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South Africa Government’s Support Of The Automotive Industry: Prospects Of The Productive Asset Allowance

886 words - 4 pages

Economics

Executive Summary

South Africa Government’s Support of the Automotive Industry: Prospects of the Productive Asset Allowance

Index
Introduction p. 3
International Competitiveness p. 3
Productive Asset Allowance p. 3
PAA applications and claiming process p. 4
Investment under the PAA p. 4
Global Integration p. 5
Conclusion p. 5
Reference list p. 6

Introduction

In 1995 the protective measures guarding the automotive industry were lifted and replaced by investment incentives, in an attempt for gradual liberalisation. The Productive Asset Allowance (PAA) is a fiscal incentive on investments made in the ...view middle of the document...

It is nevertheless vital for future competitiveness, especially in this technologically driven industry.

Productive Asset Allowance

The PAA is an import rebate. Registered light motor vehicle manufacturers, as well as component manufacturers can benefit from this rebate. The PAA’s rationalisation requirement is aimed towards making the manufacturing process of light motor vehicles less dependent on imports. To qualify for this rebate, vehicle manufacturers were required to undergo some changes. The vision was to promote local industry competitiveness by means of mass production of a reduced number of models. While this effectively reduced average production costs, the penetration of imported vehicles provides evidence that higher production volumes do not necessarily translate into industry competitiveness.

PAA applications and claiming process

Applications have to be supplemented by a five-year business plan and financial projections. This information is important since it will, along with an engineer’s report and an external auditor’s unqualified statement, be used to make a decision, whether or not to issue certificates. If performance deviates too much from the information submitted during the application stage, certificates may be terminated.

Investment under the PAA

The PAA incentive has been successful in attracting a wide range of investments, which summed up to R10.5 billion by 2004. Most of these investments however, were in plant, machinery and tooling. The PAA has little influence on R&D since industry manager’s concern for current profits seem to far outweigh their concern for future competitiveness. R&D is necessary to be able to keep up with the continuous improvement in technology of global competitors. Without it, South Africa will not be able to become more globally...

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