The APDP - Summary, Comment & Review

The Automotive Production and Development Programme (APDP) replaced the Motor Industry Development Programme (MIDP) on January 1st, 2013.

Please note that this program applies to light vehicles only, and that there are separate regulations to support future heavy vehicle production, which are covered at the end of this article.

The APDP consists of 4 pillars that will drive the programme:
- Import Duty
- Vehicle Assembly Allowance (VAA)
- Production Incentive (PI)
- Automotive Investment Scheme (AIS)


Tariffs: Import duties on vehicles and components will be frozen at 2012 levels (25% on light vehicles and 20% on components) through to 2020. A preferential agreement will result in imported vehicles from the EU paying only 18% duty.

Comment: Because of the continual increase in imported vehicle share of the market, there are many who have called for an increase in these duties, particularly as South African tariffs are lower than those in most developing countries. Furthermore, these duties can be rebated under the APDP, similar to the MIDP, so effective protection can be as little as zero.


It should also be noted that the United States protects its large pickup market with a duty of 25%, which is even higher than in South Africa as it is based on the CIF price as opposed to FOB.  NAACAM believes the government should reconsider the nominal and real protection for both vehicles and components.

Vehicle Assembly Allowance (VAA): This support is in the form of duty-free import credits issued to vehicle assemblers based on 20% of the ex-factory vehicle price in 2013, reducing by 1% in 2014 and in 2015 to 18% of the value of light motor vehicles produced domestically. The equivalent value of this to the vehicle assemblers will be the allowance multiplied by the duty rate, so 4% in 2013 reducing to 3.6% in 2015. 

The VAA is based on all compliant local production so that exported vehicles, which pay no duty on imported parts, will still get the full VAA. 

Comment: The VAA is more generous than the D-FA earned in the MIDP for vehicle assemblers with a high proportion of vehicle exports, since the duty credits earned on these vehicles will be used to offset imported components for vehicles produced for the local market. So for example an OEM exporting half its vehicle production will earn an equivalent 40% VAA on vehicles produced for the local market, compared to the 27% D-FA in the MIDP. It is anticipated therefore that some OEMs will have surplus credits, and the legislation allows these to be carried over to a following quarter.

Production Incentive (PI): From 2013 this support starts at 55% reducing by 1% annually to 50% of value added, and is also in the form of duty-free import credits. Certain products, identified as “vulnerable products”, will earn a PI of 80% in 2013 and 2014, reducing thereafter by 5% annually to 50% in 2020. 

Value added is defined as the manufacturer’s selling price less the value of non-qualifying material and components. The incentive will be earned through the supply chain and will flow through to the end producer, which will be the vehicle assembler or the component manufacturer in the case of component exports and aftermarket sales.  There are certain eligibility requirements to ensure that the beneficiaries are companies producing substantial components for vehicle assembly, and to exclude accessories.

While generally materials are excluded from value added, certain materials, which have been locally beneficiated to suit automotive specifications, will have a standard 25% of their value included in the value addition, or 40% (reducing by 5% annually from January 2015 to 25% in 2017) where they are used to produce vulnerable products.

The equivalent value of the PI will be the incentive multiplied by the component duty rate of 20%, so 11% of normal value added in 2013, reducing to 10% by 2018.

Comment: This is the incentive intended to encourage local component production. Clearly exporters will earn a significantly lower incentive than in the MIDP, and this is expected to have a negative impact on future exports, particularly those with high raw material content, such as catalytic converters and steel and aluminium based products.

This is why the authorities agreed to the industry’s request that special consideration be given to additional support for these high material content vulnerable products to avoid a sudden and significant loss of export business. These are the vulnerable products:

(a) Alloy wheels;

(b) Aluminium products (Engine and transmission components, heat exchangers and tubes therefor, suspension components and heat shields);

(c) Cast iron components (Engine/axle/brake/transmission and related types of components);

(d) Catalytic converters;

(e) Flexible couplings;

(f) Leather interiors;

(g) Machined brass components; and

(h) Steel jacks.

The materials which will have a standard value added when originating in South Africa are:

(a) Aluminium;

(b) Brass;

(c) Leather;

(d) Platinum group metals;

(e) Raw automotive glass;

(f) Stainless steel; and

(g) Steel.

South African producers will have to improve their global competitiveness in order to be able to secure new export contracts in future years.

It will also be important in terms of the localisation of components for the vehicle assemblers to properly recognise the PI in evaluating a local part against an imported one, instead of simply comparing local costs against the ex-works or landed costs of imported components, as some do at present. It has been agreed that failure by OEMs to recognize this will result in a review and possible change to allow the tier 1 component producer to earn the PI instead of transferring the value addition to the OEM.

Additional Comments on the Programme: When the allowances and incentives are accumulated, the vehicle assemblers will receive, on average, a higher benefit in 2013 than in 2012 under the MIDP. The extent of the increase is affected by the ratio of vehicles produced for the domestic market to exports. On the other hand, component manufacturers in total will receive less as a result of the removal of the present export incentive. 

While NAACAM supports the need to incentivise the vehicle assemblers in South Africa, we believe the generous levels will mean that overall there is little “stretch” for OEMs to increase localisation of components.

Furthermore, we believe component suppliers should receive a more direct benefit, and are concerned that the structure of the new program may not result in the higher levels of local content required to offset the probable reductions in exports, resulting in lower overall component volumes than at present. 

Without higher localisation, it may become increasingly difficult to justify producing some vehicles in South Africa, and thus the target of continually increasing local production may be unachievable.

Heavy Commercial Vehicles

The authorities continue to investigate possible incentive measures for medium and heavy commercial vehicles, trailers, buses and related off-road vehicles.

Components for Medium and Heavy Commercial Vehicles and Buses

A PI under the same regulations as for light vehicles can be earned on components produced for heavy commercial vehicles. The PI will, however, be earned by the component manufacturer and not passed through to the vehicle assembler as is done on light vehicles. 



The APDP Review started in late 2013 and had continued right through 2014. NAACAM, on behalf of its members, has been and will continue to actively participate in the review process with the objective of creating a sustainable industry that will support increased volumes, increased localisation and increased employment.

In its proposals & interventions concerning this APDP Review, NAACAM had targeted five main areas of focus for the Department of Trade & Industry to consider in the review, namely:

Offset “country costs”

Reducing the effect of “low economies of scale”

Increased protection through reducing the ability for an OEM to become duty neutral or to be in a duty credit situation

Allowing access to the Automotive Investment Scheme for productivity, new technology and efficiency linked projects

And keeping the support for the independent exporters through no phasing down of benefits linked to the vulnerable status

All these interventions were based on increasing support for localisation with the objective of creating employment.

In its letter addressed to the dti on the 13 January, 2015, the NAACAM’s Executive Director mentioned:

“Although the dti was not able to accommodate all the requests emanating from NAACAM, the proposed amendments to the APDP and the future direction of the APDP post 2020 as communicated to NAACAM, will in our view go a long way to support increased localisation and sustainability of the industry.

Further to this, the recommendations reflect the objectives set out for the APDP Review, namely:

Increased vehicle volumes produced

Increased localisation of automotive components

Addressing potential surplus credits

NAACAM appreciates the efforts of the dti to address the current shortfalls within the APDP. NAACAM supports the recommendations as well as the focus on promoting the LCV business as a specific sector.

These recommendations represent a quantum leap forward through increased support for the plight of the Automotive Component Industry and a sustained focus on job creation.

The 2020 Review of the APDP is going to be critical to drive sustainability of the industry going forward. The APDP in its current form drives vehicle volume increases to a point of duty neutrality, which in turn supports the sale of imported vehicles into our local market. The current system structurally will not drive the objective of achieving 1.2 million vehicles, or even 800,000 vehicles, as there is no incentive for OEMs to increase volume production past duty neutrality. 

It is the view of NAACAM that the 2020 Review should focus more on vehicle competitiveness to drive volume growth, as most of our international competitors do. This can only be achieved through support measures that offset “Country costs”, offset “low economies of scale” and incentivise South African vehicle production through a competitiveness advantage over our international competitors. Further to this, NAACAM believes that we should support the local industry through increased import duty tariffs. The quantum gained from the increased import duty applied should be given back in the form of incentives for improved competitiveness and increased local production and not in the form of duty credits.”

The final recommendations from the dti are expected within the first quarter of 2015. NAACAM hopes that the final decisions from the Department of Trade & Industry will reflect the proposed amendments as discussed with the various stakeholders. The proposed implementation date of the amended APDP is currently proposed to be January, 2016.



For full details of the regulations governing the APDP as well as the detailed information documents, please click here

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