South African govt’s tax holiday for car makers to double production

In South Africa, automotive industry accounts for about 7 per cent of GDP, with BMW, VW and Nissan putting money into the country. But, some said, the government’s plans may be over-ambitious.


SOUTH Africa is proposing to car makers, including Toyota, Ford and BMW, more than double production in return for tax breaks so the companies can ship the cars to Europe.

The automotive industry is one of the sources for GDP and has been one of the few highlights of a period of sluggish economic growth, according to the National Association of Automobile Manufacturers.

This can be put down to a state-incentive programme that expires at the end of 2020, which both the car manufacturers and the Minister of Trade and Industry, Rob Davies, are keen to extend for another 15 years.

At stake is a potential reversal of a steady flow of new investment by car makers. BMW has spent more than Rands 6 billion on a plant in Rosslyn, north of Pretoria, and last month started production of the X3 SUV at the site – the first time it’s been made outside the US.

Volkswagen (VW) and Nissan announced major expansion plans in 2015, while China’s Beijing Automotive International Corporation (BAIC) is constructing Rands 11 billion facility in Port Elizabeth.

With talks underway, the two parties are at odds on a number of issues — especially the state’s targets for what it wants the industry to achieve by 2035, according to NAAMSA Director, Nico Vermeulen.

A production increase over that period to one per cent of global output, or as many as 1.5 million vehicles a year, is over-ambitious, he said.

South Africa produced about 600,000 units in 2017, the majority for export, and NAAMSA forecasts an increase to 850,000 in 2020.

A second point of contention in the negotiations is a government demand for the vehicle makers to double the size of their combined workforce to about 225,000. This is unrealistic given the global industry’s shift toward robotics and automation, Vermeulen said.

The manufacturers are committed to increasing production and employment if the incentives are adequate, he said, but are reluctant to agree to specific targets.

Speaking in Port Elizabeth, where Volkswagen is the biggest employer, Davies said he’s “more or less at the point where we will take a decision as to what the government programme will be”.

There will be some changes to the present programme, such as deepening the incentives related to component manufacturing, though it will build on the present framework, he said.

Losing car makers would deliver an economic blow to South Africa, which must be careful to avoid a scenario similar to what’s unfolded in Australia, according to BMW’s Chief Executive Officer, Tim Abbott.

General Motors (GM), Ford and Toyota have all closed plants in Australia over the past two years, leading to hundreds of job losses. This was mainly due to a strengthening currency and competition from lower-cost labour markets.

For the automotive industry’s role in the economy to be sustained, an upgrade to the existing Automotive Production and Development Programme (APDP) must be seen by the car makers as a continuation of existing policy, according to Sam Rolland, an economist at Econometrix in Johannesburg.

Rolland said: “It’s likely that the replacement to the APDP will contain many elements similar to the current policy.”

He added: “This is to guarantee that car makers investing in the country are able to adequately plan production lines, production inputs and workforce requirements.”


Source: Business Live