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In 2000 the South African Government introduced an investment incentive for the automotive industry, the Productive Asset Allowance (PAA). This was intended to support the objectives of the Motor Industry Development Programme (MIDP). This paper presents an empirical assessment of the PAA's prospects for supporting the competitiveness of South Afri...
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Context 1
... the period 1998 to 2004, investment in plant, machinery and tooling constituted more than 80 per cent of the vehicle manufacturers' total annual investment. Investment in support infrastructure that included R&D was less than 10 per cent of total expenditure (Table 2). Land and buildings accounted for the rest of the investment. ...
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Citations
... Within EV component manufacturing, government support schemes, such as subsidies, tax incentives, grants for research and development, and workforce training programs, can significantly boost the manufacturing sector. These schemes can lower operational costs, promote innovation, and improve skills, leading to business expansion and increased employment [64]. Government support schemes are also important to support investment in EVs as per the Automotive Investment Scheme outlined by the Department of Trade, Industry and Competition [65]. ...
The transition to electric vehicles (EVs) will require significant changes in the automotive industry, particularly concerning its labour force. This study evaluates the impact of EVs on employment within South Africa’s automotive component manufacturing sector. A system dynamics model was developed to assess the effect of EV market penetration on component manufacturing employment over time. Key drivers of employment in the conventional and the EV component industries were identified and incorporated into the model. The results indicate a negative impact of EV penetration on employment of 18.3% when considering 20.0% EV sales (EV20) in 2040. Scenario analyses highlighted the influence of individual components, battery localisation, and load shedding on labour. Tyre and wheel manufacturing was found to be the most labour impactful component in the conventional industry against electrical engines in the EV counterpart. Localising 25.0% of battery production could increase employment by 6.9% and 2.7% in the EV40 and EV20 Scenarios. Load shedding has a detrimental effect on the country’s economy, assumed to reduce employment by 30.0%. However, strategic industry and policy interventions can mitigate the adverse effects of this transition.
... The PAA was intended to support further efforts to make the domestic industry competitive in the long term. Investment qualifying for the PAA was widely defined to include capitalized R&D expenditure (Kaggwa et al., 2007). ...
... Under the PAA, only investment in new and unused productive assets qualified for benefit (Kaggwa et al., 2007). The value of assets qualifying for the PAA was therefore a proportion of total industry investment that was captured by the equation: ...
... The PAA was intended to support further e®orts to make the domestic industry competitive in the long term. Investment qualifying for the PAA was widely de¯ned to include capitalized R&D expenditure [Kaggwa et al. (2007)]. ...
... Under the PAA, only investment in new and unused productive assets quali¯es for bene¯t [Kaggwa et al. (2007)]. The value of assets qualifying for the PAA is therefore a proportion of total industry investment that can be captured by the equation: ...
Investment in state of the art machinery and tooling and in R&D is widely seen as a prerequisite for achieving industry competitiveness in the long term. Investment-based incentives that countries provide for these inputs are perceived as a way of supporting industry competitiveness. Despite this being a global phenomenon, there is no formal process to guide the offer of these incentives. The process of designing such incentives is often based on internalized judgment rather than on formal models making it difficult to assess such interventions objectively and to improve on them. Specific to South Africa, the offer of incentives to the automotive industry to support its competitiveness has had mixed results. In particular, investment in R&D has remained minimal. The paper presents a system dynamics model as a proposed instrument in formalizing the offer of incentives, applied to the South African government's offer of incentives to the automotive manufacturing sector. The model was developed from qualitative and quantitative information on how the incentives had been structured. Simulations of the model reveal that the incentives model, as a stand-alone intervention, had a significant and positive effect on industry investment, but had no specific policy lever to direct investment into R&D and subsequent innovative activities. By this measure, the incentives model has not been a strong policy framework for supporting long-term industry competitiveness.
... The MIDP strategy was to rationalize the industry by reducing the number of models produced locally. It was envisaged that rationalization would lead to reduced average costs by creating economies of scale that would lead to industry competitiveness [8]. To compensate for the discontinued models and for the lowering of import duty on automotive imports, an Import- Export Complementation (IEC) arrangement and a special Duty Free Allowance (DFA) dispensation for the industry were instituted. ...
... The PAA benefit was spread over a period of five years. Productive assets qualifying for the PAA were defined broadly to include capitalized research and development (R&D) [8]. The PAA was intended to further motivate investment in the industry and enhance the industry's contribution to national economic growth through increased international competitiveness, productivity and employment. ...
Using selective industrial policy, South Africa succeeded in re-integrating its previously protected automotive manufacturing industry into the global value chain. In the period 1995 to 2006, the industry experienced significant growth in both vehicle production and exports. Despite these successes, the future of automotive manufacturing in South Africa, as in most other developing countries, is not certain without continued government incentives. The paper presents an assessment of South Africa's automotive industry support model in terms of sustaining domestic manufacturing, using a qualitative system dynamics model. A key finding is that the industrial policy did not sufficiently take into account systemic interdependencies and feedback effects within the industry that influence intended outcomes. Technology and innovation were not given prominence in the policy formulation and implementation process. It is concluded that to put South Africa's automotive manufacturing industry on a sustainable growth path, the selective industrial policy has to be complemented with a technology policy.
This book critically examines the persistence of market orthodoxy in post-apartheid South Africa and the civil society resistance such policies have generated over a twenty-five-year period. Each chapter unpacks the key political coalitions and economic dynamics, domestic as well as global, that have sustained neoliberalism in the country since the transition to liberal democracy in 1994. Chapter 1 analyzes the political economy of segregation and apartheid, as well as the factors that drove the democratic reform and the African National Congress’ (ANC) subsequent abandonment of redistribution in favor of neoliberal policies. Further chapters explore the causes and consequences of South Africa’s integration into the global financial markets, the limitations of the post-apartheid social welfare program, the massive labour strikes and protests that have erupted throughout the country, and the role of the IMF and World Bank in policymaking. The final chapters also examine the political and economic barriers thwarting the emergence of a viable post-apartheid developmental state, the implications of monopoly capital and foreign investment for democracy and development, and the phenomenon of state capture during the Jacob Zuma Presidency.
Shaukat Ansari received his PhD in Political Science from the University of Toronto, Canada, and has published in several peer-reviewed journals, including African Affairs, Review of Political Economy, and International Critical Thought.
The automotive industry is used as a case study to examine why the attempts by the post-apartheid state to channel private investment along the lines of developmental states under conditions of globalisation have been not successful. Instead of building a developmental state, the post-apartheid state elite has built a nanny state which simply provides handouts to transnational companies.
The development of a specific industry could enhance a countrys economic growth by facilitating its global positioning. Some industries may require government support to enable meaningful economic contribution. The South African government provided support to its automotive industry via the Motor Industry Development Programme (MIDP) since 1995. The MIDP ended in 2012, and is being replaced by the Automotive Production and Development Programme (APDP) from 2013. The APDP will extend support to the South African automotive industry until 2020. The motivation for the extension is to continue providing support to South Africas automotive industry in its attempt to become a sustainable global competitor with reduced reliance on government support. This article analyses the opinions of relevant stakeholders on the anticipated performance of the South African automotive industry under the APDP. It was motivated by the fact that there is currently no research available on the anticipated performance of the South African automotive industry under the APDP. It also highlights the link between stakeholders opinions and the documented performance of the MIDP as well as the design of the APDPs policy instruments. Data was gathered by using a survey that was distributed to relevant stakeholders in the South African automotive industry. The results show that where there is policy uncertainty, the perceived risk impacts the opinions of relevant stakeholders. Consequently, there is much uncertainty among participating stakeholders regarding the APDPs ability to satisfy policy objectives. The majority of stakeholders agreed that the APDP is a World Trade Organization compliant programme and that it will facilitate increased research and development spend. However, there are reservations about the possible negative impact of the APDPs policy instruments on the South African automotive industrys exports as well as the future of the local automotive components industry. It is therefore recommended that governments should ensure that policy design is transparent and is finalised and communicated early enough to afford relevant stakeholders sufficient time to respond appropriately.
Under what conditions does capital in the age of globalization accept state regulation of markets instead of exercising its
‘exit option’ and shifting assets to less restrictive markets? This article explores this question by analysing local and
foreign capital's compliance with the South African government's policy of seeking to transfer 25–30 percent of equity and
management in white-owned companies to blacks in all sectors of the economy by 2014. This is part of government's overall
policy of black economic empowerment (BEE) to foster the emergence of a black capital-owning class. The article argues that
the relative vulnerability of states and markets to globalization pressures compels states and markets to reach a ‘fateful
compromise’ that enhances state autonomy to regulate markets while also advancing the interests of capital.
Investment in the state of art machinery, tooling, and R&D is widely seen as a prerequisite for achieving industry competitiveness in the long term. Therefore, the provision for investment-based incentives by countries is perceived as a way of supporting industry competitiveness. Despite this being a global phenomenon, there is no formal process to guide the offer of industry incentives. The process of designing such incentives is often based on intuition rather than on formal models, making it difficult to assess such industry interventions objectively and to improve on them. Specific to South Africa, the offer of incentives to the automotive industry to support its competitiveness has had mixed results. In particular, investment in R&D has remained minimal. The paper presents a system dynamics model as a proposed instrument in formalising the offer of incentives, applied to the South African governmentpsilas offer of incentives to the automotive manufacturing sector. The model was developed from qualitative and quantitative information on how the incentive dispensation had been structured. Simulations with the incentive model reveal that the incentive dispensation, as a stand-alone intervention, has had a significant and positive effect on industry investment, but has had no specific policy lever to direct investment into R&D and consequent innovative activities. By this measure, the model has not been a strong policy instrument for supporting long-term industry competitiveness.
