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South Africa’s seven light vehicle manufacturers plan to launch a R3.5-billion venture fund this year, aimed at boosting black economic empowerment in the domestic automotive manufacturing industry. This follows their refusal to accede to government’s demands to cede part of their local subsidiaries to local empowerment partners.

According to BMW SA CEO Tim Abbott, government has approved the venture capital fund. Government has frequently expressed frustration at the low level of black involvement in the industry, and this fund will be instrumental in the transformation of the sector. The fund will be established by BMW, Ford, Toyota, Mercedes-Benz, Isuzu, Nissan and Volkswagen. They are all 100% owned by their parent companies abroad.

Assembling automotive componentsAbbott said that the seven manufacturers were not in a position to surrender any percentage of ownership to South African investors, black or white, but that the venture fund could potentially further increase the number of locally made components on vehicles produced in South Africa. The venture fund will have a black fund manager, with the vehicle manufacturers and government working alongside this manager to select projects to benefit from the fund.

These would include funding and/or mentoring, and would cover sectors such as security, logistics, dealerships and component manufacturing. “Obviously it will not just be about the money — although money is a major thing to provide finance to black industrialists in the auto industry — but it must also facilitate their entry into the supply chain, into the backward and forward parts of the auto value chain,” Abbot says.

The fund still requires a number of approvals, such as legal buy-in from all the manufacturers’ parent companies. From there, the Department of Trade and Industry (dti) must give the green light.

Director-General of the dti, Lionel October, has been reported as saying that there had been talks with multinationals over the past few months on an alternative for companies that would not implement direct employment equity by transferring 25% ownership to black shareholders. The Department had previously said that without a compromise, companies could lose rights to import-duty rebates and investment refunds of up to 30%.

“In that case we have an equity equivalent. So, for example, they have come up with an equity fund that will facilitate black companies and black industrialists into, for example, their supply chain,” October said.

Image credit: Copyright: auremar / 123RF Stock Photo

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