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4 September 2008

Chairperson: Themba Maseko, CEO of Government Communications

Panel:
Minister of Trade and Industry, Mandisi Mpahlwa
Tshediso Matona, Director-General for The dti
Nimrod Zalk: Chief Director Industrial Policy
Mkhululi Molta: Director - Automatives

Chairperson: Ladies and gentlemen. Welcome and thank you for staying on. As I said, Cabinet approved the programme on the motor industry (Automotive Development Programme). The Minister of Trade and Industry will brief us on the details of the programme. Thank you, Minister and welcome. May I invite you to come and address the meeting?

Minister Mpahlwa: Good morning ladies and gentlemen of the media. We are going to be taking you through the new programme to support the further growth and development of the automotive industry. This is something that we know you have been waiting for, for a very long time, but you know that in 2005 we initiated the review of the motor industry of the Motor Industry Development Programme (MIDP), 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 multi-lateral obligations as well as domestic priorities.

A process of extensive research and consultation resulted in a report being submitted to the department at the end of 2006 and after intense evaluation of the report and its recommendations; we felt that it was necessary to extend the analysis of industry dynamics and alternative support options going forward. It should be noted that part of the recommendation was for the introduction of a production allowance to replace the current export incentive in line with the country's multi-lateral obligations. However, the design and development of such an allowance was not done.

On the process that we then followed, we had a task team involving the Department of Trade and Industry and National Treasury with the assistance of independent experts and from the end of 2007 this team worked on designing a new architecture for industry support in line with new and more ambitious targets that were set for the industry. And substantial research followed by intensive and comprehensive industry consultations took place.

We also worked with the United Nations Industrial Development Organisation (UNIDO) as well as the Industrial Development Corporation, who both provided valuable information and assistance in respect of global industry policy trends and economic modelling, respectively because as we were doing this work we had to do this benchmarking also with other locations as similar to us, that have automotive production. And the final proposals were arrived at after several interactions with the different stakeholders, the OEMs, the companies as well as labour and we ultimately brought those proposals to Cabinet.

The findings of that review were among other things that the automotive industry is actually the largest and leading manufacturing sector in the South African economy, and since its introduction the industry had rationalised and restructured in a more efficient basis achieving significant growth in production volumes, exports and investments whilst maintaining significant employment levels. The industry, we also found, has got very strong linkages with other sectors and other activities in the economy. It has got strong linkages with input industries such as aluminium, chemicals, electronics, leather and textiles, plastics, steel, machinery and equipment. It also has got linkages with the services industries such as engineering, logistics and tooling, but also such other sectors such as financial wholesale and retail as well as 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 is shifting to more fuel-efficient vehicles in response to the oil price as well as environmental concerns. And so there's intense competition from low cost regions with booming markets such as Eastern Europe and Asia and there is a bit of over-capacity in the world today in terms of production of automotives. And this puts added pressure to industry that still produces and sells hardly one percent of the vehicles in the global automotive market. And so you actually have to fight hard to compete in this kind of environment.

Notwithstanding the successes achieved since 1995 the industry faces a number of challenges. Economics 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 in growth in exports is likely to reverse the situation in 2008.

In terms of strategic direction we are now looking at further expanding as well as deepening the industry. In this regard more efforts will be made to improve the productivity levels of component manufacturers, to provide an opportunity of increasing the local content of domestically assembled vehicles. So an important part of this is really to enhance and deepen the manufacturing aspects of the automotive industry.

The new programme will also provide industry with a reasonable level of support in a market-neutral manner. That means that it cannot be an export incentive any more as this might be inconsistent with World Trade Organisation (WTO) provisions, therefore there will be no discrimination for products sold domestically and those exported.

We are also now looking at further development of the automotive industry in line with the National Industrial Policy Framework (NIPF) and the Industrial Policy Action Plan (IPAP) that we adopted last year. 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.

Now, on the new programme which we are provisionally calling this is something between ourselves and the stakeholders to finalise, the Automotive Production and Development Programme (APDP).

The elements of this programme are:

One element is tariffs and the treatment that we are going to give to tariffs in relation to this particular industry. The treatment of tariffs will ensure that we provide just enough protection to justify a continued local vehicle assembly.

The second element of the new programme is Local Assembly Allowance. 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.

The third aspect of this is a production incentive based on Value Add, and this support will encourage increasing levels of local value addition along the automotive value chain with positive spin-offs for employment creation.

The fourth element is the automotive investment allowance. This support will be available to encourage investments by vehicle assemblers and component manufacturers in a manner that supports equipment upgrading.

Now the details of these will be provided by Mkhululi (Mlota) when we do the actual presentation of the details of the new package. There is other work that we are going to be doing going forward, and we have to do more work on the catalytic converter industry which will be affected in a particular way by the change in the nature of the programme, from one that is export-based to one that is production-based. We have to do further work on medium and heavy commercial vehicles and these are outcomes that we will pronounce on once we have concluded our consultations and when we have done further work in those areas.

There are other areas of work because our work on the automotive industry is not just the MIDP or the new revised programme. We do have a sector strategy that we are working on, a customised sector programme, which deals with the other elements such as broad-based Black Economic Empowerment and the firm-level competitiveness challenges. These are some of the things that will be addressed in the broader work that we will be doing. We'll be addressing such matters as ensuring that the industry is also responsive to the climate change imperatives of the time by ensuring tighter emission standards, but also in areas such as steels technology; these are all part of the broader work that we are doing across the sector.

We will also be improving our monitoring and review system in order to ensure that there is better information flow for decision making as well as more frequent reviews. Our expectations as government from the private sector; because government is clearly providing fairly substantial support to the industry and the aim and expectation is to further stimulate growth in the industry and so we do expect from industry greater progress insofar as 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. On implementation, as we set up the necessary regulatory amendments and administration system for the programme we'll ensure that this is in line with the need for a strong monitoring and evaluation system, but still not unduly burdensome to stakeholders and so some of the aspects of this implementation plan will include regulatory amendments that we are going to be effecting by June 2009.

We will also in June 2009 introduce the Automotive Investment Assistance. The Value Add Support or production incentive will be introduced in 2013. The Local Assembly Allowance 2013, the Tariff Phase-down freeze 2013. So ladies and gentlemen, I would like at this point to just invite Nimrod (Zalk) to take us through part of the presentation and Mkhululi will also do the part of the presentation that deals with just the detail of the programme. Thank you very much.

Nimrod Zalk: Okay. What I'll be doing and my colleague Mkhululi Mlota is just to take you through a little bit more of the detail of the review of the programme and elaborate a little bit on some of the issues that the minister has already spoken to.

As has already been indicated, automotives is really a very strategic sector for the South African economy and it's our largest and leading manufacturing sector. It generates very strong linkages with a whole range of other industries and it has very high positive multiplier effects on the rest of the economy which we confirmed in the work that was done by the Industrial Development Corporation for us, economic modelling work that showed very clearly that there are very high multiplier effects in terms of value-added, employment, investment, balance of payments and net revenue generation.

The key findings of the review, firstly was that the MIDP has successfully ensured high growth and significant competitiveness gains in the automotive industry since 1995. This has been based largely on a structure of the programme which is based on the ability of industry to earn duty credits against exports in a context of declining tariff levels. And I think it's important to indicate that tariffs have actually declined in this industry quite substantially since 1994, from 80% down to 30% currently and tariffs will decline further to 25% in 2012. So the actual levels of protection and support for the industry have actually declined quite substantially and that is also reflected in rough calculations of the percentage of industry support, reflected as a percentage of sales of the industry which has declined roughly from around 20% of sales in '95 down to nine percent of sales in 2007.

So I think this indicates that the industry is certainly not pampered, it's not over-protected and that the programme that has been finalised and that will be elaborated on, is really quite a reasonable programme which is based on the realities of the domestic and the global situation.

Returning to the successes of the MIDP since 1995, there's been a rationalisation of platforms and very substantial growth, vehicle production increased from 388 000 units in 1995 to 534 000 in 2007. And we've seen an almost exponential increase in vehicle exports over the same period, from four percent of production in '95 to 32% in 2007. So by 2007 the auto industry has grown to play a very, very significant role in the South African economy. It contributes between 1,5% and 6,9% of Gross Domestic Product, depending on whether one just takes into account the narrow contribution of the manufacturing part of the sector or one expands that to include retail and related services. It contributes 8,3% of manufacturing value added between 135 000 and 450 000 jobs again depending on whether one takes the narrow manufacturing definition or the broader related service activities. It contributed 10% of manufacturing investment and it contributes 16% of total South African exports.

This is very significant because this is really our major source of diversified exports, beyond natural resource-based exports in the economy. But notwithstanding these successes as has been indicated, the industry still faces a number of challenges. South Africa and the sub-region remain a relatively small market in global terms and we remain somewhat isolated from larger markets and shipping routes.

We have major domestic infrastructure logistic inefficiencies which impose associated costs on this industry and others, economies of scale in assembly and the depth of component manufacturing, we believe are not yet internationally optimal. Also a relatively small group of automotive components dominate the export basket. There's been strong import penetration and the industry also faces challenges with respect to skills. The current MIDP terminates formally at the end of 2009 but there has been a very clear policy commitment to continuation until 2012 and therefore the industry requires long term certainty beyond 2012.

This is in the context of the ambitious joint targets that have been agreed between government and the industry to raise assembly of vehicles to 1,2 million vehicles per annum by 2020. This is in contrast with roughly the 534 000 that we are currently producing per annum and with the associated deepening of the components industry and the very high multiplier effect on the rest of the economy.

And therefore, this is really what this programme is going to achieve, is to lock in the industry in the long term and address some of the negative externalities that it faces, particularly related to high logistics costs as well as improving the balance between the domestic and export sales of the industry to also take greater advantage of the growing domestic market, as well as to ensure that the programme is comparable with that of major competitors and is consistent with World Trade Organisation rules.

The global context is that automotives is a highly competitive global industry and most investment destinations around the world generally have both very good proximity to a large market such as the United States, the European Union as well as emerging markets such as China and India as well as significant support that is provided to the industry in these destinations. And as indicated, there is substantial pressure at least in the short to medium term, on the global industry, due to slowing global GDP and automotive growth as a result of a combination of the consequences of sub-prime crisis in the United States as well as rising oil prices and food prices. Increased competition is prevalent, predominantly from Southern East Asian countries as well as central Europe but also increasingly from certain North African countries. And all of these factors indicate that location attractiveness is a very critical factor in investment decisions of the automotive industry.

So therefore, what has been approved is an appropriately structured support package that is necessary to take the industry to the next level, which is reaching the levels of the assembly of 1,2 million vehicles per annum by 2020 and associated deepening of the components industry together with a very high multiplier of effects that the industry induces on to the rest of the economy. So the new programme which has been approved by cabinet, which will be implemented together with other elements of the customised sector programme, provides the necessary investor environment in order to meet these ambitious targets. And my colleague Mkhululi will now take you through some of the details of the programme which has provisionally been named The Automotive Production and Development Programme. Thank you.

Mkhululi Mlota: Thank you. The new programme as the Minister has already indicated would have four key elements.

Firstly on the tariffs - because the tariffs have been coming down along the years, they've been reducing and by 2012 the tariffs that we use will be 25%, that is for built-up vehicles and 20% for automotive components. From 2013 up to 2020 the tariffs would stay at the same at the level of 25% for CBUs and 20% for components.

On the second element the Local Assembly Allowance, this will be at 20% but reducing over three years to 18% and it will be introduced in 2013. This allowance is meant to allow vehicle manufacturers with plant volumes of at least 50 000 units per annum to import a percentage of their components duty free. So there is that element of qualification at 50 000 capacity per annum.

The third element is the production incentive which will also be a form of a duty credit. It will be pitched at 55% reducing to 50% over five years – that is from the year 2013 as well. This would be based on value added. There might be an additional five percent for vulnerable sub-sectors as part of the production incentive.

The fourth element is the Investment Allowance which should be in the form of a direct grant to support investments in new plants and machinery. This Investment Allowance would be at 20% of qualifying productive asset value payable over a three-year period. That is it will be paid to the investor over a three-year period from date of investment, the total thereof being 20%. However, there will also be company specific support allowances that are aimed at subsidising the costs associated with new investments, costs that are linked to training, technology transfer, and localisation and so on, as well as commissioning costs. Those would be based on direct negotiation with the Department of Trade and Industry and this Support or Investment Allowance will be introduced next year in June.

As earlier indicated, there will be a strong focus on developing strong monitoring mechanisms and we're also looking at having more frequent reviews into the future, say maybe every three years instead of every five years as we had in the past. Also as indicated, some sub-sectors still need further attention: Catalytic Converters as well as Medium and Heavy Vehicles – we'll do more work there on those sectors to see how best to support them into the future.

However as earlier indicated, there are also other elements that we are busy working on as we speak. We have projects that are aimed at improving firm level competitiveness and there are also other interventions aimed at dealing with the challenges in logistics, skills, technology and broad based empowerment. Also, we would be responding to climate change imperatives and will be looking at emission standards for instance and also use of cleaner sources of energy into the future. These elements as indicated, are going to be implemented from next year, that is 2009 when we'll be introducing the Automotive Investment Allowance to allow both vehicle assemblers as well as the component manufacturers to benefit from that and therefore we 're looking at a possible immediate positive response to this. We would expect from industry to start investing as soon as possible.

Also from 2013 the other elements, that is the Production Incentive, the Local Assembly Allowance will be introduced. And on the tariffs – the tariffs currently at 29% for vehicles will continue to reduce until 2012 when they'll be at 25% and from there on until 2020 they will remain stable at those levels. Thank you.

Questions and Answers

Journalist: Could you give us some idea of what the budget…what you think this is going to cost, particularly the Investment Incentive that kicks in next year and over the Medium Term Expenditure Framework (MTEF), what is being budgeted for as the cost to the government of these incentives? Any suggestion if you reach 1,2 million, what that might represent in GDP and then why the bias in terms of the duty concessions? Why the bias to big producers rather than something that would help new players come into the marketplace?

Journalist: Can I just add on to that in terms of the cost? If you could break it down in terms of the direct cost to the fiscus in terms of grants and indirect costs in terms of lost revenue? Thank you.

Journalist: Minister, any chance we could just ask you to break this down into a sound byte. It's quite complicated. I know you won't get it into 15 seconds but if we could just ask you to give us a very short what it is exactly you're doing and why because it is very complicated. It's been a very good presentation but we obviously can't broadcast the whole thing. Thank you.

Journalist: I second what Stephen is saying. Just quickly, and correct me if I am wrong here. You said at one point there can't be an export incentive any more so there shouldn't be any difference between those exported and those sold locally. Now there's this perception – I don't know if it is reality – that cars sold in South Africa are more expensive than those overseas. Do you think that these new regulations you're bringing in could lead to, especially cars that are manufactured here, being sold at a lower price than they are currently?

Themba Maseko: I see a lot of journalists nodding to that second question

Mkhululi Mlota: On the question of affordability, you would notice that in the past decade real prices have fallen down. However there's still an opportunity for further price reduction and we think through this programme as we are gunning for economies of scale real prices should be still coming down. However, when you talk affordability in the price of vehicles, there are a lot of other issues that you need to take into consideration. Therefore they might not be the exact same price off the floor from South Africa as compared to the United States for instance. But in real terms this programme as we are looking at it actually brings better economies of scale, should bring prices further down.

Minister Mpahlwa: Now on the cost of the programme, firstly I think the issues around fiscal implications of the exact cost, although it's a very difficult number to pin down because of the nature of the programme which has got a strong duty component to it. So sometimes that is determined by the volumes that are involved which may differ from year to year. So in a sense, from that point of view it's a bit of a difficult number.

But the programme that we are proposing is broadly in keeping with the programme as we have it now, but of course because we are setting more ambitious targets for the industry we are looking at a slight ticking up of the level of support from 2013 but along the trend that we have been on, of gradually declining support, there's a slight tick up which then begins to decline gradually going towards 2020. I'm not going to give you the numbers to say this is the rand cost of this.

These are things that will be in line with the decision of cabinet. Those will be communicated by Treasury at an appropriate time but one could say that broadly, we are in keeping with the levels of support that we'll be providing to the industry and the principle is the same, that over time its a declining level of support, because any industry, I mean you cannot support an industry for ever, and what we are doing is in line with the fact that we are setting new targets, we are setting more ambitious targets for the industry and there will therefore be an adjustment that reflects that. What is the other question?

Journalist: If I understood correctly, there were eleventh hour changes to the proposals, which required further negotiation with the industry. Could you just elaborate on what was at issue there and how it was resolved and what has industry's response to the final product been? Thank you.

Themba Maseko: Okay, the [Unclear] will take care of that.

Mkhululi Mlota: Okay, I think if you've been following this work and I know some of you have been you will know that once we had done the review and had developed a sense of what our architecture would be we put out a preliminary set of proposals around the elements of the scheme as they have been outlined. It was a basis for us to test how the industry might respond to that. Since then I think we had three alterations backwards and forwards between ourselves and the industry and we think that the final set of proposals hit the appropriate balance. We parted with industry on the understanding that there is agreement, broad agreement with regard to the proposals that have just been presented to you. Thank you.

Press: Just a follow-up. Could you elaborate on what the issues of dispute or disagreement with the preliminary proposals were? Thank you.

Tshediso Matona, No, I don't think that's going to help. I don't think for example, industry…there were some members of industry who felt that the tariffs should be increased. So it's not going to help. I think what's important is that we have an outcome which is broadly agreed between ourselves and industry. Thank you.

Journalist: In December the DTI noted that it would be a 50 000 production allowance for a single platform. Now is that changed now to a plant volume of 50 000 and then also, some of these manufacturers are vulnerable. For example, I think DaimlerChrysler produces just about 50 000 vehicles a year. So what happens if you hit 49 000? And then also, some vehicle manufacturers will want to know beyond 2020 already, because BMW will introduce a new vehicle in about 2011, 2012, a plant model runs to about eight to nine years, so they will already want to know what is going to happen beyond 2020.

Mkhululi Mlota: The 50 000 that is linked to the Assistance is per plant at the moment. As you say, some are producing just around that number. The idea is to encourage all assemblers to increase their production volumes. If tomorrow BMW would say they want to build 150 000 cars per annum, that would be marvellous. We would greatly support that. However, if for some reason one produces one car less than 50 000 then I think we'll engage in some kind of discussion, but the idea is to encourage high volume production and not allow a proliferation of low volume models again. As to what happens after 2020, we have indicated that part of what we'll be doing will have more regular reviews, maybe every two to three years to sort of assess the situation and come up with an appropriate kind of intervention. We think therefore that at the moment there is enough time to allow us to implement this programme and assess it as we go along. Of course, before 2020 we'll introduce a new scheme if needs be. Maybe by then the industry would be self-sustaining. That's what we are aiming at.

Journalist: I don't understand, if there's a direct link between the Local Assembly Allowance and the Production Incentive in the sense that you're wanting to increase localisation but how do you link the fact that you're going to have a component industry getting an incentive and a separate incentive ready for the assemblers, to increase that localisation at the OEM level?

So I just want to understand that linkage if you can, as well as – it might be a silly question, but I just don 't understand how a component manufacturer that gets a duty credit, how that helps the whole localisation cause, because basically that duty credit is to enable them to import more. So I 'm just trying to understand, but it might be a silly question, but if you could just talk me through, how a duty credit helps the localisation cause. And would some other companies therefore also be excluded from the other incentives that the DTI will be announcing over the next few months, because you are giving the whole lot a range of incentives here, plus another one that will come in next year, but there are these big incentives in the pipeline, including tax incentives. If you take a grant are you excluded from that and lastly, if you could just give me some clarity on your definition of value-add. It might also be very basic but what do you regard as sales and what do you regard as raw materials?

Mkhululi Mlota: You will remind me as I go along of the questions. But let me start with the last one. The idea is to avoid a situation where somebody gets more than one deserves, in the sense that if you 're getting the Investment Allowance under this programme, you won 't for that same investment be getting any other assistance from DTI programmes. What is normally called 'double-dipping we'll avoid. On the duty credit, as indicated earlier, what South Africa produces and maybe the rest of the continent at this point in time, is hardly one percent of global production of automotive vehicles. And as South Africa we're participating in the chain from only manufacturing in the main. That is, you have other places designing and developing vehicles and components and you also have partners who are involved in the development of a vehicle for instance, situated close at where the entire vehicle is being designed and developed, to the extent that they are normally the ones who then produce the key components of that vehicle.

Now as South Africa, we have this understanding that some key components that go into a vehicle will not be manufactured economically viably in South Africa with our low volumes. Therefore those components would need to be imported. So the idea of using a duty credit is based on that understanding, that for instance, if BMW would develop their engines elsewhere in Germany, but for our local production, which is quite small in global terms, they will import those critical parts. However, there are parts that can later then be developed but also in the process we want to encourage the relocation or localisation of some of their first-tier suppliers to supply these companies from South Africa. However, the issue of low volumes is a challenge but we are succeeding with some. There are local branches of the first-tier suppliers who are next to the plants in South Africa, as we speak. So that's how this idea of a credit works.

At the component level with the requirement of higher volumes of production of vehicles that is where then it makes sense to localise some of the components supply or manufacturing and also to expand on some of the local component manufacturing. There are those that are easily localised for instance, because they don't travel easily. We then believe that they will benefit more from this kind of high volume approach that we're taking. So whilst we understand that not all components would be manufactured locally, from these higher volumes and also linkages to the OEMs who are global companies, we think that then would enable these local suppliers not only to supply to the local assembly plants that have low volumes, but also to get into the global supply networks.

Themba Maseko: Okay, let's take the final round of questions and we can conclude. I 'm sure you also need to go back and file. We'll take that last question, Cape Town, any question?

Journalist: Hello, I'd like to know if you could actually state which countries this program, the incentives, have actually been benchmarked against, and then also what has been done to actually ensure that the proposals are not contrary to South Africa's commitments to the WTO. In terms of my understanding of WTO agreement on subsidies and countervailing measures, certain kinds of subsidies and… are prohibited, actionable, or allowable, but the WTO prohibits direct export subsidies and local content requirements. And in terms of the production incentive, is that not another word just for local content?

Tshediso Matona: Well, what we should have indicated perhaps up front, and you'll see that even in the name that we are proposing for the programme, the emphasis is on production and to treat local… products produced for the local market the same way as you are treating products intended for export. What we call a market neutral treatment of automotive products.

I think that is an essential feature and a shift from the Motor Industry Development Programme (MIDP) which as you know incentivise exports through these duty credits. So that is the main thing. We think that in regard to other elements around local content and so on those shouldn't really be problematic from a WTO point of view. You are quite right, the subsidies agreement prohibits outright subsidies contingent on export, and this program is not contingent… access to the benefits is not contingent on exporting. We expect that the industry will find it necessary to export anyway because of the size of the market and economics of scale considerations as it were, thanks.

Mkhululi Mlota: We looked at a number of countries in varying degrees. Those countries included Turkey, Thailand, Australia, India, Brazil, and Poland for instance. However, we did also track what was developing and happening in other areas like the United States of America as well. Thank you.

Journalist: Sorry, just to follow up on that question with regard to whether the local content elements of the program will not be contrary to WTO rules.

Journalist: A very quick one. Will there be any kind of incentivising of hybrid cars, more environmentally friendly cars, that kind of thing? Will any of that kind of thing happen?

Mkhululi Mlota: As earlier indicated there are some areas that we are seriously looking at such as what you call hybrid cars or environmentally friendly cars. Yes, it is an idea that we should encourage, production of such vehicles in South Africa and the use thereof, so going forward you might expect to see some activity in that direction. However, as to the details thereof you'll hear about those in due course.

Journalist: Thanks very much. Just if you could explain why the introduction is being staggered between the June 2009 and then why some are kept to 2013, and also what effect do you think the delay in finalising the program has had on investment and do you think that there's a lot of pent up investment now that it's finally been finalised, that will be now come on stream? Thanks.

Journalist: Can I just add one last question? Is any part of this strategy designed to promote export from South Africa into the rest of Africa, or likely to have that result even if not designed?

Mkhululi Mlota: Thank you. If you notice, what we've staggered in the main is to introduce the investment assistance earlier than the rest because we understand that investment decisions take place far before the actual production happens. So therefore we want to allow industry to make those decisions soon such that in the next few months and years they would start doing the investment and producing vehicles. But also from the architecture as well as how we introduce the program we don't want to create unnecessary shocks in the system, we want people to understand fully what is expected of them because as I indicated we would be stricter on monitoring and evaluation therefore everybody needs to fully understand what he has to comply with, and we think this will allow industry enough time to adjust and prepare for all these… for the new program when it's introduced. That's why there is this kind of staggered introduction.

Tshediso Matona I want… the part about investment climate. No, sure, we understood very clearly that industry was anxious that we established sooner rather than later certainty in the investment environment by finalising the proposals that we've just presented to you, so we understood that. We don't think that however this affected the environment negatively because we were working with the industry. It was consultative and interactive process, so they knew what we were doing and what was likely to come out, and we therefore think that that helped to maintain confidence, as you know that these industries… I mean, Ford for example announced an investment decision at the beginning of this year long before the work was finalised. Thank you.

Themba Maseko: Okay, we'll have closing remarks from the Minister.

Minister Mpahlwa: Yes, thank you, thank you very much for the interest, and you can see just how involved this work that we've been doing has been, and I think that it 's quite important to emphasise the point about working very closely with the industry, because the pressure points really in this work had a lot to do with the fact that different companies take investment decisions and make decisions about new models at different times, and so you don 't have the needs of the different companies coinciding, and so one may want to introduce a new model in a particular year and therefore needs to make decisions at a particular point.

But the close working relationship with the industry has been a vital aspect of the work that we are doing, and therefore we think that those that for instance have been able to make announcement about increasing their investments, it was I think out of the confidence that there is this work that is being done which is understood, and the general… because you remember on December 18 we did issue out a statement that indicated what the architecture of the new programme. And so that confidence I think enabled some of the companies to make the kinds of decisions they made about increasing their investments. Let me also say that the program that we are proposing is a programme that we think represents the best possible balance between various things and factors. We've looked… and here I 'm going to the question about what then happens beyond 2020. We've looked at how far the MIDP has brought us in terms of the levels of competitiveness that have been attained by this industry. And so we factored that in and our view is that, yes, competitiveness has improved, but it hasn't reached the kinds of levels that would require of us to expect of the industry to stand on its own two feet, given the global competitive environment that exists for the automotive industry. So that's one aspect that went into how we put the package together.

It's also a package that takes into account that we are setting new ambitions for ourselves for the automotive industry. And in that way, by setting these new ambitions for the automotive industry, given the strong linkages of this industry to other sectors of the economy, through this industry we intend to make an impact on manufacturing broadly because you'd know that the focus of the industrial policy framework is to deepen manufacturing, deepen value addition, and to broaden the scope of manufacturing in South Africa.

So this is a programme that is also aimed at responding to those higher ambitions that we set for ourselves through the industrial policy framework and the action plan. I also do want to say that this is a programme also that has tried to strike a good balance between providing sufficient levels of support without being overly generous. Because we are doing this in a situation of competing resources, there are many things that government has to finance and support and incentivise.

And so it becomes important to strike that good balance but also ensure, and this is one of the things we emphasise in the new approach that we are taking to incentives to really be sure that the outcomes we are able to achieve, particularly the developmental outcomes that we set for ourselves. So really it is out of all of these things that we have pitched this package at the level at which we've pitched it. We will continue to work with the industry in order to ensure that we collectively further develop and grow the automotive industry in South Africa, and we do hope that as we do so we'll also make that larger impact on manufacturing, given these strong linkages of this industry to various other sectors. But thank you, thank you very much.

Enquiries:
Vukani Mde
Tel: 012 394 1102
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Issued by: Government Communications (GCIS)
4 September 2008