sunset clause. Incentives should be transparent, easy to understand and with low administrative costs for both businesses and government”.

_Literature on the effectiveness of the MIDP program in South Africa_ 11. The Motor Industry Development Program (MIDP) came into effect on 1st of September 1995 to assist an industry that was self-sufficient as a result of extremely high import duties and local content requirements. The original goal of the MIDP program was to help the automotive industry in South Africa adjust to trade liberalization and become internationally competitive. The program was confined to export facilitation, which entailed a phasing down of tariffs, a removal of local content requirements, duty-free imports of components up to a percentage of the wholesale value of the vehicle, and duty rebate credits earned on exports. In simple terms, the local value-added of components or built-up vehicles exported earn credits that can be used to rebate import duties on components and vehicles. These duty credits are tradable and can either be used to import or sold to provide a separate source of revenue for the exporter. The program was initially scheduled to run for five years, but it has been extended three times, and is slated to end in 2020. The last revision was in 2008, where the name of the program changed to “Automotive Production and Development Programme” (APDP). Although the South African government has been reducing its support in the subsequent revisions of the MIDP, the incentives still remain very significant (Black & Mitchell, 2002).

12. Various costs and benefits analyses of the MIDP program have been done over the years. There is no agreement in the literature on the overall impact of the program. Barnes et. al. (2003) argue that the export success of the South African auto industry results from the industry‟s competitiveness and efficiency and not from the MIDP. They also conduct a comparative study of the retail car prices in South Africa and in the UK and conclude that the MIDP has resulted in lower prices for South African domestic consumers. Kaplan (2004) provides a mixed evaluation of the program. He argues that there have been many positive spin-offs resulting from the expansion of the auto sector in South Africa. Firstly, given that production is aimed at highly discriminating export markets, inefficiencies are rapidly disciplined. Secondly, he argues that considerable positive externalities exist as auto exporters encourage and support their local suppliers to improve the quality of their products and therefore facilitate the opening of potential new export markets for auto component producers. Finally, the „success‟ of the automotive industry reduces the perceived risks for other potential producers considering investments in the automotive or other sub-sectors in South Africa. However, Kaplan (2004) also argues that while there have been productivity gains in autos and auto components in the last few years, these gains have not been exceptional by comparison with many other local manufacturing sectors.

13. Taking a more critical line, Frank Flatters (2005) argues that the MIDP subsidies “make socially wasteful activities privately profitable” as they are not only paid by the treasury in terms of import duties foregone, but also by consumers in the form of higher prices and restricted choice5. In addition, he argues that despite significant improvements in a number of competitiveness indicators between 1998

> 5 Flatters estimates that the subsidies create a net economic loss of R20,000 for each R70,000 of South African resources used to produce a vehicle for export (foreign exchange earnings are worth only R50,000).

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