Dr Johan van Zyl, president and chief executive of Toyota South Africa and president of the National Association of Automobile Manufacturers of South Africa (Naamsa), believes the future success of the local motor industry should be linked to producing one million vehicles a year by 2020. At present there is a general focus on selling one million vehicles a year by an earlier date.

Speaking at the biennial CAR conference at Auto Africa on November 1, Dr. van Zyl said that the original objective of the Motor Industry Development Programme (MIDP), introduced in 1995, was to encourage high volume local production, not necessarily to promote exports. What has happened is that the MIDP has been seen as an export growth facilitator, with most of the increased production volume in South Africa going to export markets.

This has left the way clear for importers to fill the gap in the rapidly growing market over the past three years. Imports now make up more than half the passenger car sales in South Africa.

Dr. van Zyl says that producing one million vehicles a year will require a healthy domestic market. However, in this respect he is more cautious than some industry commentators in predicting that this milestone will only be reached in 2015, going up to 1 125 000 units sold in 2020 when domestic manufacture should reach the magic one million per annum mark.

He sees the makeup of the market with this scenario to be 657 000 domestically produced models with 450 000 (40 per cent) imports, while exports will be in the region of 325 000 units (or 33 per cent of local production).

However, meeting these ambitious targets will not be easy. According to van Zyl, it would require an additional investment of R50 billion by the vehicle manufacturers to increase their production capacity from 615 000 units per annum in 2006 to 1 050 000 in 2020. Over this period, productivity would have to improve by 63 per cent from the current rate of 15,3 vehicles per employee per year to 25 units per employee. Employment should also rise from about 34 000 to 40 000 during this period.

However, van Zyl's 2020 vision for the motor industry will require some substantial changes to the MIDP, which is currently undergoing a mid-term review.

Initial changes suggested by the Naamsa president for 2007 include increased Production Asset Allowances (PAA) and more support for training and skills development.

By 2009, van Zyl would like to see the MIDP comply with the requirements of the World Trade Organisation (WTO) and a change in the incentive programme from being export-based to becoming production-based. In addition he would like to see the current Import Rebate Complementation Certificate (IRCC) system replaced with a tax reduction system that could be offset against VAT.

The next step, in 2012, would be to implement an aggressive, separate development programme for the component industry. This is seen as vital to increasing the local content of vehicles made locally and so contributing to a cut in the automotive sector's substantial balance of trade deficit. An increase in local vehicle production will also go a long way to improving this negative position.

Van Zyl also suggests that a production volume rebate system be introduced, where duty on CKD kits and built up vehicles reduces as production increases. He proposes, for instance, that local production volume (measured in terms of the number of vehicles or the value of these vehicles) could reach a point where no duty is payable on imports if certain targets are met. He suggests this could be zero duty at 250 000 units per year and, based on a straight-line graph, that would equate to a 40 per cent rebate for 100 000 units produced annually.

The Naamsa president said he believed that production of 1 000 000 units would really put South Africa on the global map as a supply source. This would bring added benefits of support for the component suppliers, job creation, more affordable vehicles (through economies of scale) and export growth that would be compliant with WTO regulations.