The amendments included in the newly-revised Automotive Investment Scheme guidelines primarily provide increased support to component manufacturers, with limited increased support for light motor vehicle manufacturers themselves. This increased support comes in the way of entirely new benefits, higher grant percentages, and a greater proportion of the benefit in the first year of investment. This provides a strong indication that the Dti recognises that component manufacturers, as the support base for local light motor vehicle manufacturers, are the key to the survival and growth of the South African automotive industry.

The amended guidelines, recently approved by the Minister of Trade and Industry, Dr Rob Davies, include the following crucial amendments favourable for component manufacturers:

• The base grant increased to 25% of the qualifying investment for component manufacturers and tooling companies from 20% previously. The base grant remains unchanged at 20% for light motor vehicle manufacturers.
• Previously the grant was distributed equally over a three year period for all participants of the Scheme. The revised guidelines allow component manufacturers to qualify for 40% of the grant in year one, and 30% in each of the subsequent two years. Light motor vehicle manufacturers receive their grant paid out equally over the three years, unchanged from the previous guidelines.
• The new competitiveness improvement grant aims to enhance the competitiveness of component manufacturers through the improvement of processes, products, quality standards and related skills development through the use of business development services. This benefit is available only to component manufacturers and tooling companies. The grant will equal the percentage of the approved grant for the underlying investment in assets, with qualifying expenditure consisting of consulting fees and expenses for accreditations, process improvements, energy efficiency, cleaner production and training. The grant is limited to R1 million in a three year cycle.

These amendments support Minister Rob Davies’ focus on stabilising South Africa’s automotive industry. “The department received feedback indicating that many companies were looking at business maintenance and stability strategies as opposed to investment growth due to the levels of investment amongst automotive suppliers especially as the economic crisis post-2009 placed a strain on companies' expansion plans," says Minister Davies.

According to Stuart Wedderburn, Partner in Deloitte’s APDP Technical Centre in Port Elizabeth, the future of the South African automotive industry is greatly dependent on OEM’s sourcing more components from local manufacturers and securing large volume export contracts. “The main benefit to the industry would be that OEM’s would reduce their exposure to foreign currency fluctuations, if more content of the vehicles they manufacture could be sourced locally. With the Rand’s recent performance against major currencies, OEM’s are experiencing substantial pressure on margins and localising component supply is one way to counteract this.” says Stuart.

Other benefits of stronger local component manufacturers would include increased local jobs, decreased competitiveness of imports, and the potential to supply overseas source plants of local OEM’s. All this would lead to an improvement of the Balance of Payment account for South Africa, and assist in stabilizing the Rand’s performance in the long term.  

Manufacturing