An analysis of the impact of the motor industry development programme (MIDP) on the development of the South African motor vehicle industry.

Abstract

The study aims to research the performance of past and present motor industry

policy in South Africa - with special reference to Phase VI of the local content

programme and the Motor Industry Development programme (MIDP) - in the

light of the domestic macroeconomic environment and global developments in

the world automotive industry. The overall objective of this dissertation is to

contribute to the debate on motor industry policy which concerns what future

policy would be appropriate for the development of a viable and competitive

motor vehicle industry. Thus this study is primarily policy-oriented, and the

empirical analysis produced deals with important developments in the local

motor and component industries and attempts to examine key variables to

establish the likely impact of industry-specific policy changes - both past and

future.

The method of investigation involves the study of relevant theoretical literature

regarding domestic automotive policy, and considers policies of low-volume

automobile producing economies, especially Australia, Philippines, India and

Malaysia. Also, empirical data of various sub-sectors of manufacturing in South

Africa were examined and compared to the motor vehicle sector in order to

determine the extent to which the macroeconomic state of the domestic

economy as distinct from automotive policy might explain the performance of

the South African motor industry.

The dissertation presents a review of the local content programme of motor

industry policy in South Africa since the early 1960s. It examines the claim that

import-substituting policy in the motor industry actually had a negative impact

on the country's balance of payments. The study finds questionable whether

local content policy contributed significantly to the large net foreign exchange

usage by the motor industry in real terms. There is evidence that increases in

the nominal industry trade deficit can largely be explained by the weakening of

the Rand, especially during the mid-1980s.

Also, empirical data was used to make an examination of the performance of

automotive exports under Phase VI and the MIDP in the context of economy-wide

trade liberalization. It was found that exports of automotive products grew

significantly under both Phase VI and the MIDP in real Rand terms. Thus, it

seems probable that industry-specific policy played a major role in the strong

export performance of the sector since the late 1980s through to the 1990s.

The study then reviews the revised version of the impact of the MIDP and

considers the future of the industry. The state of the domestic macroeconomic

environment and globalization of the international automobile industry, including

the influence of Transnational Corporations' (TNCs') strategies, will undoubtedly

determine the future direction of South Africa's automotive sector. In the short to

medium term, we might expect an increase in imported vehicles and some

rationalization of the industry. Over the longer term, the possibility of fewer

OEMs and component suppliers, and automotive exports are likely to rise as

trade and the inflow of foreign investment accelerates due to foreign

collaboration and global competition.

A simple theoretical model applicable to the South African automotive industry

attempts to show the welfare implications of a protective automotive regime

(similar to Phase VI) and compares it with that of a more liberal (tariffs-only)

automotive regime that may be considered as a likely policy-option for South

Africa post-MIDP. The theoretical analysis indicates that the tariffs-only policy is

superior to that of a more protective regime in that static efficiency losses are

lower. However, the dynamic effects of such policy changes and of possible

TNC responses to them, which are referred to in the previous paragraph, are

not included in this simple model.