09 May 2007

South Africa's MIDP

South Africa's Motor Industry Development Program (MIDP) has been one of my favorite topics recently. The Department of Trade and Industry (DTI) and the motor industry have been remarkably quiet as the country awaits the release of the MIDP Review (due sometime last year) and the government's future policy framework for this industry.

However, an industry representative was reported yesterday as saying that government support of the industry is "below par" relative to other countries and will have to be improved in order to make the industry competitive.

How much support has the MIDP given the industry? Answers to this basic question are difficult to obtain. I have estimated that typical subsidies to motor vehicle and/or components manufacturers range from 260 to over 650 percent of the size of MIDP-supported investments.

Support to the motor industry from export subsidies and import duties has almost certainly exceeded R100 billion over the life of the program so far. The cost to consumers has been similar. How can an industry that relies on such levels of support expect to become "competitive"? Surely the solution is not to give even more subsidies.

Australia, after whose program the MIDP was initially modelled, is entering the final phase of its "Automotive Competitivness and Investment Scheme." This program provides modest production and investment-linked subsidies and a phase down of its import tariff from 10 percent at the moment to 5 percent in 2010. The South African tariff is still 30 percent—a long way to go before encouraging competitiveness.

For more on this, including a link to the news story in question, see the Features page of my website.