South Africa is emerging as a profitable production and exportbase for some of the world’s big auto manufacturers, despite thecountry’s remoteness, its reputation for labour militancy andpolitical uncertainties. South Africa has also become a keysupplier of motor industry components. With massive platinum andpalladium deposits, South Africa has emerged from nowhere to takenearly 10% of the world’s production of catalytic converters, whichis set to increase to 25%. This did not happen by accident. It isthe result of a deliberate strategy by the government to draw theworld’s best car manufacturers into South Africa, and drag thedomestic industry from behind protectionist barriers into thehighly competitive global market for cars and components. ‘When westarted, the South African auto industry was in ruins,’ aneconomist from the government’s Motor Industry DevelopmentProgramme (MIDP), said. ‘Domestic production could not even competewith imports, which faced duties in excess of 115%,’ he adds. MIDPhas kick started South Africa’s ailing motor industry by attractingthe world’s big car makers with many financial incentives. The newfactories have had the benefit of generating thousands of new jobsand forcing hundreds of small and medium-sized local suppliers toimprove quality and productivity or face extinction. Exports offully built cars have increased to 5 billion rand, and are expectedto double within two years. At the same time, exports of componentshave trebled to 12 billion rand. German car manufacturers have beenthe first to take advantage of MIDP’s export credits and investmentallowances, although Italian and French companies, such as Fiat andRenault are rapidly following. DaimlerChrysler has just announcedthat it is switching its entire production of right-hand driveC-class Mercedes Benz cars from Bremen in Germany to the EasternCape in an investment project worth 1.3 billion rand, which willcreate 800 new jobs at the plant and 3000 new jobs in the supplyindustry. Mercedes’ East London factory in South Africa is nowexporting C-class models to the USA, the biggest car market in theworld. BMW has invested 1 billion rand upgrading its Rosslyn plantnear Pretoria, which will export 75% of the 40 000 3-series carsproduced each year to Britain, Germany, Japan, America, Australia,Hong Kong, Singapore, New Zealand, Taiwan and Iran. Daily outputhas increased five-fold since creating 900 new jobs at the Rosslynplant, and an estimated 18 000 jobs in the car component industry.The Eastern Cape remains one of the poorest regions in the country.Average black disposable income stands at a low 5000 rand a year,compared with the white population’s 45 000 rand a year. WhenVolkswagen were looking for 1300 workers to replace those who weresacked for participating in an illegal strike, 23 000 turned upoutside the factory gates in the hope of being chosen. The extraincomes created by the industry help to boost other localindustries such as retailing and house construction. The success ofMIDP ‘has been a huge confidence booster for us,’ the MIDPspokesperson says. ‘It has enabled us to bring about bigproductivity improvements, stabilise employment, reduce the realcost of new vehicles, and give consumers more choice.’ Questions:Q1. List four multinational companies that have invested in SouthAfrica. Q2. Using the case as well as your own knowledge, explainthree reasons for these manufacturers setting up factories in SouthAfrica. Q3. Analyse the benefits South Africa appears to be gainingfrom such investment. Q4. Evaluate whether the government of SouthAfrica should continue to support investment by multinationalbusinesses in its economy.