South Africa’s motor industry is holding up “surprisingly well” in a tough economic environment, says Dr Azar Jammine, director and chief economist at Econometrix.

During his delegate address at the Automechanika breakfast recently held in Johannesburg, Jammine noted the decline in new vehicle sales. He said that while this had affected retail sellers negatively, it would provide a boost for the after-sales market as people would now keep their current vehicles longer, which meant they would require added maintenance and service.

Although the country is in a recession, Jammine said that with negative growth for two consecutive quarters, there were some bright points in the local economy with the motor industry being one of them.

He added that encouragement also came from a rise in the demand for electricity, a lower-than-expected inflation rate, vehicle price increases slowing, the price of fuel falling, a big improvement in the motor industry trade balance and a brighter outlook for the global economy.

He noted that South Africa remained the biggest vehicle market in Africa by far, accounting for 37% of new vehicle sales on the continent. North African countries including Egypt, Morocco, Algeria, Tunisia, and Libya followed.

He said that interestingly, the island of Reunion, which came in seventh place, recorded more new vehicle sales (27,697) than eighth-placed Nigeria (20,000), which had been seen as Africa’s powerhouse, but was now battling with a big downturn in its economy as the oil price has remained comparatively low.

Unemployment challenges

Jammine said unemployment remained a major challenge for economic growth in the country, while services continued growing faster than manufacturing, which proportionately provided more jobs.

“Another inhibiting economic growth factor is the fact that education in South Africa has been found wanting, with very poor results in terms of learners matriculating with good marks for maths and science,” he said. “Only one learner in 40 gets a matric with a maths mark of 60% or higher.

“Although the effect of the downgrade by the ratings agencies has not been unduly dramatic yet, they will obviously impact on future investment decisions as does the current political turmoil, which is affecting business confidence negatively.”

Vehicles sales to increase

However, Jammine still expects new vehicle sales to move into a growth phase next year, while the vehicle manufacturing industry continued to grow its share within overall manufacturing and as a contributor to the gross domestic product (GDP).

He added that the local motor industry remained a very important player in terms of exports from South Africa of built-up vehicles, automotive components and replacement parts which was good news for the overall health of the industry.

Automotive exports grew 80.3% between 2012 and 2016, while the rate of imports was slower with an increase of only 48.7%. This resulted in a significant drop in the motor industry’s trade deficit over the past five years, going from R42.3 billion in 2012 to R32.9 billion in 2016.