Stronger rand forces cost reduction policies

Competition from developing economies grows
ED RICHARDSON
SOUTH AFRICAN component manufacturers can count on several competitive advantages which range from raw material availability and low energy and tool costs to competitiveness within a shorter run/complex product production environment, according to Dave Coffey, president of NAACAM (National Association of Automotive Component and Allied Manufacturers) and managing director of Shatterprufe
However, manufacturers should not expect government to try to drive down the value of the rand, he says.
“My advice is not to rely on the weakening rand and ensure that you are competitive at a strong rand of R6.00/US$ and the equivalent major currencies. Many of our members have been sorely tested by the strength of the rand, resulting in restructuring and cost reduction programmes.
“The government’s stance throughout the strong rand period has been clear and will remain as it is. The stable consistent policy will be to manage the internal value of the rand through inflation targeting via interest rates with no intervention in the external value of the currency (the government cannot afford to intervene externally – Japan tried it and could not sustain this policy).
“From a risk management perspective, component manufacturers need to balance the order book between local, CBU export and direct exports,” he says.
Market competition is set to increase from the developing economies of South East Asia, Brazil, China and Eastern Europe, according to Coffey. China in particular is rapidly developing technology and capability, and many multi-national car and component manufacturers are based there. Dumping of specific products has been taking place, in some cases below raw material costs. The Chinese are also very aggressive competitors in the aftermarkets of the world.
Dealing with these challenges effectively requires the collaboration of the industry overall to drive efficiencies and create a strong domestic auto industry sales base. Local industry growth will come from being competitive with the developing economies of the world and component manufacturers must be world class in all aspects of quality, delivery and cost to survive.