The Department of Trade and Industry will review the motor industry development programme with assistance from the Australian government next year and, according to Econometrix economist Tony Twine, changes to the MIDP are bound to be extensive.

The Department of Trade and Industry will review the motor industry development programme with assistance from the Australian government next year and, according to Econometrix economist Tony Twine, changes to the plan are bound to be extensive.

The DTI said yesterday that the review would be launched in the first quarter and would be completed, after consultation with representatives from the manufacturing and labour sectors of the motor industry, among others, in December 2006.

South Africa and Australia had agreed to establish a "co-operative process in which Australia will share its experience with South Africa during the upcoming review of the MIDP".

This followed after both governments discussed developments in their automotive industries, which were focused on developmental measures supporting the industry.

"The objective of our co-operation in the review is to strengthen and modernise the MIDP (which rewards local manufacturers for exports with a discount on imports, based on local content in the exported product) and ensure that the South African automotive industry continues to enhance its already significant contribution to the South African economy by continuously improving its capacity to compete globally in a sustainable manner, and over the long term," it said.

A special task team created by the Motor Industry Development Council (MIDC) was collecting data on the industry to feed into the review, which will focus on job creation in the automotive industry and vehicle affordability, among other issues.

’Reduction in export incentives expected’

But sources said the MIDP, which was based on the now-suspended Australian automotive industry assistance programme, was likely to be amended to reduce support to the industry, given Australia's concerns and the fact that the programme defied the spirit of the World Trade Organisation (WTO).

Earlier this year, General Motors’ Austalian subsidiary, Holden, switched from buying leather trim from an Australian company to a South African supplier, prompting the company that lost the contract to lodge a complaint with Australia's government.

The Australian government then threatened to bring the MIDP before the WTO and there were fears that the programme might be scrapped because it was seen as a form of subsidisation.

Naamsa executive director Nico Vermeulen said he believed the complaint had been resolved in discussions between the two governments, adding that the review announcement was in line with expectations and a recommendation to the government by the MIDC, which represents all industry stakeholders.

‘Review will be comprehensive’

Speaking to on Wednesday, Twine said that a review of the stipulations of the MIDP, which was said to have had its final extension from 2008 to 2012, was inevitable as the programme headed into its phase-out period.

“The fact that the review will be the product of a two-year process of extensive consultation within the motor industry, indicates that the changes to the MIDP will be significant and that the benefits of the programme to the industry will in all likelihood be sequentially scaled down,” Twine said.

Even though South Africa only produced 0,7 per cent of global vehicle output, subsidisation, which many regard the MIDP to be a prime example of, is a burning issue in global trade.

The automotive sector contributes almost six per cent to gross domestic product and vehicle exports have increased at an average annual rate of 38 per cent since 1995, reaching R40 billion in 2002.

Given the current weakness of the dollar/strength of the rand and growing competition from manufacturers and suppliers in overseas markets, would most automotive producers in South Africa remain profitable without the MIDP in the future?

“The MIDP has in general achieved what it was set out to do… it perhaps did not generate as many jobs as many expected, but it some cases it helped to save jobs,” Twine said. “It (MIDP) was never expected to continue forever and industry is aware of that… It can be argued that if the MIDP in itself is the sole reason certain people are in business. That is not necessarily a good thing”.

Original article from Car