MOTOR INDUSTRY Ready or not . . .
Potential unintended consequences the automotive production & development programme (APDP) have persuaded government officials to start planning a review of the new motor industry policy — even though it hasn’t been introduced yet.
The APDP, which will govern the SA industry for the next eight years, will be introduced on January 1.
Officials from the department of trade & industry (DTI) and International Trade Administration Commission had planned their first review in 2014, to give the APDP time to settle. But because of continued uncertainty about policy detail and industry preparedness, the review is now expected in mid2013.
The APDP will replace the motor industry development programme (MIDP), which has been in place since 1995. The biggest change will be a shift from the MIDP’s export-based incentive to one that rewards production.
However, Deloitte automotive specialist Peter Maxwell says the whole industry will face “major challenges”. He says: “The APDP is complex as it covers various customs aspects such as duty liability, storage requirements, rebates and refunds. It is important that vehicle and components manufacturers view and manage their import, storage, manufacturing and export activities holistically if they are to achieve full compliance.”
Despite recent doubts about whether the APDP would be ready for January 1, David Powels, MD of Volkswagen SA and president of the National Association of Automobile Manufacturers of SA, says it will go ahead on time.
Last-minute questions are inevitable, he says. “The details are onerous and complicated. The MIDP has been around for 18 years. One must not underestimate the complexity of change.”
The four pillars of the APDP have been known for some years: fixed duties on imported vehicles and components; a volume assembly allowance
of
44 offering customs duty rebates to vehicle manufacturers producing at least 50 000 vehicles annually; an additional production incentive with further duty credits to reward local value added in the manufacturing chain; and an automotive investment scheme (AIS) offering vehicle and components producers an initial 20% rebate on investments in productive assets.
The AIS rebate was intended to be taxable but Maxwell says a proposed amendment to the Income Tax Act may make it tax-free. “This will be subject to a corresponding reduction in tax allowances on the productive assets acquired with the production incentive.”
Roger Pitot, director of the National Association of Automotive Components & Allied Manufacturers (Naacam), says that despite a concerted effort in recent weeks to get components suppliers ready for the change of policy, many obstacles remain. Suppliers selling finished components direct to vehicle manufacturers understand the new rules but many of their sub-suppliers (whose own subsuppliers are often small BEE companies) are finding the programme onerous.
Naacam, he says, will continue to fight for changes in the APDP. For example, when SA components companies add local value in the overall vehicle manufacturing process, vehicle manufacturers reap the production incentives.
“This is not fair,” says Pitot. “When we made this point to the DTI, it suggested that motor companies would compensate us by allowing us to increase our prices to them. But they aren’t interested.”
This is one of the reasons why, he says, the DTI intends to bring forward its first review to mid-2013.
Whatever happens, the APDP “must and will go ahead on time”, says Powels. “Government says there has been enough consultation. There has to be a point at which we draw a line in the sand. But the DTI has committed to an early review to make sure there are no unintended consequences.”
His one policy concern is the lack of a strategy to increase domestic sales of vehicles. One of the APDP’s goals is to more than double this year’s expected 555 000 vehicle production to 1,2m by 2020. Exports are increasing but the 1,2m target can be achieved only with a concerted market-growth programme. “The APDP does not address that aggressively enough,” he says.
David Powels