can elevate this bilateral cooperation that strengthens
one priority industry in the target country as one of the models of Japanese industrial
cooperation in Africa.
2. Pretoria workshops
On the first day of the mission (April 25), a two-part industrial policy workshop wasco-sponsored by the Japanese Embassy, JICA, DTI and TIPS. The attendees initiallycounted about 40 but declined toward the late afternoon. Participants came from the1

In FY2014, a visit to Thailand (HIDA), a training course (HIDA), a visit by Japanese component suppliers(JETRO), and a survey on the current status of the supporting industries were arranged. In FY2015,
industrial policy workshops (JICA, ongoing), a survey on automotive policy design cooperation (METI),
technology and kaizen support for AIDC suppliers (JICA, ongoing), and PSA promotion and 5S for
supporting industry firms (Japan Productivity Center, ongoing) were conducted. In FY2016, expert dispatch,support for local component suppliers, attraction of Japanese component suppliers, and strengthening
industrial human resource will be continued or newly introduced.

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co-sponsoring organizations as well as from the National Treasury, universities and JETRO.
Kenichi Ohno was the speaker in both sessions. The morning session reported international
comparison of industrial policy quality and the numerical evaluation of each government,
while the afternoon session discussed automotive policy components that might beintroduced in South Africa with particular references to Thailand and Malaysia. These topics
were chosen as opening issues appropriate for this mission, as well as for sounding
reactions and interests of participants whom we had never met.
Among the participants, it was clear that Mr. Ritchken was the key person in South
African automotive policy formulation. He was well informed of Ohno’s works and ideas andoffered many comments. There was also discussion with him during the coffee break and headditionally invited the mission team to a BBQ lunch two days later. We also talked with Mr.
Renae (Automotive Division, DTI). Unfortunately Mr. Strachen was unable to come to theworkshop due to sudden illness. We also understood that the National Treasury wasseriously engaged in policy discussion in addition to customary budget works.
3. The automotive policy
Challenges faced by the automotive sector of South Africa were already fairly evident
from the materials and information received prior to the mission. Actual visits made themeven more clear and concrete. We were also informed of the policy intention of DTI andother related organizations.
The current status of the South African automotive industry is explained in detail in thereports of JETRO, JICA, JCIF and the GENDAI Advanced Studies Research Organization.
Even though South Africa’s traditional value creation was from the extractive and service
sectors, the automotive industry, which occupies about 7% of GDP and about 12% of export,
is a particularly important sector within manufacturing. As the share of mining rapidly
declines, manufacturing in general and the automotive sector in particular should be
regarded as critically important industries for job creation and diversification of economic
structure. Nevertheless, in recent years the growth of manufacturing, including automotive,
has been slow, and even negative in some years, due to the slow growth of GDP andstagnant international commodity markets. The annual production of automotive vehicles
remains around 600,000 of which roughly half is sold domestically and the rest is exported.
Passenger car export is concentrated in the US, EU and Japanese markets while
commercial vehicle export is mostly directed to Southern African markets. There are morethan 20 foreign car companies of which only seven have production facilities in South Africa(Toyota, VW, Ford, GM, Nissan, BMW and Mercedes-Benz). The rest are imported CBUs.
The structural causes of the modest performance of the South African automotive
industry include the small and stagnant domestic demand and the loss of labor advantages(as exemplified by low productivity, high wages, labor disputes, and BEE policy2). At the per
2

The Black Economic Empowerment (BEE) policy provides point-based preferences to the black
population of South Africa. Affirmative action such as this to elevate impoverished groups is essential forsocial stability as seen in Malaysia’s Bumiputra policy and privilege and budget allocation in favor ofminority groups in Vietnam and Ethiopia. However, policy implementation must be transparent, reasonable,

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capita income of $6,800 (World Bank, 2014 data), South Africa belongs to the upper-middle
income group that should have a vibrant automotive demand. However, the income gap is avery serious problem in South Africa, with the unemployment rate of 25% and the Gini
coefficient of 0.65. The population is divided into rich whites and poor blacks—with the resultthat dynamic motorization is unlikely to occur in South Africa any time soon. This is in sharp
contrast to Southeast Asian nations where strong consumer demand is generated by the
expanding middle class, or Thailand where there is acute labor shortage in all sectors andlevels. Another problem in the South African automotive industry is the existence of too
many producers and models in a limited and non-growing market. Healthy growth of theautomotive industry requires a large volume of production for each car model.
It must be pointed out that the absence of proper vision and policy to overcome thesechallenges—and the presence of unnecessary measures—added to the difficulties faced bythis industry. Before coming to South Africa, the mission was unable to understand why thecountry could even establish an automotive industrial cluster without growing demand orstrong labor advantage. We were told that the industry had a long history going back to 1925
when GM and Ford built knock-down plants in South Africa3. But history aside, from the East
Asian perspective, we have difficulty in comprehending the logic of South African automotive
policy in more recent times after democratization. During the years of economic sanctions
under apartheid, many domestic industries had to be created even at the cost of economic
inefficiency. After democratization in 1994, manufacturing industries were needed for job
creation. Under these circumstances, provision of generous incentives to attract foreign car
makers to South Africa could be justified and even positively evaluated given the fact thatthe country subsequently became one of the automotive exporting countries in the world.
However, continuation of the same incentive scheme, long after the initial automotive cluster
had been formed, is difficult to understand. Car producing countries in East Asia generally
discourage firms that specialize in CKD or SKD, firms that make little effort in upgrading
domestic human resources or component suppliers, or firms that engage in car import only.
Foreign car makers that add little domestic value are normally excluded from any incentive
scheme. In some countries such non-appreciated activities are restricted or even banned4.
There is some progress, however. Replacement of the Motor Industry Development
efficient and predictable, and should not impose too much burden on business activities. We do not know if
South African BEE policy satisfies these conditions. In many countries, many decades of affirmative action
often fail to narrow the rich-poor gap, and also foster dependency and weaken entrepreneurship amongprotected groups.
3 The Japanese automotive industry also began in 1925 when Ford built its knock-down plant in Yokohama.
The GM knock-down plant was established in Osaka in the following year. Kiichiro Toyota intensively
studied the products of three American motor giants, worked closely with his engineering friends and alarge number of metalworking factories in Japan, and in 1935 succeeded in overcoming the technicalproblem in producing the engine and rolled out the first Japanese car (Model A1). In South Africa, theautomotive production still relies on imports, CKD and SKD by foreign producers.
4 Malaysia accepts all manufacturing investments but strictly screens projects for value addition andtechnology transfer before providing any incentive. In Thailand’s new FDI law in 2015, incentives are given
only to sectors and activities that produce value, bring new technology or implement innovation. Bothcountries officially advise labor-intensive processes to relocate abroad. Even in Indonesia and Vietnam,
where FDI laws are less effective, governments regularly require foreign companies to add domestic value
and are not very keen to receive labor-intensive production such as garment and electronics assembly. In
the automotive industry, these governments commonly demand promotion of supporting industries(component suppliers) and industrial human resource.

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Program (MIDP) 1995-2012 by the Automotive Production Development Program (APDP)
2013-2020 can be regarded as the right step forward (see table). Roughly speaking, MIDP
incentivized auto assembly for export while APDP encourages domestic auto production.
This is a welcome move, but even APDP is not very effective in promoting domestic value
creation and technology improvement.
Highlights of MIDP and APDP

Tariff protection

Incentive fordomestic
production

MIDP (1995-2012)

APDP (2013-2020)

CBU tariff reduced from 65% to 25%
and CKD tariff reduced from 49% to
20% in steps.
Rebate amounting to 27% of
shipment value of domesticallyassembled vehicles, usable foroffsetting import duties of parts used
for domestically sold vehicles (DFA).

Maintain CBU and CKD tariff at 25%
and 20% respectively.

Incentive forsales

Import credit linked to export value
is provided, with benefits based on
the use of locally produced parts.

Incentive forinvestment

Subsidy amounting to 20% ofinvestment value is given toassembler and Tier 1 firms over five
years, i.e., 4% equivalent provided
each year (PAA).

Rebate of 18-20% of shipment valueof domestically assembled vehicles
provided that annual production
exceeds 50,000 units, usable foroffsetting import duties of parts used
for domestically sold or exported
vehicles (VAA).
Production incentive is given to both
export and domestic sale, with
benefits based on local production
value.
Subsidy amounting to 20-30% ofinvestment value is given to
automotive assembler and supplierfirms over three years, i.e., 6.67%
equivalent provided each year (AIS).

A few irregularities can be mentioned. First, offering import duty exemption or reduction,
without checking domestic value creation or technology transfer, is unusual. Incentives for
CKD and SKD are rarely seen in Asia. Second, investment subsidy amounting to 20-30% ofinvestment value, also without assessing value creation, seems very generous. Tax holiday
in which the corporate income tax that should be paid by the firm is exempted or reduced fora limited period is common, but sharing investment cost by using taxpayer’s money is not.
But we need to compare the monetary benefits of tax holiday and investment subsidy before
arriving at the final conclusion. An additional risk is that one-time investment subsidy without
monitoring subsequent business activities may encourage subsidy grab-and-run or
discourage long-term investment and production in the country.
The mission was not ready to produce final policy recommendations which would require
more study, but it could tentatively suggest the following reform directions based on
available information. Automotive incentives must be linked to the quality of activities (value
addition, technology transfer, training of workers and engineers, strengthening supporting
industries, R&D, etc.), not the sheer volume of production. Exemption or reduction of5

corporate income tax should be provided on the firm’s actual profit stream instead ofproviding transferable import credit based just on declared production plans. Moreover, anautomotive incentive scheme must be crafted in such a way to minimize the risk of violating
WTO rules or any other trade and investment rules to which South Africa is committed.
4. Incentives, SEZs and industrial human resource
The mission did not have time to study all key components of South Africa’s industrial
policy, but it did receive some information on the incentive scheme, special economic zones(SEZs), and industrial human resource.
We were unable to grasp the entire structure of South Africa’s incentives, which seemed
quite complex, even after reading prepared materials. However, we were fortunate to meet
Ms. Malebo Mabitje-Thompson, Director of DTI’s Incentive Division, as well as the National
Treasury team including Ms. Nonhlanhla Ngwenya, both of whom explained to us thecountry’s incentive scheme with sufficient detail. Obtained information can be summarized
as follows.
As noted earlier, South Africa does not have permanent incentive measures such as
corporate tax exemption or reduction (“tax holiday”), import duty exemption on industrial
inputs and equipment, and investment allowances, which are applicable to all projects andactivities on a published list with transparency, stability and predictability covering broad
sectors or at least the manufacturing sector. South Africa has various incentives attached toindividual projects which usually have a duration of five years, and they are classified into (i)tax exemption and reduction which are automatically granted to eligible firms by the National
Treasury; and (ii) departmental grants in the forms of subsidies or rebates which require
screening and have budget limits. In terms of budget size, automatic tax privileges are
greater than departmental grants. In sectoral distribution, manufacturing has the lion’s shareand the majority of incentives fall under DTI. Other departments in charge of agriculture,
tourism and SMEs have smaller incentive budgets. The Incentive Division of DTI is
responsible for collecting budget requests from all DTI divisions and negotiating with the
National Treasury. At DTI, 12i (twelve eye)5, AIS and SEZ-related incentives are the mostimportant. Other DTI incentives are relatively small and temporary. Incentives for medium tolarge firms do not distinguish domestic and foreign firms.
For grant-type incentives, departments can negotiate with the National Treasury forextension or increase, but such requests are rarely accepted even if incentives are foundeffective or if the scheme started late due to administrative delay. For example, MCEP, asubsidy for manufacturing value-added, was so popular there was greater demand than theamount budgeted, with the result that the scheme was terminated before the application
deadline. By contrast, incentives for AIS (a cabinet decision) and critical infrastructure (law)512i is a subsidy scheme for manufacturing investment starting from 2010 for five years with the budget of
R20 billion. As not all funds were used, extension of two years was permitted with the lowering of theminimum investment size from R200 million to R50 million or R30 million. This increased application andthe fund is likely to be exhausted before the deadline of 2017. Up to now sixty firms took advantages of 12i.
However, automotive firms are not eligible for 12i because there are other incentive schemes designated forthe automotive sector.

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are expected to continue because they are decided at higher than the department level. As
long as automotive incentives are stated in MIDP or APDP, they are more permanent thanother incentives. In any year DTI has about 13-14 overlapping incentive schemes runningsimultaneously with an average total of R5.5 billion per year. To maintain this situation, DTI
needs to motivate (propose) new programs every year. Incentive guidebooks for investors
must also be revised every year. DTI hopes to secure budget more permanently for all key
sectors including metal processing, mining equipment, industrial equipment, agro
processing and fuel cell, in addition to automotive and critical infrastructure.
There were voices that the incentive structure in South Africa was fragmented. We agree
that a collection of multiple overlapping incentive schemes, each lasting five years only,
lacks predictability and stability. This does not stimulate enterprises planning long-term
investment in the country, nor does it clarify the vision toward which the government is
assisting industries. We recommend more simple and user-friendly privileges which aremaintained until laws are revised. Incentives provided by the Thai and Malaysian investment
authorities (BOI and MIDA) should provide good reference points.
We had a brief hearing on SME policy at the National Treasury. This policy also seems
fragmented with DTI, the Department of Small Business Development, the Department of
Science and Technology, provincial and local governments, etc. implementing various
policies independently. There is no one-stop SME support service. Recently, SME policy
was transferred from DTI to the newly created Department of Small Business Development
to differentiate policy packages for large and medium enterprises and for SMEs. In South
Africa, an SME is defined as an establishment with annual turnover of R10-30 million for all
sectors although the number of employees is also sometimes counted. South Africa offers
grants to SMEs in the form of matching funds covering 30-50% of eligible expenditure by
SMEs with the limit of R250,000. This is quick grants disbursed immediately at thepresentation of relevant invoice documents.
Regarding industrial estates, South African policy is still at an early stage in comparison ofa large number of cases in Southeast Asia. The previous IDZ policy was replaced by the
new SEZ policy in 2015 but we were unable to get its operational details. SEZs are owned
by provincial governments and normally developed and managed by a public sector entity.
Tenant firms may be able to enjoy various incentives regarding import, employment, factory
construction and corporate income tax6. The SEZ Fund has been prepared as a financial
source for such incentives. Each SEZ is to have one-stop investor service and bonded
areas. Each province can establish up to two SEZs, with six SEZs currently (partly)
operational nationwide7.
6South Africa provides additional incentives to tenant firms in SEZs, but this arrangement is not universal.
Many countries do not distinguish firms inside and outside industrial estates, while others give privileges toboth developers and tenants of industrial estates. Still others rank industrial estates and provide
differentiated incentives and conditions. The geographical scope of industrial estate incentives also varies
from national to provincial and even by individual industrial estates.
7 It would be nice to have a booklet or a website that explains the up-to-date details of each SEZ. It should
include information on precise location, year of establishment, owner, operator, contact details, rents andother financial terms, areas of initial and entire development, a map of rental plots, geological and groundinformation, schedule for initial completion, expansion and completion, a list of current tenant firms, andexplanation of available privileges and incentives.

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Local government-owned industrial estates operated by a public sector corporation
through a management contract is a not uncommon arrangement. Nevertheless, actual
performance often varies depending on the business mindset and the degree of intervention
by the local government, and the operational capacity of the developer. Governments withno prior experience of successful development of industrial estates may not be able toprovide incentives, one-stop service, and customs clearance to the satisfaction of globallycompetitive firms.
In the automotive sector, the planned SEZ to attract automotive suppliers in Durban
Municipality, KuwaZulu Natal (KZN) Province is worth mention. We collected information on
this project from officials of Durban Municipality, Dube Trade Post (TDP) Corporation (adeveloper 100% owned by KZN Province), and Toyota Tsusho Africa. This industrial estate,
first conceived in 2005, was slow to be realized. Initially the old Durban Airport near the
Toyota factories was proposed for the site but this did not materialize. The current plan is tobuild it in the sugarcane land further south. The F/S by a consultation firm (AECOM) has
been completed but detailed design is yet to be produced. At the time of the mission, land
and municipal budget had almost been secured. The SEZ has the total area of 1,000ha ofwhich 150ha (or 100ha) is slated for the first phase. The SEZ is expected to be operational,
with first tenant firms moving in, around April 2018, which seems an appropriate schedule
given the current progress. DTP Corporation develops a multi-function SEZ consisting of
offices, research centers, high-tech agro areas, etc. adjacent to the new Durban Airport, andthe proposed SEZ may be developed as part of the existing SEZ. However, the official nameof the new SEZ does not seem to be agreed among stakeholders. Durban Suppliers Parkand Automotive Supplier Park are mentioned in certain documents. We also heard that amore generic name should be better to attract non-automotive firms in addition toautomotive suppliers. The plan may include a small area of 30-40ha within the first phase to
specialize in attracting automotive firms, in which case small-size rental factories may beprovided.
The Municipality of Durban is responsible for administrative procedure, re-zoning andinfrastructure up to the zone fence. The municipality is keenly interested in the employment
creation of the proposed SEZ, and has already initiated impact studies on surrounding
marshlands and water sources to expertise the environment assessment process. Toyota
Tsusho Africa on the other hand appears to work on FDI marketing, which includes
relocation of existing automotive suppliers to the new SEZ as well as attracting new ones.
Some Japanese firms have already expressed interest. Toyota South Africa is also
monitoring the progress of the SEZ as a receiver of more automotive suppliers.
At this moment, however, necessary details on tenant land allocation, access roads, sales
prices and conditions, water source and quality, power supply, waste water treatment,
one-stop investor services, etc. remain undecided. Potential tenant firms may express
general interest but they may not be ready to sign a contract and FDI marketing for suchcontracts seems premature. This should not be a problem because there are two more
years before the SEZ opens for business. Dong Van 3 Industrial Zone (Ha Nam Province,
Vietnam) and Phu My 3 Industrial Zone (Ba Ria-Vung Tau Province, Vietnam), which we

8closely monitor and advice, are being built with high specifications that can attract Japanesemanufacturing SMEs and component suppliers. Both zones have finished detail design andconstruction work is underway, with the expected completion date of late 2016. FDI
marketing began in earnest in April 2016. The new SEZ in Durban should learn fromhigh-quality industrial zones in Asia such as these and reach this stage within one-and-halfyears.
The mission did not have time to study industrial human resource training. Below is theprovisional summary of information received from the Japanese Embassy in South Africa.
The National Qualification Framework (NQF) is South Africa’s official skills standard ranging
from 1 (middle school graduates) to 10 (PhD holders). Besides this, many firms, including
Toyota, adopt firm-specific skill systems for worker training and evaluation. In manufacturing,
there is also the concept of artisans which seems to imply workers that have passed certain
TVET tests (similar to “trained workers” in Vietnam). We have no information on the number,the demand-supply situation in the labor market, skill adequacy, the degree of satisfaction
on the firms’ side, and so on, of artisans. Some point out that incentivization is lacking forartisans to positively contribute to business development or pursue their own career paths
as highly skilled engineers.
The Manufacturing, Engineering and Related Services Sector Education and Training
Authority (merSETA) as well as certain provincial TVET institutions, such as Coastal KZN
College and Mangosuthu University of Technology, appear to offer reasonable technicaltraining. They teach such basics as tooling, jigs, die-and-mold and metal processing by
combining theory and practice. Scholarship is also available from the National Skill Fund.
Apart from these, Toyota runs Toyota Training Academy, an officially certified training andtesting institution, to train its workers as well as workers of other firms. Firms operating inSouth Africa are encouraged to train workers by the subsidies of Sector Training Education
Authorities (SETAs) and tax incentives, in addition to the need to accumulate BEE points.
The mission was unable to assess the quantity, quality and the degree of proper matchingwith industrial needs of technical training in South Africa.
Separately, for the purpose of educating young African manufacturing engineers, Toyota
will create an MBA course at the planned Toyota Institute of Management Studies incooperation with Professor Barnes of KZN University. The Toyota Foundation haspurchased a land of 2.5ha on Umhlanga Ridge and construction is to begin in 2017.
However, the funding for the building has not been identified, for which an investment orloan by the Japanese government is sought. An annual intake of 50 students is planned
which will include not only workers of Toyota and its suppliers but also from the South
African government and other African countries. Given the fact that South Africa already hasbasic policy frameworks, subsidies and TVET institutions, the next step should be to matchthe content of TVET education with the skill requirements of the industry. This should cover
the curriculum, the number and quality of instructors and regular cooperation with
manufacturing firms. Past experiences of East Asian countries, including Thailand andVietnam, should be useful for this purpose.

95. The Department of Trade and Industry (DTI)
The mission did not meet Minister Rob Davies, but it had informal discussions with three
key persons responsible for the automotive sector: Mr. Girth Strachan (Deputy Director
General), Mr. Edwin Ritchken (Advisor) and Mr. Renae (Automotive Division). Exchanges
with the former two were similar and related, which are summarized in the following two
paragraphs based on Ohno’s understanding and interpretation.
Works by Kenichi Ohno have been studied. They provide concrete and realistic policy
analyses and proposals. DTI also heard lectures by a number of famous researchers but
their ideas are more abstract and general. DTI hopes to improve the automotive policy but
politicians and certain car makers need to be convinced. South Africa is particularly sensitive
to employment issues.
We need to prepare concrete data based on international comparison to persuadepoliticians in their own logic. Forecasts of job creation are required, and additional impacts ofautomotive policy revision on the balance of payments, domestic value creation, workers’
skill improvement and technology transfer will also be useful. National leaders may react
positively if such data are presented in readable form. JICA cooperation will be appreciatedbecause DTI staff alone may not be able to come up with convincing numbers. We will start
to revise the automotive policy from this year. We do not consider starting the revision work
now is too early even though APDP is effective up to 2020.
To this proposal, five remarks of the mission may be added. First, the demand forecast of
1.2 million units in APDP is unrealistic and should be revised downward. Second, we agreewith the DTI officials that concrete and attractive numbers should be presented to national
leaders. Rough forecasts based on common sense are better than scientifically “rigorous”
but unsupportable numbers because they are for persuasion and policy action, not for
writing a professional article. Third, Japan should help with gathering information on
benchmarking on Thailand, Brazil, Mexico, etc.; policy measures to increase domestic
production for the domestic car market, such as eco-car and other tax incentives andrestraints on CBU import, and for capturing more export markets and conducting effective
trade negotiations; model- and platform-targeting and incentives for raising production
volume for each model; and an array of concrete measures for strengthening automotive
human resource and component suppliers8. Existing materials, including the report by the
GENDAI Advanced Studies Research Organization, should also be cited if useful
Fourth, cooperation of not only JICA but also ALL JAPAN, which covers the Japanese
Embassy in South Africa (as a command post), JETRO, HIDA, the Japan Productivity
Center, Toyota, Japanese component suppliers and Toyota Tsusho, with a strong support by
the Tokyo headquarters of METI and MoFA, is required. Cooperation should benefit both
8

We inquired whether there was a list of prospective local supplier firms for the purpose of initial screening
for handholding (concentrated and multiple assistance to level up a small number of selected firms). Mr.
Renae of the Automotive Division informed us that the Automotive Supply Chain CompetitivenessImprovement Initiative (ASCCI, a joint organization of government, management and labor) had such a list.
In addition, Toyota and Japanese experts are assisting local component suppliers and should also haverelevant information. Similarly in Vietnam, JICA Vietnam in cooperation with a research institute under the
Ministry of Industry is currently trying to compile such a list for improving selected firms in the future.

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countries (South Africa and Japan) by upgrading the South African automotive industry to a
globally competitive level. Fifth, a future government of South Africa may be more proactive
and Japanese cooperation should be ready to support such a government if it comes into
place. While APDP is effective until 2020, an earlier revision may become possible if a future
government agrees on a new direction of the automotive policy.
6. Toyota South Africa
The mission visited Toyota South Africa Manufacturing (TSAM) in Durban. Dr. Johan van
Zyl (Chairman) and Mr. Andrew Kirby (President and CEO) were out of town. We met sevenmanagement leaders of TSAM including South African and Japanese. Toyota presented
slides, and discussion followed and candid ideas were exchanged. The mission also had atour of the main factory.
Toyota has a long history in South Africa dating back to 1962. Despite this, it continues toface difficulties in demand size, human resource and component supply. Recently South
African production stays around 600,000 vehicles per year without a visible increase, forcing
producers to operate much below capacity with only one work shift and a slower tact time(line speed) than in other countries. At TSAM, Hilux (pickup truck) and Corolla are producedwith the former being the main product as domestic demand for mid-sized sedans is
declining. Other Toyota cars with smaller volume are imported. For Toyota, South Africa is
one of the global production sites for pickup trucks, along with Thailand and Argentina, andthe country also serves as the gateway to the African Continent. The headquarters of Toyota
recognizes this and assists TSAM to fulfill these functions. Currently a new Hilux model isbeing introduced at TSAM.
Worker turnover is low in South Africa (perhaps due to high unemployment outside).
Annual salary including social security contribution and benefits now reaches 1.5 million yen(about $13,700) while labor productivity remains low. For this reason, Toyota gradually
introduces robots to replace humans and reduce production costs. 30% of body welding
work is currently done by robots. While the quality of South African workers is lower thanthat of Thai or Mexican workers, TSAM saw some improvements in the last decade.
Supporting industries (component suppliers) are underdeveloped and their numbers arelimited in South Africa, with the result that suppliers often act monopolistically. Incidents ofdefective components are high, and buyers (assemblers) have to carefully check the qualityof delivered components, a practice rarely heard of in Asia. While the mission was making atour of the factory, the Hilux line stopped due to the shortage of one component because adominant supplier failed to deliver it.
The mission made the following suggestion to the TSAM management. South African
automotive policy has improved with the adoption of APDP, but it still has queer irregularities
such as incentivizing simple assembly while ignoring component supplier promotion, humanresource development and technology transfer. DTI officials want to prepare concrete datato persuade politicians into further policy revision as noted above. The mission proposes all
stakeholders to jointly and strongly assist this work. The Japanese Embassy and JICA

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South Africa are already willing. Certainly there is a risk involved, but the proposed policychange is reasonable and will aim at “win-win” results for both countries. To proceed withthis work, information from Toyota, the leading automotive maker in South Africa, isessential. Ohno has observed the automotive industry in Vietnam for more than two
decades where METI in Tokyo and the Japanese Embassy, JICA, JETRO and Toyota
Vietnam have continuously worked together to improve the policy. For example, around2000, Toyota Vietnam and the Ministry of Industry produced a future scenario for theVietnamese automotive industry. There is no reason why South Africa cannot do the same.
Instant response is not needed, but we hope TSAM will internally discuss this seriously. If
TSAM decides to join cooperation with DTI, please contact the Japanese Embassy or JICA.
7. Other activities
A proposal from NEPAD
This information is noted here because it has an important bearing on Japan’s industrial
cooperation in Africa even though it is not directly related to the present mission. By thearrangement of the Japanese Embassy, the mission met Dr. Ibrahim Assane Mayaki(NEPAD CEO and the former PM of Niger) on April 27 in the suburbs of Johannesburg. We
briefed on kaizen and industrial policy dialogue in Ethiopia but Dr. Mayaki was alreadyinformed. He explained the three levels of NEPAD activities (whole continent, regions andindividual member countries) and pointed to the problems including the lack of planning
capacity of each member country, shortage of industrial skills, and difficulty in executing
infrastructure projects across national borders.
Dr. Mayaki felt that the industrial experience of Ethiopia was not widely shared among
member countries. While Ethiopian politics may be different from others, he was confident
that at least some of the member countries would be interested in African industrialization by
the effort of Africans themselves. He proposed that, with Japanese assistance, NEPAD
would like to create opportunities to disseminate Ethiopian industrialization experienceamong member countries. Specifically, (i) presentation at the twice-yearly (January andJuly) 20 heads of state meetings organized jointly by NEPAD, AfDB and UNECA; (ii) moredetailed explanation at the ministerial meetings on industry, science and technology held atsimilar times; and (iii) a new kaizen program within the NEPAD framework (this idea was stilla very preliminary one) were proposed.
The mission explained that dissemination of Ethiopian kaizen and industrial policy
dialogue throughout the continent was intended in the third phase of each project. Dr.
Mayaki’s proposal should properly be relayed to and responded by the relevant Ethiopian
and Japanese authorities, but the mission predicted that Japan should be eager tocooperate. We also suggested the possibility of participation of ACET, an Accra-based policy
think tank, in disseminating Ethiopian industrial experience, to which Dr. Mayaki agreed inprinciple. Further communication should be directed to Dr. Mayaki himself with cc to Ms. Fati
(NEPAD Coordinator).

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Using an existing African framework to publicize Japanese industrial activities on thecontinent is a good idea from the perspective of effectiveness and African ownership as wellas budgetary saving and logistic ease on the Japanese side. Dr. Mayaki’s proposal, comingfrom the African side, is highly welcome and should be positively reacted as it reflects
increasing interest in Japanese industrial cooperation in Africa. NEPAD is especially suitedfor PR within Africa even though we do not have to work with NEPAD for all purposes. The
proposal will be a mutually beneficial one as NEPAD will also add a visible project to its
industrial sector activities. January 2017 will give us enough time for preparation, but given
the approaching TICAD VI (end August 2016) and the limited term of Dr. Mayaki, it would be
advisable to offer some initial input in July 2016 and provide additional and more targeted
information in January 2017. These should also be closely linked with TICAD VI. Works on
this must be started now, separately from the proposed actions in South Africa.
The University of Cape Town
The mission had an opportunity to give a small one-hour seminar to the faculty members
and graduate students of the School of Economics of the University of Cape Town. We were
not informed of the School’s interest in advance, and we gave essentially the same talks on
industrial policy quality and automotive policy done four days earlier but in a morecondensed form. Responses were generally active and positive. Professor Mike Morris waswell informed of Ethiopian situations which he positively evaluated, and had reviewed
related materials and our presentation slides in advance.
8. Concluding remarks
The policy advice of this report should by now be clear. The mission would like to see theinitiation of active industrial cooperation by Japanese official and private stakeholders
interested in the South African automotive industry. This will require not only the
implementation capability but also the willingness to assist this industry of the Japanese side.
The driver of this plan should be the Japanese government, especially the Japanese official
agencies in South Africa. The GRIPS Development Forum will be happy to lend an
additional hand from the sideline if that is requested and deemed effective.
In the technical area, issues to be raised are already sufficiently clear in the report of the
GENDAI Advanced Studies Research Organization (commissioned by METI). To list up its
key points from the viewpoint of the GRIPS Development Forum, the following works areneeded: a clear long-term vision and a new action plan for the South African automotive
sector; re-setting of production and demand scenarios and related targets; impact
assessment on employment, domestic value creation, the balance of payments, and so on,
based on international comparison; proposals for stimulating and capturing the domestic
market and boosting export; announcement of targeted models and incentives for ensuring
sufficient volume for each selected model; adjustment of incentives to attain revised policy
objectives; concrete plans for industrial human resource training and supporting industry

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promotion; and strategic attraction of FDI component suppliers and provision of SEZs forthat purpose.
In addition to data collection and technical analysis, relation- and trust-building with thenational leaders and key economic ministers of South Africa as well as emerging future
leaders, by expressing Japanese policy interest and willingness to cooperate, providing
necessary information and strategy for policy change, and conducting bilateral economic
diplomacy for mutual benefit, will be indispensable. These should be led by the Japanese
Embassy in South Africa in cooperation with JICA, JETRO and concerned Japanese firms inSouth Africa and supported strongly by the relevant ministries in Tokyo.

Appendix: Mission Schedule (April 2016)
April 23 (Sat)

Leave Tokyo, via Singapore.

April 24 (Sun)

Arrive at Johannesburg, move to hotel in Pretoria.

April 25 (Mon),
Pretoria

All day industrial policy workshop for policy makers and researchers at
Villa Sterne, Pretoria. Morning session on the international comparisonof industrial policy quality. Afternoon session on the automotive industry.
Kenichi Ohno was the speaker for both sessions.
Dinner at the official residence of Japanese Ambassador Hiroki.

April 26 (Tue),
Pretoria

AM – meeting with National Treasury team on budget, industrial policy
and incentives.
PM – meeting with DTI’s Incentive Division on incentives.

April 27

AM – meeting with Dr. Ibrahim Assane Mayaki (NEPAD CEO) in the(holiday),
Johannesburg

suburbs of Johannesburg.
PM – friendly lunch meeting at Ritchken residence, DTI Deputy DG
Strachan also present.
Fly from Johannesburg to Durban.

April 28 (Thu),
DurbanAM – visit Toyota South Africa, have meeting with management team andvisit the main factory.
PM – meeting with Toyota Tsusho Africa. Meeting with Dube Trade Port
Corporation and the Urban Planning and Economic Development
Sections of the Municipality of Durban.
Fly from Durban to Cape Town.

April 29 (Fri),
Cape Town

AM – meeting with Mr. Alec Erwin, former DTI Minister
PM – giving a seminar at the School of Economics, the University of Cape
Town. Visit the Japanese Consulate Office. Tour the city and vicinity.

April 30 (Sat)

Leave Cape Town, via Johannesburg.

May 1 (Sun)Via Singapore, arrive at Tokyo.

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