AUTOMART AFRICA - AUTOMOTIVE INDUSTRY DIRECTORY | KENYA | TANZANIA | ETHIOPIA

 

Deloitte Director Peter Maxwell and Senior Manager Carridine Brooks said this week that they were looking forward to hearing the finer details of the revised guidelines which Davies says will be published by the Department of Trade and Industry (the DTI) in April next year.

 

Maxwell and Brooks have followed the extensive consultation process closely with all major stakeholders within the automotive industry, including the National Association of Automobile Manufacturers of South Africa (NAAMSA), the National Association of Automotive Components and Allied Manufacturers (NAACAM) and the National Union of Metal Workers of South Africa (NUMSA), that has gone on for more than a year.

 

Speaking after  NAACAM annual general meeting, Brooks said the general consensus was that, while there were still many unanswered questions, the component industry intended taking the time to digest what the Minister had put forward. He said all were waiting to see what Davies was going to put on the table in April 2016. 

 

Maxwell admitted that the proposed changes probably favoured vehicle manufacturers more than they favoured component manufacturers. However, as all aspects of the supply chain were intrinsically linked, the overall effect should be positive.

 

Maxwell and Brooks agreed that the most significant change was undoubtedly lowering the barriers of entry to the automotive industry for potential new investors through the reduction of the minimum volume of vehicles to be manufactured to 10 000 per annum in order to qualify for a reduced Volume Assembly Allowance (VAA) of 10% as well as a suitable capital incentive for the investment in capital equipment. Realistically, lowering the barriers of entry takes away the responsibility of the current original equipment manufacturers (OEMs) that are battling to manufacture 50 000 units. The question is whether the DTI will reduce this VAA accordingly for production targets not met?

 

Brooks said this bold move by the DTI demonstrated a commitment to the long-term growth of the automotive industry. “This should help attract new entrants into the vehicle manufacturing arena who were unable to comply with the previous threshold of 50 000 vehicles per annum. This will assist in setting the industry growth back on course and increase investor confidence in spite of the present economic climate. This will also position South Africa as an attractive vehicle manufacturing destination and improve our competitiveness against other emerging automotive industries such as Nigeria.”

 

When the APDP replaced the Motor Industry Development Programme (MIDP) in January 2013, many hoped that the change to a production based incentive programme would help to increase production to 1.2 million vehicles by 2020 and create additional employment opportunities.

 

According to Brooks, the DTI had acknowledged that the slowing global economy made this goal unrealistic.

 

Based on NAAMSA’s latest estimates, approximately 622 000 vehicles are expected to be produced this year. Using this forecast of expected vehicle production as a measure of the production growth experienced in 2015 against prior year production, he noted that significant strides were being made by the automotive industry against a recovering economy. Earlier this week, NAAMSA commented on the November 2015 new vehicle sales and anticipates that vehicle exports for 2015 should reach a record 340 000 compared to 276 873 units exported last year. While this upward trend in exports is likely to continue into 2016, NAAMSA notes that domestic new vehicle sales are likely to remain under pressure next year. 

 

Instead the interim focus had shifted to stabilising current production output, attracting more foreign direct investment and sustaining the current levels of employment within the automotive industry.   Maxwell pointed out that both incentivising existing investors to produce more models in South Africa and attracting vehicle manufacturers that were not yet active in South Africa would ultimately benefit component manufacturers.

 

“First and foremost, we need to attract vehicle manufacturers into the country. You have to have a strong vehicle manufacturing sector and then the component manufacturing sector will follow. The only other avenue for component manufactures, other than supplying the aftermarket, is to export. However, the export market is very competitive and it is not easy for them to secure profitable export contracts,” he said.

 

Brooks added that the arrival of new vehicle manufacturers and additional investment by existing OEMs should see component manufacturers increasing their volumes. “The aim of the APDP was not only to increase the number of vehicles produced but also to broaden the component manufacturers’ supply chain and deepen localisation. The introduction of additional support mechanisms by the DTI, such as the incubation programme for tier 2 to tier 4 suppliers, reflects the DTI’s awareness of the current shortcomings and the vulnerability of this industry that could threaten further localisation of automotive components,” he said.

 

To also increase localisation, the DTI intends increasing support for tooling manufacturers. Manufacturers of catalytic converters (a component that falls within the vulnerable product category) will enjoy increased support as the DTIhas frozen the production incentive (PI) in 2017 at 65% and eliminated the continuous phase-down of the PI while tightening the belt for manufacturers of components that are viewed as non-core products.

 

Source :http://www.cbn.co.za/