1. MIDP Transition to APDP: Impact on Component Manufacturing

2. Many different categories  OE suppliers with high localisation  OE suppliers sub-assembling imports  Exporters – “vulnerable” and other  Replacement parts producers  Those using “standard” materials  Any combination of the above

3. 1. An allowance (D-FA) for OEMs to import components duty- free for vehicles produced and sold locally. 2. Export incentives, through the ability to earn credits to rebate import duties, based on the local content of:  Vehicles (some indirect benefit to OE component manufacturers, but only where volumes increased; but also complexity)  Components initiated by OEMs to earn credits  Components and aftermarket parts developed by local component manufacturers

4. 1. An allowance (VAA) for OEMs to import components duty-free for all vehicles produced locally. 2. Production incentives for all vehicles, with all incentives earned by OEMs 3. Component exports for OEMs to earn credits 4. Independent component exports earned by the manufacturer (not the exporter) 5. Aftermarket parts for the domestic and export markets, earned by the manufacturer

5.  For OEMs: + VAA for vehicle exports and PI for the domestic market vehicles  For OE suppliers: …..nothing  For component exports initiated by OEMs: no real change, suppliers “cede” benefits to OEMs  For suppliers’ own exports: no change  For aftermarket producers: + PI on local aftermarket sales

6.  OEMs earn significantly more credits on vehicles produced  Exports of “vulnerable” components – most of the high value MIDP exports – many earn the same, but reducing, some already less  Exports of other components earn much less  “Standard” material classification encourages beneficiation of local materials (but less than MIDP)

7.  Those that export on their own and those producing aftermarket parts are generally happy  Those that export for OEMs are mixed  Those that primarily supply local OEMs are generally not happy

8. Despite the fact that there is a new production incentive for OEMs to localise…  The incentive gets given to the OEM  Some OEMs do not recognise it because of their internal policies or procedures  The suppliers have to do significant administration – even hire people – to prepare the documentation for the OEM’s incentive  Vehicle production in SA is still very low

9. The positive financial considerations are:  Duty saving (but only on part of production)  Logistics saving  Production Incentive Offset by:  Tooling cost  Local Price Premium  The OEM may have surplus credits

10. Some suppliers have closed:  Replaced by new foreign suppliers  Lower requirement for exports or localisation by OEMs who have more credits Some have prospered, particularly aftermarket parts producers Others survive and are working hard to improve

11. Incentives can be adjusted to encourage: 1. Higher Vehicle Volumes ◦ through the VAA 2. More Localisation ◦ through the Production Incentive ◦ through the AIS But the APDP cannot fix the “country cost” issues such as ports and rail, electricity, monopolistic suppliers, wages and strikes, skills – government must play a large role in most of these, otherwise our targeted growth cannot materialise

12.  Competition, particularly from Asia, is relentless  OEMs and suppliers have to drive down costs  Local inflation, monopolies and labour issues make it difficult for us in South Africa  Only much higher volumes will drive global competitiveness  The industry will continue to need government support and protection – particularly since other countries do the same