Bell laments import duties on steel, tyres; Kamaz assembly could start in 2019

Southth African manufacturers are paying 22% too much for their steel; whether you are making lamp posts or electrical cabinets, you are not going to pay what you would pay on the global market,” says Bell Equipment CEO Gary Bell.

Bell Equipment manufactures six lines of capital equipment, including its signature articulated dump truck (ADT) at its Richards Bay plant, in KwaZulu-Natal.

Bell says the group has to pay a 10% import duty on steel, with another 12% safeguard duty added to protect the local steel industry.

South Africa in 2017 implemented emergency safeguard tariffs on imports of certain flat, hot-rolled steel products to protect the local steelmaking industry.

The tariff will be in place for three years and is proposed to fall from 12% in the first year, to 10% in the second year and 8% in the third.

Bell Equipment uses South African steel, made by ArcelorMittal, for some parts. However, the company imports high-performance steel that ensures the highest structural strength with the lowest possible weight, which is a key attribute of a vehicle’s competitiveness, explains Bell.

“I’m not sure we are going about things the right way,” he adds. “The duty on steel is not good for manufacturers in South Africa. It is good for one steel producer, and that’s it. I think government needs to look at what they need to do to make manufacturing competitive and sustainable in South Africa.”
Bell Equipment also pays duties on the tyres it imports for the vehicles it manufactures at its Richard Bay plant.

“On the ADT there are six tyres,” explains Bell. “Combined they are the most expensive part of the truck – more so than the Mercedes-Benz engine. We pay import duties on these tyres in order to protect the tyre industry in South Africa, which predominantly makes car tyres. But the reality is that no company in Africa manufactures the tyres we need.

“When other capital equipment brands in South Africa import product with the tyres already on the machine, they pay no duties,” he says.

“We also have difficulty in claiming the duty paid on the import of these tyres when the equipment is exported, fitted with these same tyres.”

Bell Equipment incoming CEO, Leon Goosen, set to take over from Bell as he moves to the position of nonexecutive chairperson on May 31, agrees.

“There is no protective barrier on imported construction equipment, such as those we manufacture locally, unlike the 20% levied on imported cars and on-road trucks. Our competitors’ machines come in free of duty.”

This said, Goosen applauds government’s Automotive Production and Development Programme (APDP). The APDP aims to boost local vehicle manufacturing in South Arica.

“This is fantastic, and we are grateful for this support from government,” says Goosen. “However, we have to offset this support against the import duties on components that are not available within South Africa, but which are required for us to manufacture in the country.”

“That does not give us any real advantage in the global market,” notes Bell.

Goosen says Bell Equipment would like to see a duty on imported construction equipment products that compete with locally manufactured products. He believes this will level the playing field against imports from countries with large domestic markets and locally available components.

“Give us some protection from imports and don’t penalise us with tariffs on components, as this would allow us to grow our sales and increase investment in manufacturing and job creation.

“It would also help if there was an incentive, or requirement for local municipalities or public companies to buy locally made goods. There is no drive in our sector for them to do this currently.”

Bell Equipment spends around R200-million a year on research and development in South Africa with a pool of engineers developed and mentored at the Bell organisation.

EMPOWERMENT CHALLENGES

Goosen adds that the current broad-based black economic empowerment (BBBEE) codes do not effectively take into account the extent of manufacturing done by local companies.

“We can be black-owned; we can adhere to all the other requirements of the code, but if we don’t score well in the procurement section, which is value-based, our scorecard is penalised.

“There are no local manufacturers for expensive items like engines, transmissions and hydraulic components and, with limited domestic consumption, it is also unlikely to change,” notes Goosen.

“As mentioned, imported tyres are one of our largest component expenses. If we appoint intermediate black-owned companies to import, or buy goods for us, costs are added that make us less competitive against the fully imported competitor units.”

“In some instances,” adds Bell, “if we stop manufacturing in South Africa and import goods, we’ll improve our BBBEE rating. Most certainly the BBBEE codes will need to be looked at if we want to increase manufacturing in this particular segment.”

This could become more of an issue if government’s new Automotive Masterplan, set to replace the APDP in 2021, is dependent on BBBEE codes.

“Procurement requirements will continue to ankle-tap us and, despite our commitment to South Africa and pursuing government’s strategies, not having a better BBBEE score could well force changes with regards to where we need to undertake manufacturing to be globally competitive,” emphasises Goosen.
Bell Equipment Sales Southern Africa, the local distribution division of Bell Equipment, is 30% black-women owned and achieves a level 6 BBBEE score, discounted to a level 7 for not meeting the procurement sub-minimum, he adds.

YELLOW METAL PROGRAMME

A sector-specific programme for truck and yellow equipment assembly in South Africa is currently being drafted within the Autmotive Masterplan framework.

Dr Justin Barnes, well known in automotive policy circles, is responsible for compiling the programme.
Bell says the Bell Equipment group has more than a 1 000 domestic parts, goods and service suppliers, and around 180 of these suppliers are based in Richards Bay.

The engine, transmission, tyres and hydraulics on the ADT are imported, while the remainder, such as the cab, is made locally.

“Roughly 30 000 people in SA receive some benefit every time a Bell product leaves the Richards Bay plant,” says Bell.

ADT PRODUCTION IN GERMANY

Bell Equipment will move its ADT load-bin production from Richards Bay to its German plant. Plans are, however, afoot to replace this with new projects, such as the possible assembly of Russia’s Kamaz trucks.
The move of load-bin production should not see any job losses at the KwaZulu-Natal facility, assures Bell.
ADTs at the German plant are currently assembled from kits supplied from South Africa.

“We have no intention of making the Richards Bay factory smaller,” says Goosen. “We have our people there, our intellectual property; we won’t let it stand idle.”

Goosen explains that the load-bin of the ADT vehicle – which is built from imported high-performance steel – is too big to fit into a container. As break bulk shipping rates are higher than container shipping rates, it makes sense to move load-bin manufacture to Germany.

Moving load-bin production is also an intentional strategy to reduce cyclicality and costs.
“Today we buy steel in Germany, we ship it to South Africa, we process it and ship it back to Germany,” says Bell. “Changing that will have cost advantages for us.”

Load-bin manufacture will be a first step, with potentially more of the manufacture of ADTs sold in the northern hemisphere moving to Bell Equipment’s Germany plant in future.

The Richards Bay plant will manufacture ADTs sold in the southern hemisphere.
    
Around 40% of Bell ADT sales are in the southern hemisphere. Most future growth is, however, expected to flow from the northern hemisphere – more specifically, the US.

KAMAZ ASSEMBLY COULD START IN 2019

Kamaz is a manufacturer of on-road trucks and is headquartered in Russia.

Bell aims to produce these trucks in Richards Bay for distribution within the domestic market. Kamaz assembly and load body manufacturing could start in the second quarter of 2019.

Local assembly means that Bell Equipment does not have to pay the 20% duty applicable on fully built-up trucks imported into South Africa.

“Going forward we could also be in a position to press the chassis of the Kamaz truck,” says Bell. “We also have the capability to localise certain other components, but this depends on the feasibility of local manufacture versus importing components, and the technology owner Kamaz allowing us to pursue these opportunities.”

The market size for the Kamaz-type trucks is two to three times more than the ADT volumes sold in the Southern African market.

“In line with our strategic plan, Kamaz takes us into a heavy duty on-road truck sector we have not been in before,” notes Bell. “We’ve seen quite some growth from Indian and Chinese manufacturers in South Africa recently. They have really made inroads into the market, with the premium brands taking a knock.”
“The mining and construction industries have not been that buoyant and people are buying down in order to limit costs.”

Bell says the Bell Equipment group will sell the Kamaz range to the same customers buying the Bell off-road brand.

“Supplying more of our customers’ requirements through additional products, allows us to better support them.”