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

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 automotive industry. The purpose of this was to open up the South African market gradually, ensuring some protection while the local industry was adjusting. This was in line with objectives set by the Motor Industry Development Program (MIDP). The ultimate goal set out for by the MIDP was for the automotive industry of South Africa to be able to compete on the global market. The aim of the article is to highlight the achievements and limitations of the PAA.

International Competitiveness

The proportion of locally produced vehicles bought inside South Africa has been concerning to say the least. In an attempt to sugar-coat this, people argue that exports have increased over the past years. Since exports receive rebates certificates, the extent to which this statistic represents international competitiveness is limited. A more reliable proxy would be the amount of money spent on research and development (R&D) and innovation. As the significance of technology as a factor of production is rising, R&D is becoming increasingly important for sustainable competitiveness. Without it, the South African industry will forever lag behind its competitors. Companies in South Africa are generally not very keen on performing R&D since there is much uncertainty as to the return...