Global Value Chains and Local Inter-Industry Linkages: South Africa’s Participation in the Automotive GVC

Abstract

International trade in the 21st century operates through global value chains (GVCs). There is a growing literature on how the emergence of GVCs has changed the playing field for catch-up industrialization of developing countries. Inter-industry linkages have historically been a central aspect of catch-up industrialization. How such linkages on the country level are affected by the reality that trade is conducted via GVCs is an important research question. This paper synthesizes the theoretical elaborations on inter-industry linkages from the classic development economics literature with secondary empirical data from the East Asian industrialization experience to illustrate the importance of inter-industry linkages for the industrialization process. Using primary data from the South African automotive industry, the paper shows how the dynamics of the automotive GVC have affected domestic inter-industry linkage building in the country. The backward linkages to the domestic component manufacturing industry and to the domestic materials industries from South Africa’s successful integration into the automotive GVC have been disappointing. Both local policy decisions as well as GVC-specific dynamics of follow sourcing and the proliferation of manufacturing technologies and material standards have undermined more substantial backward linkages from exports of automobiles.

Keywords:

• Global value chains
• linkages
• industrialization
• automotive
• industrial policy

Acknowledgements

Some of the interview data on the South African automotive industry used in this paper was collected in the context of the joint research project Project on Local Capabilities in the South African Automotive Industry together with Lorenza Monaco (École Normale Supérieure Paris Saclay). I would like to thank Lorenza for the joint data collection and research. Further, I want to thank the South African Research Chair in Industrial Development, University of Johannesburg, for organizational support, and Joel Mumba for research assistance. All mistakes are my own. I am willing to make the data supporting the results and analyses presented in this paper available upon request.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The discussion of the South African automotive industry in this paper only covers the production of passenger vehicles (PVs) and light commercial vehicles (LCVs), but not the production of medium and heavy commercial vehicles (M&HCVs) like buses and trucks. In 2019, 28,868 M&HCVs were produced in South Africa, compared to the total of 603,115 PVs and LCVs.

2 Based on data from the International Organization of Motor Vehicle Manufacturers (OICA).

3 The export and employment figures are from NAAMSA-The Automotive Business Council (2022) and the contribution to GDP and total manufacturing output figures are calculated based on the 2018 OECD Input-Output Table (2021 edition) for South Africa.

4 Tier-1 means that they supply directly to the assemblers, whereas a tier-2 supplier would supply to the tier-1 supplier, and a tier-3 supplier would supply to the tier-2 supplier and so forth.

5 This entire sub-section is based on Barnes (2013), Black (1994, 2011), Duncan (1993), and Lamprecht (2009).

6 This was confirmed in the interviews with all the seven vehicle assemblers.

7 In 2019, there were five more vehicle models being produced in the country: Isuzu D-Max, Nissan NP200, Toyota Corolla Quest, Toyota Quantum/HiAce and Nissan NP300. All five had production volumes <20,000 units.

8 OE components are those components that are used in the assembly of vehicles. Aftermarket and replacement components, in contrast, are used in the repair of vehicles.

9 Author’s own calculation based on data from Quantec/Statistics SA.

10 Interviews with the Technology Executive and the Senior Marketing Manager Polymers of the two major polypropylene and polyethylene producers in South Africa, September and November 2021.

11 The information on AMSA is based on an interview with two of their Product Managers and their Head of Market and Product Development in February 2022.

12 Interview with the Procurement Executive of an automotive steel service centre, November 2021.

13 Interview with the former Marketing & Commercial Director, Hulamin Rolled Products, November 2021.

14 Author’s own calculation based on data from Quantec/Statistics SA.

15 This has now changed with new policy measures (APDP 2) introduced in July 2021. The outcomes of this change in policy remain to be seen.

16 Interviews with several Senior Managers at the DTIC, November 2021 and February 2022.