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Naacam
NAACAM’s response toAPDP Key Strategic Issuesraised by the automotive industry stakeholders(Naacam, Naamsa, Numsa & The dti)
19/06/2014

Naacam
From NAACAM’s viewpoint, understanding the key factor which prevents the achievement of the objectives of the APDP is an important starting point:
The main objectives of the APDP are:Significantly grow vehicle production in South Africa (target 1.2 million vehicle production)Increase local value addition in the automotive supply chainIncrease employmentThe first important question is: why are these objectives not being met fully?The main compelling reason mooted by the major players within the industry is lack ofCOMPETITIVENESS.What are the causes of the automotive industry’s lack of competitiveness ?
19/06/2014

Naacam
Why are OEMs un-competitiveHigh level of imported componentsLimited number of units produced(lack of economies of scale)
Why can’t OEMs increase localisation of componentsLack of local supplier competitiveness
Why are the suppliers un-competitive?
19/06/2014

Un-packing the lack of competitiveness in the automotive industry:
Naacam
19/06/2014

Un-packing competitiveness:
SOUTH AFRICA’S SUPPLIER COST PERSPECTIVEVS THAILAND:
WHY ARE THEIR COSTS ARE LOWER?
Naacam
NAACAM’S SET OF KEY PROPOSALSTO DRIVE COMPETITIVENESSproposals not based not by a top-down approach(awaiting for the production level to increase to the agreed objective of 1.2 million units per annum through the elimination of numerous stumbling blocks –see attachment)butfrom a bottom-up perspective(which increases the competitiveness of the automotive industry through the compensation of the negative impact of the local high ‘country costs’ and limited economies of scale)
19/06/2014

Naacam
DRIVING SUPPLIER COMPETITIVENESS IS KEY TO GROWTH:
APDP should drive competitiveness as its main objective. Only once vehicles and components can compete on an even keel with low cost countries can we drive the APDP growth objectives, thus creating employment.This can only be achieved if the APDP aims,in some form or another, to offset the disadvantages associated with manufacturing in South Africa. These disadvantages include and are not limited to:
19/06/2014

Naacam
19/06/2014

THE APDP OBJECTIVES:Significantly grow vehicle production in South Africa (target 1.2 m vehicle production)Increase local value addition in the automotive supply chainIncrease employmentTHESE OBJECTIVESARE TO BE ACHIEVED THROUGHDRIVINGCOMPETITIVENESS
Naacam
19/06/2014

OBJECTIVES ACHIEVED THROUGH DRIVING COMPETITIVENESS
Naacam
19/06/2014

ACHIEVED THROUGH DRIVING COMPETITIVENESS
Naacam
19/06/2014

Summary of NAACAM proposals: “Competitiveness is key”:Doing business in South Africa comes with a “Cost Penalty” which can be classified as “Country Costs”. Further to this, the low economies of scale directly impact on the ability to be competitive. The majority of these factors are outside the control of the South African organisations.In order to increase localisation and thereby increase employment, ways of offsetting this “Cost Penalty/Country Costs” have been considered. These include:Increasing the Supplier “PI”, on average, from 6.5% of turnover to the level of the “Cost Penalty / Country Cost” which is estimated at 15% of turnover.Within the current APDP system, increasing the “PI” would just increase the ability to offset duties, which works in direct contradiction to the objectives of the APDP. We therefore strongly suggest that the supplier “PI” be a cash grant, rather than a PRCC certificate.The other hindrance to increasing localisation is the low economies of scale. Ways to level the playing field with respect to volume produced have been considered. The following proposals are suggested:Increase the Tooling AIS to 75% (Objective: same tooling amortisation per part as competing countries)Increase the Facility AIS to 45% (Objective: offset low efficiency caused by low economies of scale & offset the cost of importing facilities)The above proposals require funding and it is understood that increasing the burden on the Fiscus is not an option to be considered. It is therefore proposed to increase the ‘penalty’ for importation and increase the GAP between CBU and CKD imports. We donothowever support just increasing duty rates. A better solution would be to create a new Levy that will fund the above initiatives. This new levy of 10% on CBU and 5% on CKD should be sufficient to fund the initiatives to offset the “Cost Penalty/Country Costs” and fund the increased requirement for AIS to offset the low economies of scale. This levy can also be used to fund employee training in the industry.The above proposals will drive robust competitiveness, which in turn will deepen localisation, leading to increased volumes, and will result in driving increased employment. Most importantly, this proposal is self funding and will not cost the Fiscus more in support.Further to the above, NAACAM also proposes ways of sustaining the duty pool, of reducing the ability of the OEMs to become duty neutral, and ways to stop cross subsidisation.
Naacam
Thank you for your attention.
19/06/2014

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