LETTER: Lack of understanding about auto industry

Donald MacKay and Daan Steenkamp reveal a lack of understanding of the SA motor industry and auto policy (“Government protection keeps SA on a low-growth path”, June 18).

They project the industry as being heavily subsidised based on “foregone customs revenues and direct transfers”. However, the makeup of the R35bn they quote as the level of Treasury subsidy is roughly as follows: R10bn in vehicle assembly duty rebates; R7bn in local value added (LVA) duty rebates; and R18bn in foregone duty on imported parts that are re-exported in locally built vehicles.

The auto policy is known as the Auto Production & Development Programme (APDP) and is a trade-related investment measure sanctioned by the World Trade Organisation. It is designed to encourage local value creation through foreign and local investment, job creation and technology transfer.

In short, to attract investors the policy provides protection by increasing import duties and then allowing local investors to rebate these higher duties based on formulas linked to LVA. A successful outcome of the policy would be the rebating of all import duties (parts and vehicles) — this being the pinnacle of localisation.

The amount of R17bn (the assembly and LVA duties combined) is not “foregone” customs revenue as there would be lower duties and nothing to protect if the APDP did not exist. For example, Australia’s duty on imported vehicles is 5% and in SA it is 25%, and that is why Australia no longer has an auto industry.

Nothing has been “foregone” in SA as vehicle assembly would not exist without the APDP policy and duties would be lower. Also, locally assembled vehicles are not more expensive because of APDP as import duties are rebated — it’s an offsetting policy.

The amount of R18bn is fictitious as it is calculated on the “foregone duty” on imported parts re-exported in locally built-up vehicles (65% of local production was exported in 2023 with a positive balance of payments for the seven original equipment manufacturers).

Yet without APDP there would be no imported parts for re-export and no duty to collect anyway. It is also general policy not to apply duty on goods that are not consumed in the country. Why this is in the calculation brings serious doubt as to what else is incorrectly calculated by the Treasury.

Poorly informed detractors of the auto industry in SA conveniently quote the costs but never the value addition. The seven original equipment manufacturers invested in SA created LVA of R137bn in 2023, as audited by both the SA Revenue Service and the International Trade Administration Commission of SA, which issues the duty rebates. This is based on the ex-works value of local vehicle production less all imported parts in the supply chain.

The result is a multiplier of four times the so-called R35bn cost, but is actually 21 times if the calculation is done by an economist and not an accountant.

Henry Pretorius
Via email

JOIN THE DISCUSSION: Send us an email with your comments to letters@businesslive.co.za. Letters of more than 300 words will be edited for length. Anonymous correspondence will not be published. Writers should include a daytime telephone number.​