Annual Forum Papers

Policy in the South African Motor Industry: Goals, Incentives, And Outcomes

  • Year: 2002
  • Author(s): Anthony Black; Shannon Mitchell
  • Countries and Regions: South Africa

The paper first outlines the history of industrial and trade policy in the industry. It highlights the significance of the transition from import-substitution policies to export promotion policies. It then provides an analytic exposition of the welfare costs and benefits of the current export complementation programme. We find that:

  • The current policy creates rents in the industry that are borne by South African motor vehicle consumers;
  • These rents accrue to vehicle assemblers, vehicle importers and components manufacturers;
  • The exact method of phasing down the programme will affect the size of these rents;
  • Some of the "new" exports of components under the MIDP may be uneconomic in the sense that they would not cover costs in the absence of the MIDP--this hurts welfare;
  • Whether or not components exports are economic, the programme encourages larger scales of production, thereby reducing costs. This last effect could be large enough to outweigh the welfare losses associated with any uneconomic exports of components.