Incentive schemes performance: DTI briefing

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Trade and Industry

16 February 2016
Chairperson: Mr M Kalako (ANC) (Acting)
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Meeting Summary

In a joint meeting with the Portfolio Committee on Economic Development, the Incentive Development and Administration Division (IDAD) of the Department of Trade and Industry presented on the objectives of industry support, the principles which guide incentive design and administration and an overview of its 14 incentive programmes within its five clusters of Manufacturing, Competitiveness, Services, Industrial Innovation and Infrastructure. An implementation progress report and what returns have been made in rand value were given. The presentation included a provincial breakdown of the number and rand value of approvals, projected investment, number of jobs projected and amount paid out in claims for each incentive programme as was percentage of female owned SMMEs supported through the incentive programmes.

The Western Cape, Kwa-Zulu Natal and Gauteng are the provinces receiving the largest incentive support as these provinces possess the largest infrastructure capacity. The sectors in which growth is expected to take place, including the film and television industry, is where more support is being granted. Engagements with provincial stakeholders involved in economic development are taking place to ensure an increase in investment in the provinces that currently have the lowest investment and infrastructure capacity.

Members asked questions about the percentage of black owned female enterprises benefitting from the incentive programmes and requested the amount in rand value these enterprises receive to evaluate the rate at which transformation is taking place; what the department is doing to ensure fair labour relation practices within companies receiving incentives; about the MCEP programme receiving more funding in the future; the turn-around time between application approval and the company receiving the actual funds to protect companies from going down.

The Automotive Sector of the DTI presented on the review of the Automotive Production and Development Programme. Background about the situation before the APDP was adopted was given: what informed the need for the APDP and what the dti has been doing in the development of the automotive sector since 1995 to date and the measures the dti took to ensure growth in this sector and why it has been necessary to conduct a review on the programme to increase production growth and economic activity in the automotive industry. An overview of the performance of the ADPD from its inception to date, was given, highlighting the lessons learnt and the further recommendations made to its implementation, and the plan post 2020.

Members asked questions relating to the department’s plans to manufacture an electric car and what engagements have been made with regards to this so far by the departments and other economic development stakeholders. The high prices of vehicles in South Africa was a cause for concern and members asked if there are any projects headed by the department researching into this. Members asked if the department had any plans to fund the manufacturing of a South African car to be sold on the African market, and if any plans were in place to produce Land Rovers in South Africa.
 

Meeting report

Performance of IDAD Incentive Programmes
Ms Malebo Mabitje-Thompson, introduced herself as the Deputy Director General responsible for the Incentive Development and Administration Division in the Department of Trade and Industry. She spoke to the incentive performance and objectives of industry support by the department. The key objective is sustainable growth, to overcome inequality and unemployment. This is done by encouraging companies to be more competitive, add value to the products they sell, to be innovative in the products that they develop, and that they contribute to inclusive growth in the way in which the companies are run, managed and owned.

Ms Mabitje-Thompson said that DTI supports industries in order to promote investments that are efficient in terms of use of energy, and assist in achieving balanced growth. The support offered is also aimed at ensuring that the South African economy plays an important role in the global economy. She noted that all countries play a role in the global economy as consumers, producers of minerals, as members of the intermediate sector, and the value-added sectors. Increasing the growth of the economy meant placing the country in the key parts of global value change, moving away from just being a supplier of raw materials, and making a move towards the production of goods because that is where the jobs are.

The first principle that guides the offer of industry support is that focus is given to new investments, which can be in the form of an expansion or increase of capacity. The support is conditional on the achievement of measurable benchmarks by companies. Companies must reach the performance targets agreed to between themselves and DTI. The support is designed to address specific constraints and opportunities. The key constraints that were looked at in the manufacturing sector was relatively aging equipment that was causing companies to face the possibility of being wiped out of the market as they were not competitive domestically and internationally in terms of exports. The companies were assisted by helping them re-equip themselves and employ competitive production methods and operate sustainably within a high competitive environment. The second principle is transparent rules, ensuring that everyone involved understands the rules of engagement for every incentive scheme. The rules are on the website and department officials are available to explain any rule that may not be clear to a potential client.

Ms Mabitje-Thompson said that DTI keeps up with international best practice because they operate within a global economy, and it is important to do so because businesses can be wiped out of a sector if adjustments are not made accordingly. The incentive programmes are supported by a system of performance monitoring, enforcement of compliance, regular reporting and adaptation where it is required. DTI issues updated guidelines about any adaptations made to an incentive scheme. For example, the MCEP incentive now requires a BBBEE level four certificate.

Some of the incentives are offered by DTI, while others are offered through DTI in collaboration with other development finance institutions such as the IDC.

Ms Mabitje-Thompson outlined the incentives in the Manufacturing Investments cluster, which is aimed at new investment attraction and expanding the manufacturing cluster. The 12i incentive schemes, automotive incentive scheme, aquaculture development incentive scheme, fall under this cluster. The MCEP programme is not receiving any new applications as it is oversubscribed, but commitments previously made are still being upheld.  

The second cluster is where the support is aimed at Competitiveness. The support will be tailored towards purchasing of new equipment, exposing companies to the competitiveness of the export market in one form or the other. In this cluster the programmes are MCEP (which is indicated red because no new applications are being accepted). The export market and investment assistance scheme exposes manufacturers to the export market, the sector specific assistance scheme does the same on a sectoral basis. The capital projects feasibility programme assists companies doing feasibility studies to invest in other markets with an understanding that when they grow through those markets, they can grow their markets from South Africa.

The Services Investment Cluster includes the film and television production incentives. The film sector has grown substantially through the help of the incentive, and a number of movies and series are being shot in Cape Town and Gauteng. Destinations that attract in this sector have to have some sort of incentive support in order to keep up with international best practice. She explained that business process services are the call centres and back office support for other businesses outside of South Africa. Businesses will send back office work to be done in South Africa.

The next cluster is Industrial Innovation. The entrepreneur will be assisted with a partially tested idea to take the idea into a marketable product. The human resources development programme encourages partnerships between the private sector and universities to support human resource development industries.

The Incubator Support Programme encourages big companies to allow market access to small enterprises. The small to medium enterprises are helped to be sustainable and provide products and services to the bigger companies as suppliers. The infrastructure investment cluster involves government partnering with a company to put down infrastructure, and provide 30% towards the project on condition that the infrastructure is available to others for use. The Special Economic Zones is part of this cluster.

Performance of each of these clusters was then presented. Overall incentive performance shows that projects to the value of R11 billion had been approved and those projects were investments that were worth R47, 8 billion, creating and sustaining around 307 000 jobs.

A sectoral pie chart showed the manufacturing incentive within the R11 billion was receiving R5.2 billion. The services cluster received R1.1 billion and the competitive cluster received R85.9 million and R4.7 billion was set aside for the remaining cluster.

Ms Mabitje-Thompson said that government setting aside R11 billion is a huge investment because the returns on investments are to the value of R47.8 billion which is a massive return.

Achievements in the year 2015/16 up to the end of September mid-year, with R7,8 billion spent, this has leveraged R30,6 billion and 132 000 projected jobs.

In the Competitiveness Investment Cluster, in 2013/14 there were approvals of R3.1 billion for 2 194 projects and in 2014/15 there were approvals of R1.5 billion for 2 867 projects and the job projections were 106 339 for 2013/14 and 37 000 jobs for 2015/16. For the MCEP incentive scheme for 2014/15 there were 334 approved projects worth R1,35 billion and the investment coming out of them was R5.5 billion and 37 000 jobs. Claims to the value of R498 million have already been paid.

The provincial spread of the approved projects shows the Western Cape and Gauteng with the highest number of approved projects in the 2013/14. Concern was raised over provinces such as Limpopo, North West, Mpumalanga and Northern Cape having the least number of applications. The trend continues in 2014/15 where the most support went to the Western Cape and Gauteng followed by the other provinces.

A sectoral breakdown of industries supported was provided on slide 12. Important to note were the sectors the MCEP incentive scheme supported in manufacturing, agro-processing, metals and chemicals. That has been the trend for both years.

The capital project feasibility programme supports companies that will be investing outside of South Africa, drawing their exports from South Africa into those markets. 26 feasibility studies were supported in 2013/14 and 11 feasibility studies in the 2014/15 to the tune of R87.6 million.

The Export Marketing and Investment Assistance (EMIA) scheme in 2014/15 shows 1296 supported enterprises being exposed to exports and markets. These enterprises vary greatly in size from the very small to the largest. Claims to the value of R28.5 million have been paid. The provincial spread of the scheme shows the companies supported were mainly from Gauteng, Western Cape, Kwa-Zulu Natal and Mpumalanga. The scheme supports sectors across industries, but the biggest sector is agri-processing followed by the electri-digital sector and aerospace.

The sector specific approvals were outlined, and sectors that participate in export market exhibitions are supported, and companies are exposed to international buyers. 1226 enterprises were approved in 2014/15 and actual claims of around R108 million have been paid. The provincial spread shows Gauteng, Western Cape, Kwa-Zulu Natal and Mpumalanga having the highest number of approvals.

The entity approvals on slide 19 showed approvals from 2013/14-2014/15 according to ownership of the companies supported. There is a lot of support that goes to women owned SMMEs.

The 12i scheme falls under the Manufacturing Investment Programme (MIP) cluster. The Enterprise Investment Programme (EIP) scheme was based here but has since been suspended, but the work done in aquaculture is found here. The MIP cluster takes about 48% of the budget, and in 2014/15 around R5.2 billion approvals were made to 119 projects which provided around 35 000 jobs. These are direct jobs from the investment, the indirect jobs arising from such an investment are not shown here.

Slide 22 shows the approvals and job projections of the Manufacturing Investment Programme (MIP) and the EIP which DTI continues to administer without receiving any new applications. This is done through the reduction of the contingency liability and performance of the companies that were previously approved under those schemes. Slide 23 gives a sectoral breakdown of the companies that are supported, and it shows the Eastern Cape is receiving a lot more support, and more growth is coming out of Limpopo, but the major sectors of productivity remain Gauteng, the Western Cape and Kwa-Zulu Natal.

Ms Mabitje-Thompson said that the MIP incentive programme gave support across sectors, and slide 24 shows the sectors that are the main beneficiaries of the scheme. Chemicals and plastics are a very important sector for the economy and has around 35% of the approvals, followed closely by the metal fabrication sector at around 14% and agro-processing at 34%.

The 12i incentive scheme is a tax incentive and the numbers shown on slide 25 will not be reflected in the DTI budget as it is a tax rebate allowance provided by National Treasury. The entire budget for the scheme is R20 billion of tax allowance that DTI is allowed to commit to and thus far in 2014/15 around 16 projects have been approved, which have created 533 direct jobs and 4 047 indirect jobs. The scheme in 2014/15 had a high threshold of investment for participation. An investment of R200 million was previously requested in order to take part in the scheme, which had since changed to investments of R50 million and above. It is anticipated that there will be a lot more projects to present at the next presentation because the threshold has since been reduced.

The provincial breakdown shows support in the agro-processing sector, recycling sector and the plastics sector. The provincial breakdown shows most of the projects are located in Gauteng, North West, Western Cape and Kwa-Zulu Natal.

The Automotive Investment Scheme (AIS) gives support to the automotive sector in particular. In 2014/15 the scheme supported 50 projects with a projected investment of R2.7 billion and the total incentives amount approved was around R68 million. The projects support the sector that are supported in terms of the OEMs and equipment manufacturers. Slide 29 provides the breakdown of equipment manufacturers such as Toyota, Volkswagen, Mercedes Benz, and investments approved were to the value of around R378 million in 2014/15 which was slightly higher for component manufacturers. The support will increase because of the projected investments of the OEMs which are on a second-yearly basis. BMW will be investing R6 billion, and Toyota, Honda, and Ford to come in and support the OEMs and component manufacturers.

The Aquaculture Incentive on slide 30 is one of the smaller schemes, and around 30 projects have been supported. The provincial breakdown of the Aquaculture Development and Enhancement Programme (ADEP) shows that many of the projects were located in the Eastern Cape, Gauteng, and Limpopo, with one or two coming from the North West.

The Services Investment Cluster (SIC) is geared towards employment generation, supporting industries that spill over into other industries. The incentive scheme takes up around 10% of the budget and the approvals were on the same percentage. 117 227 jobs were created in 2013/14 with government having set aside R1, 1 billion and the projected investment received was R7 billion, excluding the tax income that comes from the roughly 117000 jobs that were created.

The Film and Television Production Incentive (slide 34) shows approvals for 2014/15 were R887 million linked to 137 projects and the support offered was for qualifying South African expenditure of around R3.77 billion. This means that R3.7 billion was spent particularly by foreign film makers in the South African economy. The Western Cape receives a major share in terms of the sectoral breakdown, followed by Gauteng and Kwa-Zulu Natal. Mpumalanga will be following suit quite shortly as applications and enquiries have been received from the province which shows an increased interest.

The Infrastructure cluster is where support is given to infrastructure by government in collaboration with the private sector and at present constitutes around 1% of approvals. An increase is anticipated with the implementation of the programmes and work that is being done on the industrial parks. Nine projects to the tune of R85 million have been supported within the Critical Infrastructure Programme in particular (slide 38). Companies that put in infrastructure that can be used by other companies are supported under this scheme. There are five more projects that are not depicted in these statistics but which have already been approved in 2015/16 to ensure local economic development. Gauteng has a number of them, and Dimbaza and other places scattered across the country.

The Incubation Support Programme (ISP) supports big companies that provide markets for smaller companies. The support will be linked to assisting the smaller companies to adhere to the supplier requirements and main market requirements. In 2014/15 around six projects were approved, 1 in Gauteng, 2 in the Western Cape, 2 in the Eastern Cape and 1 in the North West.

Slide 40 spoke on the opportunities and challenges faced. Ms Mabitje-Thompson noted the fiscal constraints in which they operate where they are required to do more with less. The fiscal constraints are coming at a time when the requests and enquiries about support are at an all-time high, which has led to investments being prioritised instead of all of them receiving support. DTI is working with a number of stakeholders to address the challenges and secure funding to support projects aimed at steering the economy. Banks have been approached to see how they can provide industry support.

Discussion
Mr A Williams (ANC) said that he had noticed during oversight meetings that most of the companies had a low BBBEE score, and that some of the companies were white-owned and white controlled, but still receiving incentives from DTI. He asked about the levels of transformation and control in the selection process. Some companies have a bad labour relations history, and he asked if DTI has looked into this, and if not, why.

He asked under what conditions a company loses its incentives, and requested DTI to give a breakdown of the total amount of incentives paid out in rand value and broken down by BBBEE scores so the Committee can have a real idea of who exactly benefits from the scheme. He noted that slide 19 and slide 24 do not talk to the amount of money that people receive, meaning that there might be a large number of black female owned businesses receiving incentives but the money received being smaller . The reason for this request is to see if transformation is really happening or if there is a perpetuation of white-controlled and white-owned businesses.

Adv A Alberts (FF+) thanked DTI for the presentation and asked which of the MCEP approvals for 2013/14 and 2014/15 were large companies and how many were smaller companies. He asked for the number of applications received in comparison to approved projects, and if there is any funding left in the MCEP, or possibility of future funding. He asked DTI’s opinion on complaints about rejection based on technicalities and lack of knowledge in knowing what to submit.

Mr B Topham (DA) asked what the percentage of budgeted money is that is not allocated towards projects. He had been a beneficiary of one of these claims and wanted to know the correlation between the budgeted amount and the actual amount of money given, and how this affects the time-frame in which companies must make their purchases of essential equipment such as machines.

Mr N Koornhof (ANC) asked that if a company has been successful and an incentive is allocated, is it for one year or a concurrent period of time as the scheme. He asked if the Black Industrialists Programme falls under DTI.

Ms P Mantashe (ANC) asked about DTI’s meaning of radical economic transformation with regards to white owned companies, and how emerging black industrialists are being encouraged. She requested details about the Dimbaza project so that she could go and do oversight.

The Chairperson requested clarity on the programmes and commended DTI on issues of job creation, but expressed concern that a Member had benefitted from one of the incentives, especially the colleague from the DA, and wanted to know how this will be dealt with. He asked if the high number of projects in the specific provinces is due to the infrastructure being well organised. He asked what percentage of the incentives goes to the top tier of aquaculture and agro-processing.

Response, Ms Mabitje-Thompson responded that the incentives such as MCEP initially required people to show a plan with the hope that they will get to BBBEE level four. However, this has since changed with the insistence of a level four certificate together with the plan because some of the plans were not coming to fruition. She acknowledged the truth in what Mr Williams said about the statistics that historically support would have gone to the white owned companies. The appropriate level of support for those sectors has since been identified going forward. She noted that part of the reason the Black Industrialist Programme was launched was to assist and complement BBBEE as part of the transformation agenda. The threshold for ownership is 51% in order to participate.

The conditions under which a company would lose an incentive vary across incentives. She gave an example about job creation and job increase as part of the incentive conditions, and if at time of payment it is discovered that the agreement has not been honoured then that could be a ground. The second condition could be compliance with other legislative requirements for a company in a specific sector. UIF must be paid by the companies for its employees, and each scheme has a set of requirements.

The labour relations burden has not really been put as a requirement dealt with by DTI. The closest is that the company must formalise employment with its employees and not just hire people to qualify for the incentive.

When MCEP was initially introduced there were no caps, and big companies were allowed to receive a lot of funding. Caps have since been introduced, and small to medium companies have since been able to benefit from the programme. A breakdown of companies funded will be provided, which will show small companies being funded mostly in the 2014/15 year and 2015/16 year as opposed to when the programme started in 2012. There is no funding left and that is why there are no new applications being received because the programme is fully committed.

The Best Practice Administration incentive states that a contract must be made with a person and not an intermediary. It is the choice of the company to choose an intermediary, which has nothing to do with DTI. DTI has raised a contingent liability equivalent to the money set aside for funding, so there will be no additional funding left. DTI is also worried about the period it takes between when the deal comes and the money is received, and it aims to shorten the period with precautions in order to avoid quick money beneficiaries.

Applications are being received for the Black Industrialist Programme, with a total of 16 applications received so far, with the main sector being the manufacturing sector. The entrepreneurial base is being expanded to include more black industrialists in its participation.

An industrial park is being upgraded with the support of DTI in Dimbaza, and a progress update will be provided. DTI wants to reduce red tape and still account for the use of public funds.

Gauteng and the Western Cape lead because currently that is where the industrial capability is. There is a struggle with industrial capability in the other provinces but engagements have been made with the provinces and investment promotion agencies to see how at a provincial level, close assistance can be given to increase the investment environment. Cooperatives are not excluded from entering these programmes supported by DTI. The Cooperatives Incentive Programme has migrated to Department of Small Business Enterprises. DTI however continues to support cooperatives where they require exposure or assistance to acquire new equipment.

The Chairperson thanked Ms Mabitje-Thompson for the responses and noted the importance of ensuring accountability by companies who have received incentives. He noted the planned improvement of investment conditions in the other provinces as this will reduce the number of people flocking to the Western Cape and Gauteng for job opportunities.

Mr Williams asked for a breakdown of the monetary value in slides 19 and 24, because transformation is a mandate of DTI and one does not want a situation where the incentives create white millionaires and black workers.

Ms Mabitje-Thompson responded that to Mr William’s request for a breakdown of monetary value will be provided to the Secretary.

Ms Mantashe added to the question Mr Williams asked by stating that they are excited about the emergence of new black industrialists, but requested DTI to consider investing them in those provinces where job opportunities are very scarce because establishing them in urban areas does not make a difference.

Ms Mabitje-Thompson replied that the incentives are being dealt with differently now compared to how it was being done previously, and relationships have been developed with all the economic development agencies in the provinces. There will be meetings held in Limpopo in the coming week, and meetings in the Free State have already taken place. The aim is to provide a pipeline for black industrialists to grow in the programme and to benefit existing companies in the areas as well. The Black Industrialist Programme will be implemented formally in collaboration with the economic development agencies in the provinces.

Adv Alberts asked for an indication about the MCEP programme on whether there will be future funding available and for how much.

Ms Mabitje-Thompson replied that they are waiting to hear the Budget Speech to know whether there will be any funding available to reopen the MCEP programme again. The programme is currently fully committed and all funds have been allocated, meaning that no new applications are being accepted.

Automotive Production and Development Programme (APDP)
Mr Mkhululi Mlota, DTI Chief Director: Automotive Sector, spoke about the review exercise of the APDP which began in 2014 and was only completed late 2015. Between 1995 and 2012 there was the Motor Industry Development Programme (MIDP) which supported the motor industry, primarily focusing on light motor vehicles. The programme was structured in four sections, firstly around the tariffs, where under the MIDP the tariffs have gradually been coming down over the years to the level of 25% for built up vehicles and 18% for components for those vehicles by 2012. The idea was to open up the market and encourage local manufacturers to seek markets outside the country.

The second section of the MIDP was the duty free allowance. The components required to build a car will not all be available in South Africa, an agreement was made with vehicle assemblers that they would receive a duty free component which was put at 27%. This was targeted at vehicles that would be manufactured and sold in the domestic market.

The third section involved trade, where they would earn import rebate credits. The benefit was based on exported local content which was a major element of transformation. A growth in vehicle exports was seen, together with a growth in the export of components. This meant components with a high local content became favourites such as leather interiors and catalytic converters, amongst others. In calculating the benefits, the entire local content was taken into consideration.

The last section encouraged vehicle assemblers to invest and produce for the global market, there was a need to support those investments. The Productive Asset Allowance was introduced after the MIDP which had 20% of the qualifying investments directly linked to the actual process of manufacturing and duty rebates benefits.

In 2005, in the last review of the MIDP which was completed in 2008, it came up with the new programme called the Automotive Production and Development Programme. One of the objectives was to improve the quality of vehicles produced locally. There was a realisation that there was growth, which could not be correlated in volume terms or better economic scale for component suppliers. South Africa has lower tariff rates as opposed to countries such as China and Brazil on automobiles. The 2012 levels of tariffs will be kept and not reduced any further.

For the APDP which will last until 2020, the tariffs will remain the same. The Volume Assembly Allowance under the APDP which is particular to vehicle assemblers has been reduced from the initial 27% to 20%, and possible reduction to 18% until 2020. Initially this was only applicable to vehicles manufactured for the domestic market, but the VAA is now applicable to all production.

The Production Incentive under the APDP is similar to the import and export rebate under the MIDP and is based only on value addition rather than exported local content. It is aimed at increasing local levels of value addition rather than exported local content. The implications are not positive for some components such as the catalytic converters which attract most benefits based on the local value additions.

The Automotive Investment Scheme was introduced in the form of a cash grant payable over a period of three years, which component manufacturers and vehicle assemblers can access. The APDP was announced in 2008, and has been in operation for only a year, but it has been necessary to review it. The global recession meant that the environment drastically changed from when the programme was devised to when it was implemented.

During the period between 2009 and when the APDP was implemented in 2013, improved support was provided for vulnerable groups or products which included the likes of the catalytic converters because the change from MIDP to APDP meant that the product and benefits of 12-14% of its selling price would suddenly be around 4% under the APDP. This included going into the value chains to see where it is automotive related in order to offer support, such as automotive leather to ensure high quality standards.

Terms of reference were issued for this exercise to allow for recommendations and proposals to allow the APDP and the industry to achieve the set objectives such as increase in volume production. An independent person was appointed as an advisor.

The advisor and introduction of the process was appointed and commenced in February-March 2014, and involved desktop research and collection of data from key stakeholders. Key findings were found from this process, speaking to the objectives of the APDP were that as things stand the industry is unlikely to achieve the set number of volume production projected by 2020. At present the installed capacity is 900 000 units per annum, and two of the seven major original equipment manufacturers (OEMs) are not likely to meet the threshold through the duration of the APDP. Potential new investors in the industry were discouraged by the annual volume production which becomes difficult to maintain as a new investor in the industry.

The industry continues to compete with relatively cheap markets from the East, with Thailand being a key competitor for South Africa. A lot of recommendations were generated from the key findings, some of which will be pursued to ensure that the major outcomes of the APDP are achieved. Slide 10 shows some of the recommendations that were generated include amending the APDP until 2020.

BMW announced that it will be producing the X3 until 2024, and as such there is a need to have a post-APDP mechanism in place soon.

The volume threshold that was placed as a key component to participate in the APDP, cannot be met by companies because their volume requirements are not doing well in the markets both domestically and abroad. A recommendation was given to reduce the volume threshold to 10 000 units per year at reduced benefits.

The automotive industry is the single biggest beneficiary of the platinum mined in South Africa, and that industry has drastically shrunk and companies might be lost in that industry. The recommendation was to keep the benefit over the years until 2020 on the 2017 levels.

The fourth recommendation was that the contents of the criteria for component suppliers be tightened due to the realisation that some companies supplying into the OE chain are buying other automotive companies, a company making screens buying a company making engine components, and the merger attracts APDP benefits.

In trying to increase local value addition, one of the recommendations was that DTI needs to provide improved benefits for tooling, because tooling meant that there is an increased opportunity for value addition investments in South Africa.

A recommendation was given to change the rebate credits to duty credits. The OEMs can now attract more benefits, so a recommendation was made to reduce the VAA to 15% to encourage more economic activity. A recommendation was also made to add VAAs for pick-ups and localise production for pick-ups in South Africa and have incentives that encourage production. The last recommendation was to shift more benefits towards component suppliers.

The recommendations were engaged with internally with DTI and externally with National Treasury and other key stakeholders, and not all of them were approved.

Slide 11 shows which recommendations were adopted, some of which include that there needs to be a plan for post  APDP. A team is currently being put together to ensure this takes place, with the year 2017 being the date when a plan will be produced for the way going forward which will include certainty in policy.

Mr Mlota said that the threshold will be decreased from 50 000 units to 10 000 units per year effective from 2016. This will provide certainty to the two OEMs in the country that they will be receiving support, and attract new players into the market.

An estimated R2.4 billion will be required to provide funding for plants to support tooling, but engagements between DTI and Treasury have not been positive and as such no certainty can be given in that regard.

Mr Mlota said that there were lessons to be learnt by DTI in the implementation of the programmes, which include clarity in time projections of what is achievable, tighten content criteria, and expert knowledge to sift through the information provided by key stakeholders. The engagements with key stakeholders delayed the process, and improved management of such engagements is required and improved implementation of the review process.

Discussion
Mr Williams welcomed the presentation and asked if South Africa should not facilitate an industry that would manufacture a South African vehicle for the African market.

Mr Koornhof welcomed the presentation and asked questions on the protection of the manufacturing of vehicles and the positive effects this has on the economy of South Africa. However, he asked about the expensive vehicle prices. Is any research conducted to reduce the prices or strike a balance?

He also asked if DTI was involved in the research into an electric vehicle and whether there is a possibility for a partnership with developers in the field.

Adv Alberts asked the definition of tooling and why Treasury is reluctant to invest in it. He is a Land Rover fan and wanted to know if DTI would be involved in campaigning to host the production of the Land Rover Defender.

Mr Mlota responded that in 2014/15 DTI had talks with Land Rover which was looking for a location to produce the vehicle. South Africa was beaten by another country, but the company expressed interest in collaborating with South Africa in the future.

He explained that tooling is what is used to make products. In the automotive industry tooling will be the large metal gadgets that are used to burn and form materials and they are generally expensive. It is expensive to build the tool in South Africa especially looking at the current production rates. The priorities of National Treasury have mounted up, with less funds available, and as such talks continue to see how it can be made possible.

Mr Mlota replied that a company by the name of Optimal Energy consisting of scientists and engineers was supported by the Department of Science and Technology in designing and developing the electric car Joule. It was advertised and promoted, looking to export it into the global market. DTI together with the IDC collaborated to see what can be done to promote the car. It was estimated that it would require R9 billion to build a plant that would have the capacity to produce around 70 000 units per annum. The amount was massive considering that there was no experience in the industry broadly, with local markets not showing huge interest and with huge import cost implications. A decision was made to can the project, and no one was interested in purchasing the intellectual property of the project because technological advancements had already been made. It will however continue to be used in research projects.

He agreed that vehicle prices in South Africa are high at the moment, but there were currently no projects in place trying to deal with this. DTI would keep an eye on it and see how they can support the industry going forward.

A debate into the South African car in the 1980s showed that people were not interested in producing a South African car because there are multi-nationals living in South Africa with varied interests. He said that the market is open to anyone wanting to enter and be a competitor with such a product, but ultimately the project would have to be run as a business and involve key stakeholders such as the IDC, and show profit. DTI is however not looking into it in the current economic state.

The Chairperson thanked Mr Mlota and Ms Mabitje-Thompson for their presentations and presentations.

The meeting was adjourned.
 

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