Recent Cabinet decisions & Automotive Development Programme

Briefing on recent Cabinet decisions
Mr Themba Maseko, Government Spokesperson, presented the decisions taken at the Cabinet meeting. Cabinet had approved the new Automotive Production and Development Programme (APDP) that would replace the Motor Industry Development Programme (MIDP). The deadline of the closure of the temporary shelters for the victims of violence against foreign nationals was approaching and communities were asked to assist. The broad thrust of the document entitled “Towards a fifteen year review” was approved. All members of the public would be invited to participate in the constructive discussions about the country and its future. Cabinet also noted the progress regarding the implementation of Joint Initiative for Priority Skills Acquisition (JIPSA). This was successful in promoting strong interventions to ensure that the shortage of skills was less severe. It would continue until March 2010, whereafter the work would be incorporated into the recently approved Human Resources Development Strategy for South Africa (HRDS–SA) to be launched in March 2009. It was decided that the Minister of Sports and Recreation would submit a report on the performance of Team South Africa at the recent Beijing Olympics Games. There was an additional deployment of members of the South African Police Services (SAPS) to Darfur, Sudan. The visit of President Hugo Chavez of Venezuela was a success and served to strengthen the economic and political ties between the two countries. The South African Revenue Services was authorised to enter into discussions with the United States (US) to explore South Africa’s participation in the Mega-Ports Initiative (MPI), which was a US government initiative that aimed to create a bilateral cooperation network to prevent the illicit movement of nuclear materials and other radio active isotopes that might be used for weapons of mass destruction.

Questions and Answers
Q: A journalist asked if the Minister of Sports and Recreation was asked to submit a report because of the performance of the Team South Africa.

A: Mr Maseko replied that the fact that only one medal was won was a disappointment, and the report would be aimed at all aspects that resulted in the poor performance.

Q: The question was raised as to what reasons were put forward for the performance of the Olympic team, and whether Cabinet had discussed the possibility of consulting more with sports scientists for the next Olympics.

A: Mr Maseko replied that the report would be a detailed report, and that it would be specific on the training methods of the team. It was clear that many of the South African athletes exceeded their own personal best, yet they were not as good at the athletes from other countries. It was clear that there were some shortcomings in their methods.

Q: The question was posed whether there would be a public report on what JIPSA had achieved.

A: Mr Maseko replied that Government was planning a publication that detailed the achievements made by JIPSA. It might explore the possibility of doing a public briefing.

Q: A question was asked whether there would there be some sort of price structure regarding the agreement signed with Venezuela.

A: Mr Maseko replied that according to his understanding it was a relatively broad agreement. If it was of particular interest to the media, Government could request the relative department to give a proper briefing on the agreement.

Q: Mr Maseko was asked if the Minister of Sport and Recreation was given a difficult time at the meeting.

A: Mr Maseko replied that as the Minister was not an athlete there was no need to give him a difficult time. The report was intended to identify the weakness in the training methods.

Q: More information was requested on the MPI. In particular the question was asked if it only dealt with nuclear matters, and if there were any implications.

A: Mr Maseko replied that the MPI was intended to find ways of tightening security measures in all the ports. Obviously the US’s primary focus was on security-related issues but it also included introducing methods to improve the security used at all the ports, and so it dealt with the general security arrangements in the ports.

Q: A journalist asked if there would be implications if South Africa did not agree to the MPI.

A: Mr Maseko replied that since this was a US initiative to tighten security, it could become more difficult to use their ports if South Africa did not agree. If South Africa agreed to the initiative it would assist the country to strengthen security in their ports.

Q: An elaboration was requested on the consultation process for the HRDS-SA.

A: Mr Maseko replied that all the lessons learnt from JIPSA had to be incorporated in HRDS–SA. In the announcement of the HRDS-SA Government had indicated that there would be proper structures in place to ensure that there was proper alignment. They could never do enough consultation, but all the participants in JIPSA had participated in the HRDS-SA. There might not have been proper communication, but they had approached all the stakeholders with information.

Q: The question was asked whether it was coincidental that there was an oil deal so close to the next South African elections.

A: Mr Maseko replied that there was no relation between the bilateral relationship with Venezuela and the election. It was an arrangement between governments. There was no participation from the ruling party.

Q: The question was asked whether there was any connection between JIPSA and the perceived political future of the Deputy-President.

A: Mr Maseko replied that there was no connection. The HRDS-SA needed to be located within the Department of Education.

Q: A journalist asked how different would the HRDS-SA be from JIPSA.

A: Mr Maseko replied that JIPSA was narrowly focused on scarce skills. Under the recommendations there had been some policy changes to loosen up regulations to import skills into the country. The HRDS-SA strategy was bigger than scarce skills, as this would look at the whole spectrum of training.

Q: The question was raised as to what would happen to the displaced foreigners who did not integrate back into their former communities because it was too dangerous.

A: Mr Maseko replied that a number of people in the shelters had documentation, and would not be deported. Communities needed to assist in ensuring that those people were integrated. Deportation would only occur in respect of those who were not legally in the country, even after a time period had been given to them to sort out their documentation.

Q: A journalist suggested that perhaps Government needed to find a better name and acronym for HRDS-SA.

A: Mr Maseko replied that they would look into it.

Q: The point was made that the Department of Education was finding it difficult to fulfil their core function. Given this difficulty, the question was raised whether it was wise to add a substantial new function to their mandate. If this was of concern, then the question was whether this was perhaps a precursor to that Department perhaps splitting into two, with two ministers.

A: Mr Maseko replied that it was not for this government to comment on that. HRDS-SA was looking at the existing model of providing education and training, and a review of the schooling system. If the new government after the elections thought that they might have to split the Department to implement the strategy, then that would be their prerogative.

Q: The question was raised whether HRDS-SA, being a review on the entire schooling system, would also be looking at the outcomes-based system of education.

A: Mr Maseko replied that as they provided the services it was the overall framework that would be looked at. The teaching of maths and science, and what sort of additional programmes would be required to enhance training to better educate, would also be investigated.

Minister of Trade and Industry Briefing
Automotive Development Programme Announcement
Mr Mandisi Mpahlwa, Minister of Trade and Industry, gave the history behind the decision for a new automotive development programme. A review was done of the Motor Industry Development Programme (MIDP) in order to assess its impact and recommend options to deal with identified gaps. After a report was submitted to the Department of Trade and Industry (dti) it was decided that there should be an extension of the analysis of the industry dynamics and alternative support options. A task team was set up, which included the dti, National Treasury and independent experts. The final proposals were developed after several interactions with industry stakeholders at various levels. The automotive industry was the largest and leading manufacturing sector in the domestic economy. It was found that since the introduction of the MIDP the industry had rationalised and restructured in a more efficient basis, achieving significant growth. The industry also generated strong linkages with industries at various levels. Automotives continued to be a highly competitive global industry, where almost all countries hosting an automotive industry provided substantial support.  The industry faced a number of challenges, and government would be looking to further expanding as well as deepening industry. The revised MIDP would seek to provide industry with a reasonable level of support in a market neutral manner. Further development of the automotive industry would be in line with the National Industrial Policy Framework (NIPF). The revised MIDP, Automotive Production Manufacturing Programme would have four elements; tariffs, production assistance, value-add support and investment assistance. Further work would continue in other areas, such as partnerships with key stakeholders and a strong monitoring and review system in place. The private sector was expected to show progress in the areas of transformation, increasing local content, and contribution to skills acquisition and training.

Outcome of the Review of the Motor Industry Development Programme presentation
Mr Nimrod Zalk, Chief Director: Industrial Policy:  dti, explained the role of the automotive sector in South Africa. The findings of the MIDP review included that the MIDP had successfully ensured high growth and significant competitiveness gains in the automotive industry. By 2007 the automotive industry contributed 10% of manufacturing investment and 16% of total South African exports. The current MIDP would be terminated at the end of 2009, with a policy commitment until 2012. An appropriately structured support package was necessary to take the industry to the next level. By 2020 it was intended that it assemble 1.2 million vehicles per annum.

Mr Mkhululi Molota, Programme Director: Automotives: dti, clarified the Automotive Production Development Programme (APDP), which was to stimulate the expansion of automotive vehicles production. It was to provide stable, moderate tariffs from 2012. A local assembly allowance would be given to all vehicle manufactures with a plant volume of at least 50 000 units per annum to import a percentage of their components duty free. An automotive investment allowance would take the form of a direct grant to support investment in new plant and machinery and a stronger monitoring and review mechanism, as well as more frequent reviews, would be implemented.

Questions and Answers
Q: The question was asked as to what the budget would be next year and what would its effect be on the gross domestic profit (GDP).

Q: The Minister was asked why there was a bias to the large producers instead of allowing new players more access.

Q: A journalist asked for a breakdown in terms of revenue and the fiscus, and possible loss.

A: The Minister replied that it was a difficult to provide an exact number because of the strong duty component that made fiscal numbers difficult. Broadly, it was intended to keep in line with the current level of support. Actual numbers would be released over time. The Department was setting more ambitious targets and these would be reflected.

Q: A brief explanation was requested to clarify what was being done, and why.

A: The Minister replied this programme was broadly in keeping with the current programme.

Q: A journalist noted that there was a perception that cars were sold more expensively in South Africa than the cars sold overseas. He asked if this programme would help regulate cost.

A: Mr Molota replied that in the past decade prices had come down but there was an opportunity for further reduction. The Department was looking to achieve economy of scale and real prices should be coming down. However there were other issues that needed to be taken into consideration.

Q: It was noted that there had been some eleventh hour changes to the proposals that required negotiation with industry, and it was asked what those issues had been, how were they resolved and what industry’s response to the final product had been.

A: Mr Tshediso Matona, Director-General: dti, replied that once the review was done the dti had put out a preliminary set of proposals along with the elements that were outlined. There were three minor alterations and there was a broad agreement with the proposals.

Q: The Department was asked to elaborate on what the disputes were with the preliminary proposals.

A: Mr Matona replied that this would not be helpful, as the important point was that now there was an agreed outcome.

Q: It was noted that some vulnerable companies might not be able to meet the target of 50 000 to qualify for the grant, and the question was asked as to what would happen to those companies.

A: Mr Molota replied that the targets were intended to encourage all production assemblers to high volume production. After 2020 there would be more regular reviews to assess the situation, and come up with appropriate interventions.

Q: A journalist asked what was meant by value-add support.

A: Mr Molota replied that this was intended to avoid the situation where someone was getting more than the deserved assistance. It was indicated that South Africa only produced 1% of global production and there were other places that were developing vehicles and components. Not all components were manufactured locally.

Q: A question was asked as to what was being done about investment double-dipping and which countries were used as a benchmark.

A: Mr Matona replied that the emphasis was on production. The subsidy agreement prohibited subsidies contingent on export, yet they expected that the industry would find it necessary to export anyway. Various countries were consulted, such as Turkey and Ireland

Q: The question was asked whether there would be incentives for hybrid cars and more environmentally friendly vehicles.

A: Mr Molota replied that there were some areas that dti was looking at. Certainly more environmentally friendly vehicles was an idea that should and would be encouraged.

Q: A journalist requested why the introduction was being staggered, and what was the impact of the delay on the investment. The point was made that the Department surely did not wish to create unnecessary shortages in the system.

A: Mr Molota replied that the dti wanted to introduce investment assistance earlier than the rest, because it would be more urgently needed.

Q: A question was raised as to whether any part of the strategy was designed to encourage export from South Africa.

A: Mr Molota replied that it was not expressly in the design, but it was an effect.

The Minister made his closing remarks. He appreciated the interest by the media. It was important to work closely with the industry, and dti had set new ambitions for industry.  They have set the industry new ambitions.

The Minister then declared the media briefing concluded.

Appendix1

Statement on the Cabinet meeting of 3 September 2008

4 September 2008

Cabinet held its ordinary meeting in Pretoria yesterday, 3 September 2008.

Cabinet approved the new Automotive Production and Development Programme (APDP) which will replace the Motor Industry Development Programme (MIDP). The Minister of Trade and Industry, Mr Mandisi Mpahlwa will join me at the end of this briefing to present the details of the new programme.

Cabinet noted that the deadline for the closure of temporary shelters for the victims of violence against foreign nationals was fast approaching. Government once again calls on communities, community organisations, religious formations and civil society in general, to continue to work with the displacees to ensure their reintegration into communities.

The broad thrust of the document entitled 'Towards a fifteen year review' was approved. The fifteen year review and information on the draft South Africa Scenarios 2025 will be published within a month. Members of the public and civil society will be encouraged to participate in public meetings and workshops to discuss these documents. These discussions will be about the progress the country has made towards improving the lives of all South Africans over the past fifteen years, identification of challenges that still lie ahead and to consider policy options for the future. All members of the public, irrespective of race, gender, colour or creed will be invited to be part of what will be constructive discussions about the country and its future.

Cabinet received and noted the progress regarding the implementation of Joint Initiative Skills Acquisition (Jipsa). Jipsa has been successful, not in eliminating the skills shortage, but in promoting several strong interventions to ensure that the shortage is less severe than it would have been. Jipsa has prioritised the skills development process, has mobilised and aligned the efforts of major public and private sector role players behind mutually agreed priorities and has unblocked various obstacles to speeding up skills acquisition. The government has full confidence that the Jipsa mandate has been and will continue to be delivered by all the key stakeholders and the Jipsa structures such as the Joint Task Team, the Technical Working Group and the Secretariat.

Jipsa will continue until March 2010. Thereafter, its work will be incorporated into the recently approved Human Resources Development Strategy for South Africa (HRD-SA) which will be launched in March 2009. However, the Jipsa secretariat will operate parallel to HRDS-SA for about a year, and will wind down its activities when its stakeholders are satisfied that the HRDS-SA had the capacity to carry out all the relevant activities that Jipsa was responsible for.

Cabinet wishes Team South Africa well as they prepare to participate in the forthcoming Beijing Paralympics Games which will take place from 6 to 17 September 2008. Team South Africa will comprise of 60 sportsmen and women. We call on all South Africans to support Team South Africa throughout the games.

The meeting resolved that the Minister of Sports and Recreation should submit a report to Cabinet on the performance of Team South Africa at the recent Beijing Olympics Games. This report will be submitted as soon as a proper analysis has been conducted by the department and the relevant sports authorities.

The deployment of an additional seventy five members of the South African Police Services (SAPS) in Darfur, Sudan, was approved. These SAPS members will be part of the United Nations-Africa Union hybrid peacekeeping force.

Cabinet noted that the state visit by President Hugo Chavez of Venezuela was a success and that the visit served to strengthen the economic and political ties between the two countries. Tangible outcomes of the visit include: a Framework Agreement; the Energy Cooperation Agreement; and the Memorandum of Agreement between PetroSA and the Venezuelan government. The visit also served to strengthen South Africa's ties with the Latin American region. South Africa is looking forward to participating in the Africa-South America Summit which will be hosted by Venezuela in November 2008.

President Thabo Mbeki will be holding a Presidential Imbizo in the Eastern Cape in September 2008. The President's interaction with the public will be followed by the Imbizo week which will take place from 20 to 26 October 2008, under the theme 'Ke nako: make a difference'. The Imbizo week will profile the 2010 legacy and infrastructure projects.

The World Customs Organisation's Strategic Policy document entitled 'Customs in the 21st Century: Enhancing Growth and Development through Trade Facilitation and Border Security' was adopted. The Ministers of Public Enterprises and Transport will work with the South African Revenue Service (SARS) to oversee the implementation of the policy.

The SARS was also authorised to enter into discussions with the United States to explore South Africa's participation in the Mega-Ports Initiative (MPI). The MPI is a United States government initiative which aims to create a bilateral co-operation network to prevent the illicit movement of nuclear materials and other radio active isotopes that might be used for weapons of mass destruction. In this regard, an Interdepartmental Task Team will be set up to consider the implications of South Africa's possible participation in the initiative. The Task Team will consist of the departments of Trade and Industry, Foreign Affairs, National Intelligence Agency, Transport, Public Enterprises and Science and Technology.

Cabinet wishes the Muslim community well during the month of Ramadan. We look forward to celebrating a well deserved and happy Eid with our Muslim community at the end of the month.

The Minister of Water Affairs and Forestry distributed trees to all members of Cabinet to mark the beginning of Arbor Week and she made a call for all South Africans to plant a tree and contribute towards the greening the country. Cabinet endorsed the call for the planting of trees by all South Africans.

The following appointments were approved:

* The following were appointed to the Boards and Councils of the under-mentioned Six Playhouses:

* The State Theatre, Pretoria: Mr W Mosetlhi (Chairperson), Mr T Baloyi, Ms B D'Arrigo, Ms N Dyani, Ms P Klotz, Ms M Mogomotsi, Mr ZT Morabe, Mr KF Netshiombo and Mr TA Simelane.

* The Market Theatre, Johannesburg: Ms S Mokone-Matabane (Chairperson), Ms N Cloete, Mr K Gumbi, Ms M Letoaba, Ms K Moroka, Ms N Ntanjana and Mr B Spector.
* Performing Arts Centre of Free State (PACOFS), Bloemfontein: Ms T Kgosidintsi (Chairperson), Ms S Brink, Mr N Luwes, Ms T Nogabe, Ms J Sapieka, Ms E Van Wyk and Mr MJ Vinger.

* Arts Cape: Cape Town: Ms N Mthethwa (Chairperson), Mr NE Basson, Ms H Dudley, Mr B Figaji, Mr B Khan, Ms RB Swales, Ms L Mazwi-Tanga, Ms S Ngaba and Mr T Tshukudu.

* Windybrow Centre for Arts: Johannesburg: Ms AM Makwetla (Chairperson), Mr M Dada, Ms M Letoaba, Mr M Molepo, Mr KB Motshabi, Mr B Snow and Ms E Loubser.

* The Playhouse Company, Durban: Ms M Lesoma (Chairperson), Ms M Khoza, Mr R Mahmoud, Mr T Ngcobo, Mr J Shabalala, Ms T Shezi, Ms J Thabethe, Ms L Theron and Mr P Mnisi.

* Mr E Godongwana, Mr G Cruywagen, Ms NH Maliza and Ms D Vallabh as Non-Executive Directors to the Board of Denel, for a three year period.

* Members of the Small Enterprise Development Agency's (SEDA) Board; Mr L Mngomezulu (Chairperson), till June 2009 and the following Board members for a three year period; Ms D Mokhobo (Deputy Chairperson), Ms P Lugayeni, Ms B Calvin, Ms F Mayimele-Hashatse, Mr D Thabaneng, Ms S Zinn and Ms N Galeni.
Enquiries:
Themba Maseko
Government Spokesperson
Cell: 083 645 0810

Issued by: Government Communications (GCIS)
4 September 2008

Appendix 2

Ministers’ Statement: Automotive Development Programme Announcement

History
In 2005 the dti initiated a review of the MIDP in order to assess its impact and recommend options to deal with identified gaps, whilst also ensuring that support to industry is consistent with South Africa’s multilateral obligations, as well as domestic priorities.
A process of extensive research and consultation resulted in a report being submitted to the dti by end 2006. After intense evaluation of the report and recommendations therein, it was felt necessary to extend the analysis of industry dynamics and alternative support options going forward.
It should be noted that part of the recommendations was for the introduction of a Production allowance to replace the current export incentive in line with the country’s multilateral obligations, however the design and development of such an allowance was not done.


Process: A task team involving the dti and National Treasury with the assistance of independent experts has from the end of 2007 worked on designing a new architecture for industry support in line with the new targets being set for the industry.  Substantial research, followed by intensive and comprehensive industry consultations took place.
The United Nations Industrial Development Organisation (UNIDO), Industrial Development Corporation (IDC) provided valuable information and assistance in respect of global industrial policy trends and economic modelling respectively.
The final proposals were arrived at after several interactions with industry stakeholders at various levels, culminating in a consideration by cabinet.


Findings: The automotive industry is the largest and leading manufacturing sector in the domestic economy. Since the introduction of the MIDP the industry has rationalised and restructured in a more efficient basis achieving significant growth in production volumes, exports and investments whilst maintaining significant employment levels.
The industry generates strong linkages with other
Input industries such as aluminium, chemicals, electronics, leather & textiles, plastics, steel, machinery and equipment,
Service industries such as engineering, logistics, tooling, 
Others such as financial, wholesale & retail, advertising.

Automotives continue to be a highly competitive global industry where almost all countries hosting an automotive industry provide substantial support. The industry is also facing one of the worst times globally as automotive growth slows down and also the consumer demand shifting to more fuel efficient vehicles in response to the oil price and environmental concerns.
There is now increased competition from low cost and market booming regions such as eastern Europe  and Asia with a continuing overcapacity problem that puts added pressure to our industry that still produces and sells hardly 1 % of the vehicles in the global automotive market.

Notwithstanding the successes achieved since 1995, the industry faces a number of challenges. Economies of scale in assembly and the depth of domestic component manufacturing are not yet internationally optimal. Relatively few automotive components dominate the export basket whilst the local content of the exported vehicles has somewhat stagnated. Also most of the growth in domestic sales has been serviced by imports resulting in a growing trade deficit, however the current domestic downturn and growth in exports is likely to reverse this situation in 2008.

Strategic Direction: Government is now looking at further expanding as well as deepening the industry. In this regard more efforts should seek to improve the productivity levels of component manufacturers to provide an opportunity of increasing the local content of domestically assembled vehicles.

The revised MIDP would therefore seek to provide industry with a reasonable level of support in a market neutral manner (that is, it cannot be an export incentive anymore as this might be inconsistent with WTO, therefore there will be no discrimination for products sold domestically and those exported).
 


Strategic Direction: Government is thus now looking at further development of the automotive industry in line with the National Industrial Policy Framework (NIPF) and 2007/8 Industrial Policy Action Plan (IPAP). Long-term development of the sector will be achieved by doubling production to 1.2 million vehicles by 2020 with associated deepening of the local components industry.

Revised MIDP : “Automotive Production and Development  Programme”
The revised programme will have the following four key elements;
Tarriffs: Stable, moderate tariffs will remain at 25% for light motor vehicles and 20% for components from 2012.
These tariffs are meant to provide just enough protection to justify continued local vehicle assembly.
Local Assembly Allowance: This support will be in the form of duty credits issued to vehicle assemblers based on 20 – 18% of the value of light motor vehicles produced domestically from 2013.
This support is effectively providing a lower duty rate for local assemblers and should provide enough encouragement for high volume vehicle production in line with the target of doubling production.
Production Incentive: From 2013 this support of 55-50% of value added computed in simple terms as sales less raw materials, in the form of a duty rebate credit, will replace the current export based scheme. Thus the actual benefit will be 55% X value add X applicable duty rate in 2013.  The value-add support will encourage increasing levels of local value addition along the automotive value chain with positive spin-offs for employment creation.
Automotive Investment Allowance: From 2009, this assistance will replace the current Productive Asset Allowance and will be 20% of qualifying investment paid over to participants over a three year period.
This support will be available to encourage investments by vehicle assemblers and component manufacturers in a manner that supports equipment upgrading.

Other Work Areas: Further work is to continue in the following areas;
Sub-sector investigation aimed at evaluating growth opportunities and appropriate support mechanisms in the Catalytic Converter and other material-intensive industry as well as Medium and Heavy Commercial Vehicles. Further announcements can be expected in due course after more detailed consultations, however within the current financial year.  
Programmes aimed at addressing broad-based empowerment imperatives as well as firm level competitiveness challenges will be enhanced in partnership with relevant stakeholders.
In partnership with key stakeholders such as DEAT, DME and industry, work aimed at responding to climate change imperatives including tighter emission standards will be given more attention.
A strong monitoring and review system will be set to allow better information flows for decision making as well as more frequent reviews.

Deliverables from the Private sector: Whilst Government would provide support aimed at further stimulating growth in the industry, the private sector is also expected to show progress in the areas of Transformation, increasing Local Content and contribution to Skills acquisition and or Training. Industry will also be expected to achieve high volumes of production so as to benefit from such improved economies of scale.

Improved Monitoring and Evaluation: In this current process of designing a new support mechanism it becomes important to build in measures of success to the extent that it then becomes easier to determine the success of the support programme into the future.

Implementation Plan: As we set up the necessary regulatory amendments and administration system for the programme, we will ensure that it is in line with the need for a strong monitoring and evaluation system but still not unduly burdensome to stakeholders.

Amendment	Date
1. Regulatory amendments	June 2009
2. Automotive Investment Assistance (AIA)	June 2009
3. Value Add Support / Production Incentive	January 2013
4. Local Assembly Allowance (LAA)	January 2013
5. Tariff Phase-down freeze	January 2013

03 SEPTEMBER 2008