The Automotive Production and Development Programme (APDP) will need to change substantially post 2020, says Metair Investments South African operations COO Ken Lello.
“We must not make tweaks. We have to change. What we are doing is not sustainable.”
Lello was the architect of the submission by the National Association of Automotive Component and Allied Manufacturers (Naacam) in government’s review of the APDP.
The review has been completed, but still awaits sign-off from government.
The APDP, which took effect in 2013, is set to end in 2020, but the Department of Trade and Industry has on a number of occasions indicated that it will continue to support the local automotive industry past this date.
Lello says he expects the current review to result in only minor tweaks to the support programme. Despite this, he hopes any changes to the APDP will still manage to increase parts localisation and employment.
Any new post-2020 APDP-type programme, however, will require “a lot of change and a lot of pain”, he emphasises.
“In my view, we need a big change.” Lello adds that it is important for a new programme to be on the table within the next 18 to 24 months.
This will provide the South African automotive industry with the certainty required to make investment decisions, while also giving adequate time to “react and adjust” to the new policy.
Duty Rebate System Flawed
The duty rebate and incentive system, as structured in the current APDP, protects vehicle manufacturers from imported products, but not components manufacturers, says Lello.
It does little to boost the localisation of parts on locally assembled vehicles, but instead has resulted in South Africa’s vehicle manufacturers importing more and more vehicles and parts.
“An OEM (original-equipment manufacturer, or vehicle manufacturer) can set up a plant here and export 60% of its volume, and have no need for any local [components] content. That is a fundamental problem under the APDP,” says Lello.
“OEMs are localising vehicles and producing vehicles locally, yes, but to the point of duty neutrality. They are not exporting vehicles because South Africa is competitive. They are exporting to get duty rebates to be able to import vehicles to sell in this country.”
Lello emphasises that there is “zero protection” for the components industry, with no real development of Tier 2 components manufacturers.
“We had more localisation in 1995.”
He says the APDP appears successful, but notes that some numbers prove otherwise.
South Africa produced 563 000 vehicles in 2006, under the support programme which pre- ceded the APDP, the Motor Industry Development Programme.
In 2014, under the APDP, production was 533 000 units.
In 2006, South Africa produced 0.85% of the world’s vehicles, and in 2014 this was 0.59%.
“Had we been successful, we would have stayed at 0.8%. We would have grown in line with global industry,” says Lello.
“We have become structurally set at 600 000 units [a year]. We need to stop blaming strikes and the economic downturn.”
Lello says the ideal automotive support programme will be able to drive down the price of any vehicle that leaves South Africa for the export markets.
“If we want to compete globally, we need any vehicle made here to leave at a competitive price.
“We need to become competitive from the bottom up.”
This can be achieved through cash grants or tooling rebates, for example, and not duty rebates. Increased duties will also help.
In Thailand, for example, duties and taxes on imported vehicles add up to more than 150%.
Lello says the way forward for government and the automotive industry is to understand and embrace “the need to change”.
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Lello spoke at an APDP conference held earlier this month at Automechanika 2015