PRETORIA, South Africa -- South Africans love luxury German cars, but despite their hunger for them, most of the massed ranks of shining new saloons rolling out of BMW's plant in Rosslyn are destined for foreign shores.
Car manufacturing on the tip of Africa is booming, thanks to a government plan that encourages manufacturers to build cars for the rest of the world in exchange for rebates that cut the cost of importing other models.
Taxation changes have helped shift the industry's focus from supplying a wide range of cars to a small internal market at great cost and low efficiency, to producing a much smaller range, mostly for export, and importing everything else.
Now if you buy a Mercedes-Benz or BMW in Japan or the United States, you may well find that it was made in South Africa.
In fact, you might even deliberately choose a car made there -- cars from BMW's South African plant were rated as better made than those from any factory in Europe or the United States in a report by the auto survey company JD Power.
The 1995 Motor Industry Development Program (MIDP) kicked off a massive restructuring process that has lifted the sector out of a late-1990s slump.
Vehicle and component making has grown to account for 6-7 percent of GDP, making it the country's third largest industry.
More cars and light vehicles were produced in 2001 than at any time since the mid 1980s, according to data from the National Association of Automobile Manufacturers (NAAMSA). Exports had grown from virtually none to more than 100,000 by the end of 2001.
MAJOR SUCCESS STORY
"Domestic production has been rising, and that is a major success story," said NAAMSA director Nico Vermeulen.
Under the country's old white government, import duties running at well over 100 percent protected the motor industry from overseas competition, leaving the varied demands of the population to be serviced from within the country, he said.
That policy helped establish a large-scale assembly industry, but spread resources so thinly between the different models needed to meet the country's requirements that cars were sold at a premium to international prices.
"It was a relatively insular, inward looking, industry that by any standards was inefficient," Vermeulen said.
In order to meet the demands of the international market, firms needed to slim down their production ranges, he added. Production has fallen from 42 models in 1995 to 27 in 2003, with a plan to cut that to 18 or 20 within four years.
That restructuring is shielded by the MIDP measures, which are grooming the industry for international competition.
The government is slowly peeling back import protection, while at the same time encouraging importers to earn tax rebates by building cars in South Africa and exporting them elsewhere.
Import duty on cars and light vehicles will fall to 30 percent by 2007 from 38 percent in 2003. The government will also cut duty on imported parts to 25 percent from 29 percent over the same time period.
"The government has clearly seen a success. The automotive industry has transformed itself," said BMW South Africa's managing director Ian Robertson, who is also NAAMSA president.
He says the way the MIDP scheme lays out the future business environment gives companies a horizon to plan their business.
"Many countries around the world dearly want an automotive industry but they don't have the foresight of a planning horizon which says that legislation is going to be like this...You have no real surety that your investment is going to be robust or safe."
TAX NOT THE ONLY INCENTIVE
On top of the rebates, cheap energy, buildings and low wage bills are all incentives to attract manufacturers to South Africa, Robertson said.
"By and large we have a cost advantage which is very, very significant, which offsets the biggest disadvantage which is that we are on the tip of Africa and our (export) markets are in the northern hemisphere."
BMW's Rosslyn plant, just north of Pretoria, makes certain models of its three series saloons, most of which are exported.
Other major manufacturers exporting from South Africa are DaimlerChrysler from its factory in East London, and Volkswagen from its eastern Cape plant in Uitenhage.
The Delta Motor Corporation, part-owned by General Motors, exports car parts from nearby Port Elizabeth, and Nissan has also invested heavily in a plant in Rosslyn.
The Swedish truck maker Scania opened a new factory in Johannesburg in February with the express aim of exporting to the whole of southern Africa.
But what of the industry's future?
As import tax falls, export rebates are also reduced, and manufacturers need to export more to gain the same benefits.
"The emphasis now is on the local industry doing more to stand still," Robertson said.
NAAMSA's Vermeulen says the industry hopes to be able to compete globally in time, but needs a while to adapt.
"It is the industry's vision to focus on the progressive improvement of international competitiveness," he said. "Becoming truly competitive given where we came from, and the distance to market...It is obviously a major challenge.
Robertson said the JD Power award to his company's Rossyln plant had sent a very important message for South Africa.
The company won the award for producing the best manufactured car in Europe because there was no category for Africa.
Maybe that will have to change.