Johannesburg – South Africa’s automotive sector, the country’s largest manufacturing industry, expects a slight increase in new vehicles sales this year as economic growth gains pace thanks to commodity price rises and a recovery in farming.

New vehicle sales are expected to rise by 2.5 percent to 3.5 percent in 2017, Nico Vermeulen, director of the National Association of Automobile Manufacturers of South Africa, told Reuters.

The increase follows three successive years of decline and a drop of 11.4 percent in 2016 to 547 442 units.

“As the economy starts to show signs of life and interest rates remain stable for the foreseeable future, the market will develop some traction in the second half of the year,” Vermeulen said.

He said the industry’s sales growth projections were based on an assumption of economic growth of over 1 percent this year in Africa’s most industrialised economy.

Last October South Africa’s Treasury forecast growth of 0.5 percent in 2016, accelerating to 1.3 percent in 2017.

Read also: New car sales: ‘Encouraging’ signs seen

The country is recovering from its worst drought in history which wilted crops and stoked food inflation. Slower inflation will help the economy this year along with higher commodity prices, although worries about low investment rates and the political environment continue to weigh.

Export success

Despite the recent decline in domestic new car sales, exports have improved, hitting a record of 344,822 units in 2016 and are expected to rise to 375,000 units this year.

Most South African car manufacturing is of foreign models made under licence.

Vermeulen said Europe would remain the key export market but manufacturers were also closely watching developments in the United States, where President-elect Donald Trump has vowed to hit companies that shift production from America to other countries with a 35 percent tax on their exports into the U.S.

“It’s premature to speculate about what will happen. Our reading of the situation is that President-elect Trump’s comments were directed at Mexico. I don’t think he was directing them at other countries,” Vermeulen said.

He said South African manufacturers have benefited from the African Growth and Opportunity Act (AGOA), a US trade agreement designed to help African exporters, and duty-free access to goods from sub-Saharan African countries.

“We need to allow the new US administration to settle in and then clarify what their trade policy will be,” Vermeulen said.

“AGOA is a developmental programme intended to support growth and development of African economies and I think if that’s the object, I hope that it will not be changed.”