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South Africa’s Automotive Industry Policy
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| South Africa’s Automotive Industry Policy South Africa’s policy of support for developing the nation’s automotive sector has evolved through several phases over the last 40 years. Its overarching objectives have been to develop a globally integrated and competitive local motor vehicle and component industry stabilize long-term employment levels in the industry improve the affordability and quality of vehicles; promote the expansion of automotive exports and improve the sector’s trade balance and contribute to the country’s economic development. The initial strategy emphasized import substitution strongly influenced by protectionism, including local content policy. In the late sin line with the country’s progress toward trade liberalization, a structural adjustment program for the motor industry that primarily focused on the objective of saving foreign currency and enhancing automotive exports was introduced. In the mid-1990s, to make the framework consistent with the then-new WTO, the Motor Industry Development Program (MIDP) was initiated it continues to this day. In general, the MIDP has entailed a phase-down of tariffs removal of local content requirements duty-free imports of components up to 27 percent of the wholesale value of a vehicle and duty rebate credits to be earned on exports. The provisions of the current phase of the MIDP extend to 2007. Recently, it was publicized that a third phase of the MIDP is anticipated to run from 2008 to Sources Kaplan 2005; and Barnes, Kaplinsky, and Morris 2004. 06-Chap6:06-Chap6 10/9/06 2:39 PM Page 341 342 AFRICA ’ S SILK ROAD : CHINA AND INDIA ’ S NEW ECONOMIC FRONTIER South African government’s Motor Industry Development Program (MIDP) heralded a much-lauded shift in vision and aims. Its main objective was to improve the international competitiveness of firms in the industry, enhance growth through exports, and stabilize employment levels. To achieve these objectives, a series of export-oriented incentives were introduced, coupled with a reduction in import tariffs between 1995 and Since the implementation of the MIDP, South Africa has seen rapid growth in the auto sector, based on a speedy rise in global exports of completely-built-up units (CBUs), especially after 1998. In addition to these exports of CBUs, there was also a marked increase in global exports of direct car components. With respect to CBU global exports, several of the leading international automotive companies have been sourcing large numbers of cars from South Africa for sale outside the continent. 55 (This is in contrast to the Chinese and Indian entrants to the South African CBU market—noted above—where all of their sales are within Africa, and mostly in South Africa itself) BMW has been largely specializing in the series car to obtain scale economies. Its exports of CBUs increased steadily from units into units in 2002; its exports have been sold in North American, Australian, European, and Asian markets. Volkswagen has sourced an increasing number of Golf 4 cars for the UK. and European markets, with exports growing from 10,485 units into units in 2002. Daimler-Chrysler exported 36,324 C-Series Mercedes Benzs to the United Kingdom, Australia, and Asia in 2002, a fold increase on exports of only 1,752 vehicles in 1998. Toyota began exporting its Corolla to Australia and New Zealand in April Global exports of South African–produced automotive components have also grown, particularly catalytic converters. A major conduit for these exports were the non-German OEMs who satisfied their need for duty credits by purchasing these from component suppliers. Catalytic converters are an especially interesting case, because initially the level of value-added was low. However, as scale has been built up, investment of more than 2 billion rand (more than $200 million) has been made into a deepening of the production process. In 2002, South Africa supplied percent of the global catalytic converter market and was the most important supplier of catalytic converters to the EU. South Africa’s success in tapping into global production sharing in the automotive sector is driven in large part by the economy’s well-developed 06-Chap6:06-Chap6 10/9/06 2:39 PM Page 342 INVESTMENT - TRADE LINKAGES IN AFRICAN - ASIAN COMMERCE 343 infrastructure, high labor productivity, speed to market, product quality, and flexibility. Its accommodative foreign trade and investment policy regime has also been a key factor. At present, very few other countries on the continent can match these attributes or possess the resources that South Africa has devoted to developing this industry. With the implementation of certain policy reforms, other countries may well be able to achieve a modicum of success in this regard. As the case of South Africa’s development of its automotive sector shows, however, not only can entry barriers to global production networks be appreciable, but the role of government in supporting certain policies has had to evolve. This evolution has been driven in part by fiscal considerations at home. Moreover, changes in international trade rules regarding interventionist export promotion policies have also played a role. Indeed, in general there are important lessons in this regard for the African continent, not only from South Africa’s experience but from that of other regions—most notably East Asia—as well see box 6.10. Download 5.17 Mb. Share with your friends:
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