The Department of Trade and Industry (DTI) on Wednesday, announced that Trade and Industry Minister Dr Rob Davies had approved the long-awaited guidelines of the Automotive Investment Scheme (AIS).

The scheme was a vital part of the Automotive Production and Development Programme (APDP), which was to replace the Motor Industry Development Programme (MIDP) in 2012.

Both of these government incentive programmes served to encourage investment in the local automotive sector.

The AIS was to replace the MIDP's Productive Assets Allowance (PAA), which had already lapsed in December 2009, ahead of the launch of the APDP. Local vehicle manufacturers had been waiting anxiously for details of the scheme, as instruments such as the AIS and PAA played an important role in securing manufacturing and exporting contracts from their parent companies abroad.

The introduction of the AIS had been delayed, as government and the local automotive industry had thrashed out the details of the scheme. While negotiations were ongoing, the DTI had to provide guarantees to a number of companies announcing their investment plans in the meantime, such as BMW South Africa.

The DTI said on Wednesday that the AIS aimed to grow and develop the automotive sector through investment in the manufacturing of new and replacement vehicle models, as well as automotive components. The objective was to increase plant production volumes, sustain employment and strengthen the automotive value chain within the local industry.

The scheme would provide firms with a taxable cash grant of 20% of the value of qualifying investments in productive assets. To qualify for the 20% grant, a light motor vehicle manufacturer had to introduce a new or replacement model for production, and demonstrate that it would achieve a minimum production of 50 000 units a year within a ramp-up period of three years.

Also, a component manufacturer had to prove that a contract had been awarded for the manufacture of components to supply into the light motor vehicle manufacturing supply chain, and that the investment would achieve at least 25% of total entity turnover from the light motor vehicle manufacturing supply chain.

The DTI also announced that an additional taxable cash grant of 5% or 10% over and above the 20% taxable cash grant was available to projects that demonstrated that the investment would result in base-year employment levels being maintained throughout the incentive period and, in the case of light motor vehicle manufacturers, that these levels would be maintained during the model phase-out period.

Companies which wanted to qualify for this additional grant also had to prove that the investment would result in a number of economic benefits. These included: substantial support for the local tooling industry; significant research and development in South Africa related to the project; maintaining employment levels throughout the incentive period or the creation of new jobs; the strengthening of the automotive supply chain through backward and forward linkages; a substantial increase in local value addition; an increase in unit production a plant for vehicle manufacturers, as well as an increase in turnover for component manufacturers.

A budget allocation of R2,69-billion had been made available for the next three financial years, starting in 2010/11 and ending in 2012/13.

Application forms for the scheme would be available on the DTI website from June 14.