Chinese Name: 北汽南非工厂项目
Location: Coega Special Economic Zone, near Gqeberha (Port Elizabeth), South Africa
Type of Project: Industrial—automotive assembly plant
Project Developer(s): Beijing Automobile International Corporation (BAIC); Industrial Development Corporation (IDC) (South Africa).
Main Contractor(s): Beijing Industrial Design and Research Institute (BIDR)
Financier: BAIC will fund the majority of costs. Details have not been revealed, though the project will be partly funded through stakeholder equity contributions as well as loans from unspecified banks.
Cost: Roughly 764 million USD (11 billion ZAR)
Project Status: Operational—though operations may be affected by COVID-19 measures.
BAIC is a Chinese municipal government–owned company that produces vehicles under its brands BAIC, BAW, and Foton, as well as for global brands such as Hyundai and Mercedes-Benz for the Chinese market. BAIC’s 764 million USD South African assembly plant is among the largest Sino-South African investment projects completed thus far. The project was negotiated at the political elite level and is structured as a joint venture in which BAIC serves as the majority shareholder, holding 65% of the venture, while the South African state-owned Industrial Development Corporation (IDC) holds the remaining 35%. The South African Government approved the development in the belief that it will play a significant role in creating local employment and, more broadly, strengthening Gqeberha’s position as an automotive assembly centre.
The project is in the Coega Special Economic Zone (SEZ), to the northeast of Gqeberha. The plant is designed to eventually be a ‘completely knocked down’ (CKD) kit assembly operation. This distinguishes it from other Chinese manufacturers operating in South Africa (such as FAW) that instead use a ‘semi-knocked down’ (SKD) kit assembly model in which prefabricated vehicles are imported and then completed. In contrast, CKD plants assemble individually supplied parts. CKD allows for higher rates of local content and, in the IDC’s estimation, the incubation of domestic manufacturing since it is generally more cost efficient to secure local suppliers to meet so-called just-in-time procurement requirements than it is to ship in all materials from abroad.
The assembly plant will be built in two phases. Phase 1, valued at 4.5 billion ZAR (about 300 million USD) and covering some 89,000 square metres in Zone 1 of the Coega SEZ, is expected to be finished by 2022. On completion of this phase—which includes the construction of a paint shop, assembly line, press shop, office, and body shop—the plant is expected to produce 50,000 units per year. In addition to the main facilities, a 2 billion ZAR (about 140 million USD) supplier park for local component manufacturers will be built adjacent to the complex. This will house local small and medium-sized enterprises (SMEs)—an effort by the IDC to create linkages with, and upskill, the local economy.
Phase 2 will consist of a 6.5 billion ZAR expansion of the assembly shop to be implemented given the right market conditions (Interview data). If realised, Phase 2 will raise production capacity to 80,000–100,000 units a year. According to official documents, 60% of the plant’s output will be destined for the export market, while the remainder will be sold domestically.
Project development began in the early 2010s. IDC officials sought to leverage their BRICS (Brazil, Russia, India, China, and South Africa) connections to bring in a Chinese automotive company, in the hopes of strengthening South Africa’s role as a regional automobile producer (Interview data). IDC officials specifically sought a Chinese firm as they believe the country’s brands will one day have a major presence in the global auto market. Additionally, attracting a Chinese production line was thought to be relatively inexpensive (Interview data). The final arrangements were signed at the 2015 Forum on China–Africa Cooperation (FOCAC).
Plant site evaluations began in 2016, followed by a series of high-level visits, which included Li Yuanchao, then Vice-President of the People’s Republic of China, Lin Songtian, then China’s Ambassador to South Africa, and Jacob Zuma, then President of South Africa. Construction began in 2017, but several delays meant the project quickly fell behind schedule. The plant was officially unveiled during the 2018 BRICS Summit. South African President Cyril Ramaphosa (in office since 2018) and Chinese President Xi Jinping joined the ceremony via live video link. However, the unveiling only marked the beginning of SKD operations, with more construction necessary for full CKD compatibility. As per recent news reports, CKD production was finally scheduled to begin in July 2021.
Table 1. BAIC plant employment estimates
The project has been beset by work stoppages and labour unrest. Before construction began, approximately 300 million ZAR of the Phase 1 investment was to be set aside for local SME participation. However, the registration and tendering process for contracts was ‘unclear’ (Interview data), leading to work stoppages. By December 2017, reports indicated that construction was more than five months behind schedule.
Disputes continued throughout 2018. At one point, the Beijing Industrial Design and Research Institute (BIDR), which had been appointed by BAIC as the primary contractor for Phase 1, reportedly exceeded its budget, resulting in another brief work stoppage. A further stoppage late in the year—the third—after the plant was officially unveiled, lasted for about two weeks. In this stoppage, SMEs working on the project claimed they had not been paid in three months. Luvuyo Popo, President of the African Chamber of Business, spoke out against BAIC SA, stating: ‘We have been dealing with these people since the inception of this project and our experiences in doing business with them are not good … BAIC SA has not lived up to our expectations and so there is a trust deficit.’
By mid-2019, the project was six months behind schedule and a further 428 million ZAR was injected to cover delays and rising costs. COVID-19 measures have likewise hindered production, though limited operations had commenced by May 2020. Full CKD production was finally scheduled to begin in July 2021. IDC officials have acknowledged the project’s difficult start, stating: ‘During the launch of the project in 2016, we were overenthusiastic and very optimistic. That is why we announced that the first complete knocked down kits units would roll off the assembly plant in [Q4 2018].’
There are also significant questions regarding the IDC’s role in this investment. Some within the auto industry have questioned why the South African Government is participating in a venture that competes against the country’s established operations. Other auto industry insiders have argued that the BAIC plant will lead to a more adversarial approach between the state and other manufacturers. For their part, the IDC maintains the ‘door is open’ to all manufacturers seeking assistance. However, the BAIC plant certainly deviates from set industry norms regarding state involvement in the auto manufacturing sector.
Coega SEZ. ‘BAIC Group Frequently Asked Questions with Answers.’ Coega Special Economic Zone website. Link.
Reboredo, Ricardo. 2020. A ‘Bandung’ view of the world: The political economy of Sino-South African megaprojects. Doctoral dissertation, Trinity College Dublin. Link.