In a first for the South African market, Investec successfully petitioned the Department of Trade and Industry (DTI) to obtain a rebate provision to import air conditioning units with a rated cooling capacity under 8.8 kilowatts (kW).
“In a review of one of our clients’ operations, to identify business growth opportunities, we noticed that the annual disbursement on import duties for air conditioners was exceptionally high. After further research it was established that there are no local manufacturers for domestic air conditioners,” explains Dylan Govender, head of supply chain at Investec for Business.
To secure a cost-effective supply of air conditioners from international suppliers, Investec applied to the International Trade Administration Commission of South Africa (ITAC) to reduce import tariffs on units with a rated cooling capacity under 8.8 kW, which are typically used in homes or offices.
“While the DTI reviews tariffs annually, they remain unchanged unless someone contests them. But applying to reduce duties is costly, and importers typically pass on duty costs to customers, which is why they generally avoid the process, and the industry continues with the status quo,” elaborates Govender.
However, a market analysis revealed the potential for substantial savings from reduced duties, which cost the industry approximately R120-million rand per year for domestic air conditioner imports. While customs duties typically serve as a protective mechanism for existing industries, ITAC will consider reducing or removing duties in cases where intermediate goods, consumption goods or capital goods are currently not produced locally. And recent increases in the prices of imported parts, electricity and raw materials, such as scrap metal and ferrochrome, have placed severe pressure on input costs, capacity utilisation and profit margins, which makes local manufacturing capacity unfeasible presently.
As such, following a data investigation and public comment period, ITAC, the DTI and National Treasury reviewed the application and considered any objections or claims from local manufacturers.
While the initial application lodged with ITAC to review the tariffs requested a complete removal of the 15% duty on air conditioners, a three-year rebate provision was instead approved, which would allow local manufacturers to start production if they deemed it viable.
“Now that the department has approved the rebate provision, all industry stakeholders, not just our clients, will benefit from a significant reduction in duties paid on qualifying air conditioners,” continues Govender.
There is also no limit on the number of air conditioners that importers can bring into the country under the rebate provision, and there are no additional requirements or standards for the rebate provision other than having the necessary certifications at the time of importation, including applicable energy efficiency certificates.
“Our collaborative initiative to proactively challenge the existing tariff regime will lower costs and make air conditioners more affordable to middle-income households at a time when inflation continues to push the price of consumer goods higher,” explains Govender. “Making air conditioners more accessible to a large proportion of the South African population will help to improve living conditions and workplace productivity as climate conditions continue to change and average summer temperatures continue on their upward trajectory,” concludes Govender.