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MIDP Transition to APDP: Impact on Component ManufacturingMany different categoriesOE suppliers with high localisationOE suppliers sub-assembling importsExporters vulnerable and otherReplacement parts producersThose using standard materialsAny combination of the aboveCan 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 creditsComponents and aftermarket parts developed by local component manufacturersLets Look at the MIDP1. 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 OEMs3. Component exports for OEMs to earn credits4. 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 vehiclesFor OE suppliers: ..nothingFor component exports initiated by OEMs: no real change, suppliers cede benefits to OEMsFor suppliers own exports: no changeFor aftermarket producers: + PI on local aftermarket sales

So Whats the Difference?OEMs earn significantly more credits on vehicles producedExports of vulnerable components most of the high value MIDP exports many earn the same, but reducing, some already lessExports of other components earn much lessStandard 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 localiseThe incentive gets given to the OEMSome OEMs do not recognise it because of their internal policies or proceduresThe suppliers have to do significant administration even hire people to prepare the documentation for the OEMs incentiveVehicle 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 savingProduction IncentiveOffset by:Tooling costLocal Price PremiumThe OEM may have surplus creditsSo What Influences Localisation?Some suppliers have closed:Replaced by new foreign suppliersLower requirement for exports or localisation by OEMs who have more creditsSome have prospered, particularly aftermarket parts producersOthers survive and are working hard to improve

Whats the Bottom Line?Incentives can be adjusted to encourage:Higher Vehicle Volumesthrough the VAAMore Localisationthrough the Production Incentivethrough the AISBut 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 materialiseWhat Can Be Done in the APDP?Competition, particularly from Asia, is relentlessOEMs and suppliers have to drive down costsLocal inflation, monopolies and labour issues make it difficult for us in South AfricaOnly much higher volumes will drive global competitivenessThe industry will continue to need government support and protection particularly since other countries do the sameConclusion