(Bloomberg) -- South Africa took a belated step to preserve one of its key export industries by announcing a major tax-break for investments in the production of electric and hydrogen-powered vehicles.

The measure announced in Wednesday’s budget — a right to claim a 150% tax deduction on investments  — went some way to appeasing vehicle makers including the local units of Ford Motor Co. and Volkswagen AG, which have been clamoring for incentives to sustain the industry that accounted for more than 400 billion rand ($21 billion) in exports last year.

Companies have been concerned that the lack of government support would decimate South Africa’s biggest manufacturing sector as demand for gasolines and diesel-powered internal-combustion vehicle engines in Europe — South Africa’s main export market — falls. 

“This financial incentive is a crucial step in attracting investments, fostering innovation, and driving the growth of the EV sector within South Africa,” Mikel Mabasa, chief executive officer of the National Association of Automobile Manufacturers of South Africa, said in a statement. Still, he said, its 2026 start date is too late.

The tax break is key for South Africa, which despite its natural advantages, has done little to develop an electric-vehicle industry in the country. 

The country has the sixth-best supply of raw materials needed for the manufacture of lithium-ion batteries with increasing supplies of nickel and the world’s largest reserves of manganese - key metals for battery manufacture, according to a ranking by Bloomberg BNEF.

It also has ambitious plans to develop a green hydrogen industry and is the world’s biggest producer of platinum, a metal used in the fuel-cell engines that would be powered by hydrogen.

“This incentive, coupled with South Africa’s battery raw materials as well as the existing auto industry, could help the country become an EV hub in the region,” said Kwasi Ampofo, head of metals and mining at Bloomberg BNEF. “However, legacy challenges such as load shedding, the high carbon intensity of its power grid and weak economic growth could derail its ambitions,” he said, using a local term for the power cuts that plague the country. 

Toyota Motor Corp. and BMW AG also operate in the country.

--With assistance from Monique Vanek.

(Updates with comment from industry body in fourth paragraph.)

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