MIDP Transition to APDP: Impact on Component M anufacturing
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Transcript of MIDP Transition to APDP: Impact on Component M anufacturing
MIDP Transition to APDP: Impact
on Component
Manufacturing
Many different categories
OE suppliers with high localisation
OE suppliers sub-assembling imports
Exporters – “vulnerable” and other
Replacement parts producers
Those using “standard” materials
Any combination of the above
Can We Generalise About the Component Manufacturers?
1. An allowance (D-FA) for OEMs to import components duty-
free for vehicles produced and sold locally.
2. Export incentives, through the ability to earn credits to
rebate import duties, based on the local content of:
Vehicles (some indirect benefit to OE component
manufacturers, but only where volumes increased; but also
complexity)
Components initiated by OEMs to earn credits
Components and aftermarket parts developed by local
component manufacturers
Let’s Look at the MIDP
1. An allowance (VAA) for OEMs to import components
duty-free for all vehicles produced locally.
2. Production incentives for all vehicles, with all
incentives earned by OEMs
3. Component exports for OEMs to earn credits
4. Independent component exports earned by the
manufacturer (not the exporter)
5. Aftermarket parts for the domestic and export
markets, earned by the manufacturer
What About APDP Incentives?
For OEMs: + VAA for vehicle exports and PI for
the domestic market vehicles
For OE suppliers: …..nothing
For component exports initiated by OEMs: no
real change, suppliers “cede” benefits to OEMs
For suppliers’ own exports: no change
For aftermarket producers: + PI on local
aftermarket sales
So What’s the Difference?
OEMs earn significantly more credits on vehicles
produced
Exports of “vulnerable” components – most of the
high value MIDP exports – many earn the same, but
reducing, some already less
Exports of other components earn much less
“Standard” material classification encourages
beneficiation of local materials (but less than MIDP)
Are the Incentives Worth More?
Those that export on their own and those
producing aftermarket parts are generally
happy
Those that export for OEMs are mixed
Those that primarily supply local OEMs are
generally not happy
What do the Suppliers Feel?
Despite the fact that there is a new production incentive for OEMs to localise… The incentive gets given to the OEM Some OEMs do not recognise it because of
their internal policies or procedures The suppliers have to do significant
administration – even hire people – to prepare the documentation for the OEM’s incentive
Vehicle production in SA is still very low
Why are OE Suppliers Not So Happy?
The positive financial considerations are:
Duty saving (but only on part of production)
Logistics saving
Production Incentive
Offset by:
Tooling cost
Local Price Premium
The OEM may have surplus credits
So What Influences Localisation?
Some suppliers have closed:
Replaced by new foreign suppliers
Lower requirement for exports or
localisation by OEMs who have more credits
Some have prospered, particularly
aftermarket parts producers
Others survive and are working hard to
improve
What’s the Bottom Line?
Incentives can be adjusted to encourage:
1. Higher Vehicle Volumes◦ through the VAA
2. More Localisation◦ through the Production Incentive
◦ through the AIS
But the APDP cannot fix the “country cost” issues such as ports and rail, electricity, monopolistic suppliers, wages and strikes, skills – government must play a large role in most of these, otherwise our targeted growth cannot materialise
What Can Be Done in the APDP?
Competition, particularly from Asia, is relentless
OEMs and suppliers have to drive down costs
Local inflation, monopolies and labour issues make it difficult for us in South Africa
Only much higher volumes will drive global competitiveness
The industry will continue to need government support and protection – particularly since other countries do the same
Conclusion