Mov in g Matters
provisions include the refund, by non-taxable cash grant,
of 20% of the value of qualifying investments made by
commercial vehicle manufacturers in productive assets, or 25%
of equivalent investments by component manufacturers and
tooling companies, both over a three-year period. Additional
5% and 10% cash grants are also to be available if participants
are able to demonstrate required levels of employment
continuity and the advancement of local industry capacity.
Qualifiers for the additional discretionary grants include
increases in production volumes of up to 30% during the
incentive period.
In order to qualify for the programme, truck and bus
manufacturers must assemble vehicles locally to a minimum
Moving Matters
Comment
W
e were quite surprised at the apparent lack of
public domain reaction to the publication of the
MHCV-AIS document. In their comment, NAAMSA
identified two goals for the scheme, firstly the encouragement
of manufacturers currently assembling commercial vehicles to
increase localisation and employment levels through added
value, and, secondly, the conversion of organisations currently
importing fully-built-up vehicles into SKD local assemblers.
In a subsequent comment, Toyota South Africa Motors
president and CEO, Dr. Johan van Zyl, expressed the view that
increasing the level of truck local content would not be easy,
and that local cab assembly is not a viable option. While noting
that NAAMSA, of which he is also president, was continuing
to engage with the DTI on the MHCV-AIS, he expressed the
opinion that the scheme’s main thrust should be to support the
wider adoption of local assembly among vehicle importers.
From our perspective, it is important to understand, first
off, that this is not a local content programme, but only
an incentive for new investment in vehicle assembly or
component manufacture activities. There are no additional
penalties for manufacturers and importers who elect to
continue importing vehicles in CBU condition. The decision
to invest in local assembly remains, therefore, completely
voluntary, and can be made on economic grounds. The fact
that both locally assembled and imported vehicles currently
compete in the South African market also suggests that the
present level of import duties imposed on the latter are not
unduly punitive.
Given that the gestation period for the introduction of new
products is fairly long (usually up to 3 years from project
finalisation to local introduction), the 180 day processing
period of applications before start of production appears to
be very short. In that short period, intending participants will
need to ensure that they qualify for MHCV-AIS incentives,
| logistics in action
defined extent, and component/bus body manufacturers must
prove the existence of a supply contract, and reach a specified
turnover percentage target. Participation in the Scheme is subject
to prior approval of the applicant’s business case by the DTI.
Readers should please understand that this is only an extremely
brief précis of a very long document for the purpose of discussion.
The unabridged MHCV-AIS document is available for detailed
scrutiny on the Internet (Google search “MHCV-AIS”). Please note
also that vehicle manufacturer applicants for benefits under this
scheme must carry out local assembly to defined levels of knockdown, make application to the DTI not earlier than 180 days, and
not later than 120 days, before commencement of subject vehicle
production, and meet a minimum project investment threshold of
R30 million.
long after fundamental commitments have been made
to overseas principals, in order to evaluate the viability
of their projects. Negative responses from the DTI could
then lead to disruptive “go-no go” decisions being made
very late in the run-up period before local production is
due to commence. From perusal of the lengthy detail,
it also appears that qualification for the supplementary
5 and 10% grants will be quite onerous, and require
the exchange of substantial amounts of confidential
information between the manufacturer and the DTI.
It is not surprising that the process of developing new rules
for medium and heavy vehicles, since the programme was
first mooted in 2010, has been long and difficult, given the
country’s unfortunate experience under the earlier Local
Content Programme (LCP) for trucks and buses that was
terminated in 1994. That regime resulted in South Africa
having some of the most expensive trucks in the world!
In developing the new programme, the practicalities
imposed by the relationship between the small South
African market (only around 1% of the global total), and
the overseas source plants providing critical components,
have to be recognised.
The truth is that the “inconvenience” factor,
which enters the picture when any source
plant’s production processes are unduly
interfered with by a relatively small number of
export vehicles, can add considerable cost to
the finished product. In our view, the MHCVAIS, as mooted by the DTI on July 1st, is still
some distance away from the finished
product, and we are not surprised
that discussions with NAAMSA are
continuing.
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october 2014
moving matters
Although somewhat lengthy, the essence of the MHCV-AIS