Tuesday, 06 June 2017

The role of trade restrictions in promoting local manufacturing in South Africa’s motorcycle industry

  • Year: 2017
  • Author(s): Sithembiso Mtanga, TIPS Senior Researcher

South Africa’s motorcycle industry is waning while other emerging markets are expanding their production activity, usage and trade performance, and are developing integrated value chains for motorcycles. South Africa is a net importer of motorcycles and imports have been declining for the past five years. No local manufacturing is taking place and the domestic industry relies solely on imports. The industry is small in global terms with the number of registered motorcycles at around 366 000 units as of 2015, which is less than 1% of the global share and the number of new registrations is on the decline. The number of industry participants is also dwindling as more local dealers, distributors and importers of motorcycles close down operations.

One of the main reasons is a policy change that came into effect in 2013. This introduced more stringent requirements for the importation of motorcycles, which in turn reduced the number of establishments eligible to import motorcycles. The policy change has benefited the main original equipment manufacturers (OEMs) and their authorised agents and suppliers by eliminating competition from parallel importers, which are now forced to source their motorcycle stock domestically from the OEMs and their respective authorised suppliers. This has affected the profit margins of the parallel importers and resulted in many of them closing.

This brief illustrates how, in the debate between trade protectionism versus openness in industrial development, sometimes policy changes in the form of trade restrictions in a specific industry may lead to unintended consequences. These could have an adverse effect on the domestic industry and the overall economy.

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