BMW pledged to inject a further US$417 million into its South African operation on Monday.

The German carmaker needs to ramp up production to meet increasing global demand, with the US plant responsible for the firm’s X3 model due to reach full capacity next year.

The auto giant’s X-series models are among its most popular, accounting for almost one in three purchases. BMW believes that this particular version- the X3 - is perfectly suited to the African market and will be looking to sell the sports utility vehicle on the continent as well as manufacturing for export.

A total of six billion Rand will be spent on expanding and improving the current Rosslyn-based plant, along with funding for staff training, organising supply chains and other general start-up costs. The Rosslyn factory was the company’s first ever overseas and has been in operation since 1973.

This almost half-billion Dollar injection of capital is widely seen as a reaffirmation of the firm’s long-standing commitment to both country and continent.

Autos thriving in the Rainbow Nation

The automotive sector is vital to the economic success of South Africa, with more than 7% of the country’s GDP relying on carmakers. As a result, South Africa has been keen to attract and retain the business of auto firms, launching the motor incentive programme to secure further investment in the industry.

The scheme seeks to provide financial support for the industry through tax incentives and other benefits. Competitors Ford and Volkswagen have long-established operations in SA too, so will also stand to benefit from such an attractive commercial environment. Securing such a large investment from BMW could be taken as a sign that the incentives being offered are working in SA’s favour.

News that the programme will be extended for the next five years has done much to boost confidence even further, with export projections looking rosier as a result. According to the National Association of Automobile Manufacturers of South Africa, auto exports are predicted to rise from 2014’s 55% to 68% by the end of this year.

Pedal to the metal

The last couple of months have been very positive from BMW’s point of view, as it recovers from a worrying summer slump. Its share price has improved by almost a third since October’s low of 75.68, climbing to 97.26 at the time of writing. More will need to be done by the Bavarian firm, however, if it is to revisit the mid-March high of 122.60.

A comparatively decent 2015 performance will have enabled BMW to steal a march on scandal-hit rival Volkswagen. An operational expansion of this size could signal the firm gearing up to acquire greater market share with a view to eventually pulling away from one of its largest competitors. Will this serious investment in South Africa help its cause? The initial response has been muted; since Monday’s announcement, shares have seen a modest improvement of three points. However, if Africa takes to the X3 in the way BMW expects, this could be a very different story.