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Tough Year for South African Automotive Industry
Mar 07, 2008

Slow growth in domestic market of South Africa is troubling the automotive industry and tough time will continue in coming months too. However, export can offset losses.
 
The South African automotive industry will face tough time this year as the sale of vehicles is slipping down, but export programs will help in minimizing the losses, as reported by allAfrica.
 
According to the data released by the National Association of Automobile Manufacturers of South Africa, the sale of new vehicles declined moderately to 47,296 Units in January 2008 against 52,212 Units in January 2007. It was a fall of 9.4%, however, the association is hopeful that export programs would help in recovering the losses.
 
Rising interest rates on financial credits seem to be the biggest cause for this decline as the demand for vehicle loan has slumped. In addition, housing debts reached 77.5% of the disposable income due to increase in domestic spending and ultimately, reining the growth in the automotive industry.
 
Export programs of many renowned motor-manufacturing companies, including Volkswagen and Ford, will prevent the automotive industry of South Africa from bleeding. These companies are all set to reap benefits from low production cost and trade agreement, which South Africa has signed with European Union. This will also give them access to new EU countries and opens 15 EU countries to goods from South Africa. This is expected to fuel the auto export.
 
These companies do not want to leave any loophole and will utilize the African Growth and Opportunity Act (AGOA) signed between the US and African continent in 2000. The Act provided access of the US market to 38 African countries. They can sell their products in the US without duty charges by complying with certain criteria such as market-based economy and obeying set rules. Now this Act has been extended for another 8 years (2008-2015). In fact, the automotive industry of South Africa has emerged as the largest exporter under this law. In 2001, when this Act was implemented, South African exports to the US were measured at $359 Million, up by 38.7%. 

As per a Research Analyst at RNCOS, “Export program may help South African automotive industry to recover loss due to low domestic demand for vehicles, but to promote growth in this industry, the government has to come up with plans that increase demand and control inflation simultaneously.”

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