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The economic impact of COVID-19 on the automotive value chain

Insights for South Africa

In May 2020, Deloitte surveyed 127 respondents across four industry associations representing the automotive value chain across Africa to explore opinions regarding a variety of critical issues impacting the automotive sector, amidst the COVID-19 pandemic. The overall goal of this study is to provide a view and answer important questions that can help companies focus, prioritise and better position their business strategies and investments with government, financial institutions and others in the value chain.

Clearly defined ‘city by city’ policies and regulatory frameworks are needed for the African growth agenda, along with the ability for these cities to work together across the value chain. An increased focus on Ghana can be seen due to a willing Government.

From disruptions in the global auto sector to the COVID-19 pandemic that is yet to peak in Africa, the automotive value chain has begun to shift focus intrinsically by increasing its focus on markets outside of South Africa (SA). In SA, it will be important to create visibility on businesses’ supply chains in order to make agile decisions and liquidity to counter the effect of an expected further tightening of the market. On an extrinsic level, operating model changes and community engagement remain areas for growth.

This remains a high-value focus area for all players in the value chain as uncertainties with regards to demand, forex, and supply within global value chains places increased pressure on the African market.

Creating a safe return to work operational plan that fits into the compliance standard by government has been a focus point, where only less than a quarter of the workforce can work remotely, placing an emphasis on earnings reductions over employment cuts. Digitally upskilling the workforce to be able to work remotely and challenging the status quo to think differently in order to improve execution of jobs.

Innovation and digital transformation have expanded the way the Automotive sector in Africa thinks about the way things are done and why these are done in a specific way. For Africans there are local nuances that demand a shift in operating models and innovation strategies for the future. Only 12% of businesses are looking to spend 50% and upward of their investments on strategy and innovation. It thus remains unclear which businesses will still be around in the next 5 - 10 years.

While B-BBEE transformation was a focus pre-COVID-19, there exists more pressure on businesses to survive and generate cashflow in the immediate term, with 37% of businesses expecting to take 18 months or longer to break-even. Automotive businesses are looking to raise this focus after 18 months and not before.

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