|Frank Flatters: The SA Motor Industry|
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SA Industrial Policy: The Motor Industry
South Africa's Motor Industry Development Program (MIDP) was launched in 1995 and was extended recently as the Automotive Production and Development Program (APDP).
Many regard these programs as a great success. The government continues to draw on them as a primary model for future industrial policies. My research suggests that benefits have been overestimated and costs, when recognized at all, have been hugely underestimated.
This page provides links to stories and articles on MIDP and APDP. Most of them appeared between 2005 and 2009.
My Own and Related Stuff
A brief critique in South Africa's Business Day of government support for the motor industry summarized the conclusions of much of my work over the previous ten years.
My work first attracted public attention in 2005 with a presentation and report on the economics of MIDP. See a front page story and lead editorial in Business Day, reports in the Afrikaans language papers Beeld and Rapport, a long extract in the Mail and Guardian, and a report in the Financial Mail. A Mail and Guardian article on vehicle sales and prices provoked an online discussion of car prices.
My case study of the motor industry for a UCT trade and poverty project focused on poverty implications. The September 2006 Geekonomics column anticipated the MIDP Review report, and my Blog post commented on views from the industry.
A set of articles in the Mail and Guardian drew on a 2006 report by Matthew Stern and myself to illustrate further MIDP perversities arising from the SACU revenue sharing formula. My Blog post of July 2007 commented further and corrected an error in the M&G piece.
An article in the July 30 2007 Business Day and an editorial the next day drew on my 2005 paper to comment on the absence of economic underpinnings for the dti's industrial policies. The Mail and Guardian used the MIDP as an example in its unflattering review of the dti's new industrial policy strategy.
The OECD's first Economic Survey of South Africa included a box on MIDP that drew on my analysis to illustrate the dangers of government capture by firms that depend on industry-specific support. In a related press conference the Minister of Finance emphasised the importance of proper economic assessment of all industrial policy measures.
An explanation of the APDP by the dti's two principal consultants provoked my late 2008 article and Blog posting.
Details of APDP remain a secret shared only the motor industry and the dti. However, based on available information I have updated some of my earlier analysis. Recent (2009) presentation notes provide a brief summary.
Here are the web sites of NAAMSA and NAACAM, the two main industry associations.
See the Competition Commission press release and research report on car prices.
See Barnes, Kaplinsky and Morris views on car prices; and Dave Kaplan's comment.
Here is a sympathetic interpretation of MIDP by Barnes, Kaplinsky and Morris (a very different interpretation than mine).
This is Dave Kaplan's paper on SA industrial policy and MIDP.
See a reader's letter to Business Day re MIDP; and a response by NAACAM’s executive director.
See this heated online discussion of government policy and car prices.
Here is a news report on the dti's stance on the not-yet-released MIDP review.
Read Business Day’s editorial on the need for an independent review of MIDP – my candidate for editorial of the year.
Here is a brief description of Australia's Automotive Competitiveness and Investment Scheme (ACIS), the final phase of the program on which the MIDP was modeled. It provides modest production and investment-linked subsidies and a phase down of its import tariff from 10 percent now to 5 percent in 2010. The South African tariff is still 30 percent – still a long way to go before encouraging competitiveness.
A Business Report story says the industry continues to hope for huge subsidies to sustain “competitiveness.” See my Blog post of 9 May 2008 for a comment.
Here is a report on Ford's decision to shift production of its Focus sedan to Australia. Despite large MIDP incentives they prefer to move to a country where the main incentive is an import duty of only 10 percent, falling to 5 percent in a few years. (See links to Australian program above.)
Business Day gives a wonderful description of the outdated vehicles that continue to be protected in the SA market.
Here are an article and an opinion piece in the Financial Mail in late July about failures in MIDP policy design, but with a motor industry perspective.
A news story, an interpretive article and an editorial in Business Day in late July draw on my 2005 paper and point to the absence of economic foundations for policy planning in the motor industry.
The dti announces that MIDP will give current levels of support until 2020, another 8-year extension. Where are the sunset clauses and the economic analysis promised in the “new” industrial policy unveiled a few days ago?
An opinion piece in the Mail & Guardian blasts the dti's new industrial policy strategy, using the MIDP as a case in point.
The dti provides “policy clarity” by announcing that the MIDP review process that began in 2005 will result in some actual policy announcements by August 2008.
In a press conference launching the OECD's first Economic Survey of South Africa (2008) the Minister of Finance is asked about possible differences between National Treasury and the dti. He stresses the need for proper economic assessments of all industrial policy measures prior to their approval. See the OECD's box on MIDP and the Engineering News report and video clip.
Tim Cohen anticipates the dti's new program. The article attracts some good comments (after end of article).
The dti announces the outcome of its MIDP review. The program is renamed the APDP (Automotive Production and Development Program). Industry support will be extended until 2020. The incentives will be tweaked to make them more “market neutral” and WTO-compatible. The announcement is sparse in details. There are no estimates of overall costs or of the magnitude of subsidies to be provided. No background studies have been released.
An article by the dti's principal consultants explains the APDP. A letter to the editor, and my own column and November 2008 Blog posting highlight the lack of transparency and accountability in the policy process, and question the long run competiveness of the industry as well as the rationale for and costs of public support. An invited opinion piece gives NAAMSA's response.
Within months of the announced extension of support the industry was asking for more -- now in the form of “bailouts” to assist in coping with collapsing demand for motor vehicles. The first of a series of articles in Financial Mail is typical of the media coverage, and a remarkably candid report of an interview with the head of NAAMSA shows some of the difficulties in justifying further support.
BMW's international CEO warns about the dangers of bailouts in the motor industry – how they support non-competitive firms at the expense of competitive ones.
Which company was the largest beneficiary of the government’s emergency “training layoff” scheme? You guessed it – one of South Africa’s most “competitive” (and heavily subsidized) companies, BMW SA; even though, according to this report the company never had any intention to lay off any workers.
See this video for a fine example of “cutting edge,” “critical” “investigative” reporting on the motor in industry in South Africa – or rather the opposite.
My brief critique of government support for the motor industry drew considerable attention. Trevor Manuel's article provided an elegant and thoughtful discussion of the difficulties with sector specific bailouts.