Can the APDP gear the automotive industry up to meet the global competitive challenge?

Strong linkages with industries across multiple economic sectors including raw-material suppliers, financial service providers, motor retailers and advertising make the automotive industry without doubt the largest player in the manufacturing sector in South Africa and of strategic significance for the local economy.

While the Motor Industry Development Programme, (MIDP) undoubtedly contributed significantly to the growth of the automotive industry in South Africa during its tenure, there is a view in many quarters that the programme did not succeed in taking the industry to a globally competitive level. This, at a time when competitors in the world market have been moving incredibly fast.

But when the current MIDP terminates at end of 2009 (with policy commitment to 2012) it will be replaced by the approved but yet to be launched Automotive Production and Development Programme, (APDP) which will run from 2013 until 2020. The APDP has been designed to help the South African automotive industry become globally competitive and to expand its manufacturing capability within South Africa with ambitious targets for annual vehicle production of 1, 2 million units by 2020.

The new programme is also intended to go some way towards providing the automotive industry with longer-term certainty about the investment environment while being consistent with World Trade Organisation rules.

The APDP will include four main components:

• Stable and moderate import tariffs from 2012 of 25% for completely built-up vehicles and 20% for components used in vehicle assembly
• A local assembly allowance enabling vehicle manufacturers producing more than 50 000 vehicles a year to import 20% of its components duty free, reducing to 18% over three years
• A production incentive in the form of a tradable duty credit of 55% on the value-added element of a component, measured from the selling price less the raw-material input. This would reduce to 50% over five years with an additional 5% being available for vulnerable sub-sectors
• An automotive investment allowance taking the form of a direct grant to the value of 20% of the project over three years, to be used to support investment into new plant and machinery. An additional 10% is available to assist with relocation costs, training and research and development expenses subject to attaining certain key criteria.

Under the APDP, vehicle manufacturers and component suppliers will be encouraged to step up in terms of their technical know how and cost efficiencies in order to close the gap that currently exists. With its target of assembling 1.2 million vehicles per annum by 2020, the APDP is a support programme that focusses on volume rather than exports. Given current market conditions some manufacturers believe that government should consider reducing the production volumes required to qualify for support under the APDP.

According to Dr Johan van Zyl, past president of NAAMSA. “There is no doubt that the new programme will stimulate production of motor vehicles and automotive components and encourage further investment in the industry and assist the process of stabilising and creating employment over time. At the same time, however, it should be recognised that the industry faces ever increasing competition – domestically and internationally”.

By Allan Corbett, IQuad Global Trade Solutions (Pty) Ltd