MIDP Transition to APDP: Impact

on Component

Manufacturing

Many different categories

OE suppliers with high localisation

OE suppliers sub-assembling imports

Exporters – “vulnerable” and other

Replacement parts producers

Those using “standard” materials

Any combination of the above

Can We Generalise About the Component Manufacturers?

1. An allowance (D-FA) for OEMs to import components duty-

free for vehicles produced and sold locally.

2. Export incentives, through the ability to earn credits to

rebate import duties, based on the local content of:

Vehicles (some indirect benefit to OE component

manufacturers, but only where volumes increased; but also

complexity)

Components initiated by OEMs to earn credits

Components and aftermarket parts developed by local

component manufacturers

Let’s Look at the MIDP

1. An allowance (VAA) for OEMs to import components

duty-free for all vehicles produced locally.

2. Production incentives for all vehicles, with all

incentives earned by OEMs

3. Component exports for OEMs to earn credits

4. Independent component exports earned by the

manufacturer (not the exporter)

5. Aftermarket parts for the domestic and export

markets, earned by the manufacturer

What About APDP Incentives?

For OEMs: + VAA for vehicle exports and PI for

the domestic market vehicles

For OE suppliers: …..nothing

For component exports initiated by OEMs: no

real change, suppliers “cede” benefits to OEMs

For suppliers’ own exports: no change

For aftermarket producers: + PI on local

aftermarket sales

So What’s the Difference?

OEMs earn significantly more credits on vehicles

produced

Exports of “vulnerable” components – most of the

high value MIDP exports – many earn the same, but

reducing, some already less

Exports of other components earn much less

“Standard” material classification encourages

beneficiation of local materials (but less than MIDP)

Are the Incentives Worth More?

Those that export on their own and those

producing aftermarket parts are generally

happy

Those that export for OEMs are mixed

Those that primarily supply local OEMs are

generally not happy

What do the Suppliers Feel?

Despite the fact that there is a new production incentive for OEMs to localise… The incentive gets given to the OEM Some OEMs do not recognise it because of

their internal policies or procedures The suppliers have to do significant

administration – even hire people – to prepare the documentation for the OEM’s incentive

Vehicle production in SA is still very low

Why are OE Suppliers Not So Happy?

The positive financial considerations are:

Duty saving (but only on part of production)

Logistics saving

Production Incentive

Offset by:

Tooling cost

Local Price Premium

The OEM may have surplus credits

So What Influences Localisation?

Some suppliers have closed:

Replaced by new foreign suppliers

Lower requirement for exports or

localisation by OEMs who have more credits

Some have prospered, particularly

aftermarket parts producers

Others survive and are working hard to

improve

What’s the Bottom Line?

Incentives can be adjusted to encourage:

1. Higher Vehicle Volumes◦ through the VAA

2. More Localisation◦ through the Production Incentive

◦ through the AIS

But the APDP cannot fix the “country cost” issues such as ports and rail, electricity, monopolistic suppliers, wages and strikes, skills – government must play a large role in most of these, otherwise our targeted growth cannot materialise

What Can Be Done in the APDP?

Competition, particularly from Asia, is relentless

OEMs and suppliers have to drive down costs

Local inflation, monopolies and labour issues make it difficult for us in South Africa

Only much higher volumes will drive global competitiveness

The industry will continue to need government support and protection – particularly since other countries do the same

Conclusion