Trade analyst Donald MacKay says that South African taxpayers are paying significant subsidies to carmakers in this country.

He was discussing the takeover of the Nissan plant in Rosslyn, near Pretoria, by Chinese manufacturer Chery. MacKay pointed out that this was underwritten by an extensive subsidy regime to maintain its competitiveness.

“Our automotive industry in South Africa is built on a fairly complicated subsidy programme. So, at the heart of manufacturing cars in South Africa is a subsidy programme. Put differently, if you took away the subsidy, we wouldn't make cars in South Africa,” he said. “Chery, just like all of the other producers, is going to take full advantage of that programme. Otherwise, it would never have done the deal to purchase the Nissan factory.”

A number of automotive facilities in South Africa were simply not viable, MacKay said, which meant that in future, subsidies would need to be raised if they are to be kept in operation. This would encounter stiff resistance from the National Treasury; the only alternative would then be to close up “or you find someone else who can make it work”.

While expressing sympathy with the desire to keep plants operational, he said it was nevertheless important to recognise that the process of doing so was not going to be a “normal commercial transaction”.

He explained: “The consumer in South Africa effectively funds the subsidies. We do that in a couple of ways. The one is that we pay a fairly significant premium on our cars because they are made locally or even because they are imported by a local manufacturer.”

The thinking behind this was that carmakers in South Africa would buy goods and services from other South African businesses, so policymakers might consider these subsidies a reasonable price to pay, MacKay said.

The scale of this premium to the consumer was, however, shown in a study done by MacKay’s firm, XA Global Trade Advisors, which found that a Mercedes Benz manufactured and sold in South Africa was more expensive than the same car, also manufactured in South Africa, and sold in Manhattan. While he conceded that this was an old study, he said that it remained “indicative” of the realities.

He added that the latest available Treasury statistics showed that some R40 billion was paid in subsidies to automakers in South Africa, and this was divided among seven companies.

Subsidies, he said, were never meant to be “evergreen”, but it looked increasingly like they were a permanent part of the business landscape. At the same time, South Africa was not an attractive destination for manufacturing cars.

“We're not addressing those deeper underlying issues that would create a competitive environment to manufacturing; we're using subsidies, tariffs, all of these things as an alternative to fixing the basics and that simply is not sustainable.”