THE structure and cost of incentive schemes assisting the local motor industry fell under a harsh spotlight this week, as it emerged that the industry alone was responsible for about 40% of last year’s national trade deficit of just less than R118bn.

The scale of the sector’s contribution to the deficit will raise fresh questions about the government’s incentive schemes, and whether the surging deficit was an "unexpected consequence" of state intervention.

Department of Trade and Industry acting deputy director-general Garth Strachan said on Thursday the department was "acutely aware of the problem. We are massively concerned with the deficit. We do have to review the APDP (Automotive Production and Development Programme), and we are open to suggestions."

Econometrix chief economist Azar Jammine said on Thursday the numbers were surprising and questioned "whether the (department) has done its homework".

"Are we checking whether this programme is destroying jobs?" he asked, adding that the numbers suggested the programme needed "to be looked at in great detail". He said "industrial policy interventions run the risk of experiencing unexpected consequences".

Last year the department announced it would bring forward a review of the programme, which came into effect this year. With it the state rewards exporters of vehicles and components with import credits. However, more talk of a review could rattle automotive and component investors, who have consistently complained of policy uncertainty.

According to figures from the National Association of Automotive Components and Allied Manufacturers, the motor industry’s trade deficit last year was more than R49bn, or "more than 40% of the national trade deficit", said director Roger Pitot.

This was an industry record — "by far the highest we’ve ever had", Mr Pitot said.

KPMG Africa director for industrial, automotive and pharmaceutical industries Gavin Maile said this week the number was "in line with expectations" and that the rise could be partly blamed on vehicle import growth.

"Last year 72 out of 100 new cars sold were imported," Mr Maile said. "In the past it was predominately components that made up the deficit," he said. However, local production of vehicles for export also contributed to the trade deficit. "Local production has an impact because of imported components," Mr Pitot said.

Despite the ramping up of exports of vehicles, "only 38% of an exported vehicle is a net export", Mr Pitot said. "Local content is too low." On average only 36% of a South African-built vehicle was sourced from local content. "In other words, we’re importing 64% of the selling price ."

This means that while "nominally" there was an approximate trade balance of R50bn of vehicle exports last year and R50bn of vehicle imports, "there was less than R20bn of net exports".

" Export numbers are totally misleading in terms of their net export value," Mr Jammine said.

Mr Strachan defended the programme and the department’s position. "We can’t do anything about the number of imported cars," he said, describing the rise of "near-cutting-edge and affordable South Korean imports" as an example of the "hugely powerful global forces" SA faces.

"Where would we be without (the APDP)? The trade deficit would be much worse," he said.

"The broader economic benefits are immense in terms of skills and employment."

Mr Strachan said the industry’s contribution to the trade deficit should diminish as export numbers rise and economies of scale allow for more local manufacturers to get into the automotive supply chain.

"We do have to review the APDP. We are open to suggestions on how to increase the range and quantum of component manufacture to support export growth," he said. "We want to encourage strongly the evolution to local manufacturing of components, but it’s a difficult path. It’s not easy," he said.

However, as Mr Maile pointed out, "the export programme leaves us exposed to the global market. There are no guarantees," Mr Strachan said.

Meanwhile, at the launch of the fifth iteration of the Industrial Policy Action Plan on Thursday, Trade and Industry Minister Rob Davies told journalists "the APDP has been a success since launching this year".

"We see car companies improving their sales. The whole motor industry looks all the better," Mr Davies said.

Mr Jammine added that the matter was "very complex" and that the South African vehicle consumer had otherwise benefited from imported vehicles.

"The market has been very competitive and vehicle price inflation has been very low. It’s been good for the consumer, and has contributed to a vibrant second-hand market."

Additional reporting by Alistair Anderson