Almost 200 industry stakeholders, with senior representatives from the Department of Trade Industry and Competition (dtic) and the National Regulator for Compulsory Specifications (NRCS) gathered at Automechanika in September for the launch of the Blow the Whistle Compliance Forum designed to stamp out the trade in illegal automotive parts in South Africa.
Spearheading the campaign, Vishal Premlall, National Director of the Tyre, Equipment, Parts Association, a proud association of the Retail Motor Industry Organisation (RMI), said he was delighted that the Forum had been given the thumbs up by Government. “The trade in illegal parts has far-reaching implications for South Africa, affecting both consumer safety and the economic landscape. The establishment of an Industry Compliance Forum, in collaboration with regulatory bodies and stakeholders, presents a strategic opportunity to address this challenge and contribute to the country’s overall growth,” said Premlall.
In a keynote address at the 2022 Mining Indaba in South Africa, President Cyril Ramaphosa urged business to partner with the government and address the nation’s malpractices. Premlall cited the petroleum industry as a good example of where this cooperation is producing positive results in South Africa. He said in the petroleum industry, partnerships have been formed between industry stakeholders and statutory bodies called the Petroleum Compliance Forum, under the Department of Minerals, Resources and Energy (DMRE). The forum has been given the responsibility of investigating and dealing with instances of illegal trading in petroleum products. Since its establishment in just 24 months, over 130 cases that were reported through the South African Petroleum Retailers Association’s (SAPRA) whistleblower hotline have been reported and dealt with by the necessary regulators.
Shawn Reddy, product marketing manager for Motus Aftermarket Parts, told delegates that South Africa and the rest of Africa were facing a significant challenge of excessive counterfeit automotive parts. As the continent moves to avail more consumer independence, he said there were reduced guidance, inspection and control of products being dispatched to the market and that the influx of counterfeit automotive parts was compromising both the safety of vehicle owners and passengers.
Producers of counterfeit products are mainly backdoor industries that always find ways to avoid or underestimate tax contributions and these present an opportunity cost for economic growth. “A significant number of customers are uninformed and buy counterfeit parts without knowing that these would be branded and designed similarly to the original parts,” said Reddy. This is not only detrimental to passengers but impacts the economy, as it undermines compliant businesses, reduces tax revenues and hinders the growth of legitimate industries.
Nduduzo Chala, Managing Executive of the South African Tyre Manufacturers Conference (SATMC), said that the two biggest illicit trade risks at present were misdeclarations at ports and a lack of tyre industry knowledge. This is particularly rife with officials not understanding tyre products leading to misdeclarations. “As an industry, we have reported numerous cases, but we are struggling with feedback from SARS and a low prosecution rate. Unfortunately, loopholes in current SARS and ITAC laws and regulations allow for circumvention, which opens opportunities to continue illicit trade practices,” he said.
The impact of this on the fiscus is significant. Charl de Villiers, Chairman of the Tyre Importers Association of South Africa (TIASA) said that Illicit Financial Flows (IFFs) could have a substantial and crippling effect on economies. “In South Africa, unofficial stats place the loss between 2018 and 2020 at over $60 billion on inward and outward IFFs, and the most common illicitly traded commodities are precious metals and electrical machinery and equipment.”
The current depressed economic climate is also impacting consumer choice, and we are seeing a trend for consumers to buy down and inadvertently support this illicit trade. Dion de Graaff, CEO of Autozone, confirmed that recent information from independent retail customers showed that up to 70% of non-branded product was being imported compared to 55% just nine months ago. “The problem,” said Graaff, “is that this offers consumers very little recourse. Most branded products will offer a 12 – 24 month warranty but these imports often provide a 0 – 5 month warranty, which is problematic in itself.”
When one looks at this trend, the big concern is the impact on road fatalities. If one looks at stats from the Road Traffic Management Corporation (RTMC) we are losing 13 500 people to road accidents each year. “And this does not include those victims who are maimed or injured and need post-crash care. That cost is borne by our taxes and the Road Accident Fund,” said Layton Beard, Spokesperson for the Automobile Association of South Africa. He also stressed that given the importance of reliable parts on vehicles, the impact of illegal parts, which could be inferior to genuine parts, could add to the growing number of fatalities on the country’s roads.
Premlall said the solution was definitely not simple and would require a hybrid approach with collaboration from all parties starting right from origin declaration and then identifying the risk indicators at every point along the supply chain. Juanita Maree, CEO of the South African Association of Freight Forwarders (SAAFF), agreed saying that if we could find a way to connect the different instruments with full visibility and accountability from point of origin to the front line and then with post facto on-site audits, we would be better able to curb illicit trading.
The session concluded with support for the formation of an Industry Compliance Forum where businesses could start collectively pooling their resources to combat illegal traders, leading to a safer more level playing field, where compliant businesses would have the opportunity to thrive and contribute positively to the Gross Domestic Product (GDP).