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APDP improves Benefits to the Motor Industry in South Africa

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The APDP, or Automotive Production and Development Programme, was introduced in South Africa in January 2013. This new initiative entails a plan to improve and add to the benefits offered to the industry under the terms of its predecessor, the Motor Industry Development Programme or MIDP. The replacement scheme is seen as potentially more effective in that, as well as benefiting new vehicle production, it should also act to extend and diversify the country’s vehicle components supply chain.

Other improvements introduced under the revised programme are aimed at boosting new vehicle production too.  The Department of Trade and Industry believes that, with the support of the APDP, we could see South Africa producing as many as 1.2 million vehicles each year by 2020. When one considers that last year the annual production stood at just a little over half a million, it is clear that the DET is pretty confident that the significantly more generous concessions available to manufacturers can turn what may have once been a pipedream into a very profitable reality.

Throughout the world, a country with a thriving motor industry has long been perceived by potential investors as offering a more attractive prospect than one lacking this facility. There is, therefore, every hope that by encouraging the growth of this strategic manufacturing sector, the APDP could also serve to provide a boost in unrelated sectors of the economy in South Africa and not just in the satellite businesses that inevitably stem from vehicle production.

One particularly significant aspect of the plan is that it is not aimed wholly at boosting exports as is frequently the case in government-sponsored schemes in other countries. Instead, the increase in the benefits now applicable to vehicles for domestic use is expected to act as an important driver in attaining the new annual production goal.

In its current form, the elements that will be driving the APDP initiative in South Africa are fourfold.  However, while these will be retained, the DET makes it clear that the programme’s effectiveness will be monitored continuously and that changes to the provisions of these four pillars may occur if seen as more conducive to achieving its goals. Of the four pillars, two take the form of rebates while the remaining two address customs tariffs and cash investments respectively as explained below...

Import Duty

Under the programme, tariffs applicable to imported vehicles and components have been frozen at the 2012 rates of 25% and 20% respectively and will remain in force until 2020 while encouraging EU vehicle imports with a preferred rate of 18%. APDP thus ensures that the tariffs applied in South Africa, already lower than those in most developing countries will remain highly competitive.

Vehicle Assembly Allowance

In short, the VAA is a rebate extended to local vehicle assemblers and takes the form of duty-free credits calculated on 20% of their ex-factory vehicle prices. It is applicable whether they are intended for export or for local purchase and represents a considerable improvement on the allied concessions offered under the old MIDP.

Production Incentive

Also a form of rebate involving duty-free credits, both the PI and VAA reduce by 1% annually. Upon the implementation of the APDP in 2013, vehicle assemblers in South Africa qualified for a production incentive of 55%. The figure now stands at 53% and will ultimately be fixed at 50%. Interestingly, it is possible that compliant assemblers could find themselves with surplus credits and so the programme makes provision for these to remain valid for use during the next quarter.

Automotive Investment Scheme

The AIS is designed to provide an injection of cash for vehicle and component manufacturers that are able to meet the scheme’s pre-requisites. In the case of vehicle manufacturers, those with an annual production of 50,000 units or the potential to achieve that within 3 years will qualify. Component manufactures must be part of the OEM supply chain and attain certain prescribed turnover targets.

APDP offers substantial benefits to the automotive industry and, as a result, to South Africa and its population in general. It is equally clear that this is a complex programme with many facets and that it can be difficult for potential beneficiaries to identify their eligibility for its provisions as well as the means by which to claim them.

BCE Consulting has the knowledge and the experience to assist our clients in these areas and all matters relating to the APDP in South Africa.

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Guest Sunday, 19 August 2018