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Industry

31 July 2008, Posted in News

To be or not to be: The Motor Industries Development Programme

Some say the MIDP, the government programme that supports the auto and associated industries, should not carry on supporting those companies that are internationally competitive after 2012.

They say taxpayers' money could be better spent. Woody Aroun unpacks the issue and explains where the process is and how Numsa is making its voice heard.

Since its introduction in 1995, the Motor Industries Development Programme (MIDP) has been the subject of much debate in the automotive industry.

Apart from touching on the nerve centre of South African industrial policy, the MIDP has been receiving attention from a wide range of organizations and institutions including the World Trade Organisation (WTO), foreign competitive automobile companies, the South African automotive industry, Department of Trade and Industry and Numsa.

The recent report on South Africa by the Organisation for Economic Cooperation and Development (OECD) quoted in Engineering News of 15 July 2008 raised several concerns over the continuation of the MIDP after 2012.

The OECD has also severely criticized South Africa’s industrial policy as apartheid style protectionism and called on the country to implement policies that favour competitiveness and further liberalization of the market.

So why is there all this hullabaloo about the MIDP? The answers are many and varied and sometimes very complex, but a good starting point is to try and understand the rationale behind the MIDP.

South Africa’s entry into the global market and membership of the WTO brought with it all sorts of problems: global competitiveness, tariff reduction and rationalization, outsourcing, downsizing, increased casualisation of labour, pressure to raise the levels of productivity in our industries, and so on.

This led to massive loss of work and joblessness. Faced with this massive onslaught on workers, and unable to turn the tide on tariffs, the Department of Trade and Industry introduced the MIDP.

According to Canadian researcher, F Flatters, "the MIDP was initiated in 1995 to help the motor industry adjust to South Africa’s reintegration into the global economy. Prior to that time the industry was protected by tariffs in excess of 100 percent and burdensome local content requirements.

Unsurprisingly it produced a very wide range of products at low scales of output and at high cost. It was a very inefficient import substitution sector that could not have competed either domestically or internationally in the face of immediate trade liberalization.”

Professor Black, University of Cape Town academic and one of the initial developers of the programme, sums up the objectives of the MIDP as follows:* Lower vehicle prices and improved competitiveness* Sustainable industry and employment* Improved economic contribution

To be achieved via:* Phased integration into global industry * Encouraging modernisation and upgrading* Increased volume and economies of scale through growing exports and gradual rationalisation

In his assessment of the MIDP, Flatters argues that the MIDP has achieved some measure of success, but that not enough attention was being paid to the enormous costs that ultimately fell on the shoulders of taxpayers and consumers.

Flatters went on to say: “In a more positive light the MIDP has provided time and generous assistance for the motor industry to adjust to liberalization of the domestic market … However, taxpayer and consumer subsidized adjustment cannot and should not go on forever.”

He argues that there is no need to further subsidize firms after 2012, particularly those firms in the industry that have achieved international competitiveness and “that a continuation of subsidies to firms that cannot compete without them will generate even more economic waste paid for by South African consumers and taxpayers.

Workers losing jobs in uncompetitive firms that might close if MIDP subsidies were sharply reduced could be compensated at a fraction of the cost of the subsidies.

Moreover, declining car prices would increase employment in sales and service which is one of the few areas in the overall industry that has experienced substantial employment growth since 1995.”

Similar concerns over the continuation of the MIDP have been raised by the OECD in its Economic Assessment Report on South Africa.

Where is the process now?Currently Black has been appointed by the DTI to head the MIDP Review process and has met with a number of stakeholders, including employers and Numsa. He met with Numsa on March 18 2008.

Stakeholders must now:* Decide what is possible?- international policy experience and its impact* Decide on basic levels of support* Decide on basic ‘architecture’ * Decide on the detail of the programmeIn June 2008 Numsa received a copy of government's MIDP Review Discussion Document: Summary of Policy Proposals (document embargoed), as well as an invitation to attend the Motor Industry Development Council (MIDC) – MIDP Review Forum meeting to look at some of the proposals in the draft document.

Further discussion on the MIDP Review took place at the Numsa Central Committee (CC) Meeting in July this year, wherein Eastern Cape tabled a set of proposals as a response to the Review proposals in the draft document.

The CC agreed that Numsa must consolidate its own position on the MIDP Review proposals once our constituencies have had an opportunity to make further inputs on the revised programme.

What is Numsa's view?So what happens after 2012? While the union stands vehemently opposed to all forms of neo-liberalism, including attempts by organizations like the OECD to rubber stamp its policies on developing nations, metalworkers belonging to the automobile and associated industries have borne the brunt of reduced tariffs, organizational restructuring and rationalization of the industry.

In this context Numsa believes that the continuation of the MIDP is necessary so long as “a revised and worker-orientated MIDP can ensure the future of the auto and associated industries and secure the best interests of our members and the broader society”.

Numsa also believes that our industrial strategies have to be more people focused – this can only be driven by a strong developmental agenda with emphasis on equity, poverty elimination and employment creation.

Woody Aroun is a Numsa researcher

Numsa 2004 resolution on Motor Industry Development Programme (MIDP)

NOTING THAT:

It was jointly developed by government, business and labour. To provide sustainable employment through increased production and improve the balance of trade. Instead more jobs have been lost.

We therefore resolve:

Our participation in the MIDP must be reviewed. MIDP must promote local content underpinned by job creation. In the next CC after Congress, the Eastern Cape region to submit a paper for discussion with the following terms of reference: Job Creation and job security Protection of local content Education & training Formation of local participatory structures to ensure effective engagement. CC to engage with the review processes of the MIDP

Further reading:Flatters, F. (2005) The Economics of MIDP and the South African Motor Industry. Queens University, Canada. Presented at TIPS/NEDLAC South Africa Trade and Poverty Programme (SATPP) Policy Dialogue Workshop, Johannesburg, 2 November 2005. http://www.tips.org.za/files/ff_economics_of_midp.pdf

Professor Black, A. (2008) Current developments in the automotive industry and the future of the MIDP Presentation to Numsa 18 March 2008

Source

Numsa News