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Jul 06, 2012

Brazil moves to bolster competitiveness of auto sector

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Africa|Industrial|IPI|PROJECT|Africa|Brazil|South Africa|Automotive|Product
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The Brazilian government has unveiled new legislation designed to increase the competitiveness of the country’s automotive sector, says PricewaterhouseCoopers (PwC) automotive industry analysis unit Autofacts in a report launched last month.

The unit notes that the measures are intended to attract new product and capacity investment, and to stimulate research and development within Brazil’s borders. The focus is also on slowing import growth and developing local component suppliers.

Autofacts says the Brazilian auto sector has experienced “incredible growth” in recent years, and now represents the fourth- largest sales market globally. However, this growth has also drawn attention to the weakness of local assembly, as evidenced by an increasing reliance on imports to meet demand.

From 2005 to 2011, the Brazilian market averaged 12% yearly growth, while imports experienced 46% yearly growth. By 2011, imports represented 25% of domestic sales.

The Brazilian government, along with automakers and suppliers, worked together to craft a new automotive policy to stem this tide. The new legislation established the “Programme of incentive to the tech-nological innovation and densification of the automotive supply chain”, more commonly known as Inovar Auto.

The policy allows for a 30 percentage point increase in industrial taxes (IPI) for vehicles sold in Brazil, and outlines the requirement for automakers to enter the programme, which will, in return, grant them IPI tax credits.

Beginning in 2013, companies must be compliant in three of four categories, such as research and development, to qualify for the Inovar Auto programme. Each of these categories will feature gradually increasing criteria until 2017.

In addition to Inovar Auto, to avoid pay- ing a 30 percentage point increase on IPI, a company will need to increase its pur-chasing within the country, measured by its volume of strategic supplier purchases.

The larger the purchase within the country, the greater the benefit the company will receive.

“The investment has the opportunity to lead the Brazilian automotive industry into an era of significant investment and growth,” says Autofacts.

“However, these aggressive measures could also lead to a contraction in an already soft market. “With a slowing economy and auto-motive lending tightening, the timing of such a forceful policy could prove detrimental in the near term,” the unit warns in its report.

In South Africa, there is also a policy shift on its way as the Motor Industry Development Programme is scheduled to be replaced by government’s new Automotive Production Development Programme in 2013.

New incentives include returning between 20% and 30% of a project’s value to investors over a three-year period, in support of investment in new plant and machinery.

The South African automotive industry set a new record last year, with 69%, or 272 000 units, of all vehicles sold in the domestic market imported, up from last year’s 66%.

The percentage of imported vehicles has risen steadily over the last few years, from 9% in 1995 to 32% in 2003 and 63% in 2009.

A drop in import duty rates has helped to ease the entry of imported vehicles into South Africa, dropping from 71% in 2003 to 26% in 2011.

Vehicles exported from South Africa have also increased, however, with 30% of the 2003 production volume of 421 965 vehicles exported and 51% of the 532 545 units produced exported in 2011.

In total, the local industry achieved the second-highest yearly export figure on record in 2011, at just under 272 000 units. South African vehicle manufacturers exported 186 835 cars, 84 123 bakkies and 805 trucks and buses to 77 countries in 2011.

Edited by: Martin Zhuwakinyu
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