South Africa’s Investment Landscape: Mapping …the ANC a year ago, concluding that nationalisation of mines should only be considered as a last resort. Although the government has

South African Instit

ute of Inte

rnat

iona

l Affa

irs

African perspectives. Global insights.

Economic Diplomacy Programme

O C C A S I O N A L P A P E R N O 1 0 5

South Africa’s Investment Landscape: Mapping Economic Incentives

J a n u a r y 2 0 1 2

L e s l e y W e n t w o r t h

A b o u t S A I I A

The South African Institute of International Affairs (SAIIA) has a long and proud record

as South Africa’s premier research institute on international issues. It is an independent,

non-government think-tank whose key strategic objectives are to make effective input into

public policy, and to encourage wider and more informed debate on international affairs

with particular emphasis on African issues and concerns. It is both a centre for research

excellence and a home for stimulating public engagement. SAIIA’s occasional papers

present topical, incisive analyses, offering a variety of perspectives on key policy issues in

Africa and beyond. Core public policy research themes covered by SAIIA include good

governance and democracy; economic policymaking; international security and peace;

and new global challenges such as food security, global governance reform and the

environment. Please consult our website www.saiia.org.za for further information about

SAIIA’s work.

A b o u t t h e e C o N o M I C D I P L o M A C Y P r o g r A M M e

SAIIA’s Economic Diplomacy (EDIP) Programme focuses on the position of Africa in the

global economy, primarily at regional, but also at continental and multilateral levels. Trade

and investment policies are critical for addressing the development challenges of Africa

and achieving sustainable economic growth for the region.

EDIP’s work is broadly divided into three streams. (1) Research on global economic

governance in order to understand the broader impact on the region and identifying options

for Africa in its participation in the international financial system. (2) Issues analysis to unpack

key multilateral (World Trade Organisation), regional and bilateral trade negotiations. It also

considers unilateral trade policy issues lying outside of the reciprocal trade negotiations arena

as well as the implications of regional economic integration in Southern Africa and beyond.

(3) Exploration of linkages between traditional trade policy debates and other sustainable

development issues, such as climate change, investment, energy and food security.

SAIIA gratefully acknowledges the Swedish International Development Cooperation

Agency, the Danish International Development Agency, and the Foreign and Commonwealth

Office through the British High Commission in South Africa, which generously support the

EDIP Programme.

Programme head: Catherine Grant email: [email protected]

© SAIIA January 2012

All rights are reserved. No part of this publication may be reproduced or utilised in any form by any

means, electronic or mechanical, including photocopying and recording, or by any information or

storage and retrieval system, without permission in writing from the publisher. Opinions expressed are

the responsibility of the individual authors and not of SAIIA.

Please note that all currencies are in US$ unless otherwise indicated.

A b S t r A C t

For an economy to attract productive, sustainable local and foreign investment, a stable

investment climate along with a supportive investment policy framework is necessary.

Government-owned or -mandated investment promotion agencies (IPAs) have an important

role to play in marketing the country and its particular investment opportunities to potential

investors. Furthermore, government can help remedy structural weaknesses in sectors or

regions allocated for priority development through economic incentives programmes.

Financial incentives such as grants and subsidies reduce the investor’s initial capital outlay;

while tax-relief incentives increase net income by lowering the tax bill.

This paper considers the effects of the global economic crisis on the South African

government’s recent economic policy developments, especially those aimed at job creation.

In addition, it considers the work in progress on creating an investment policy framework to

support sustainable investment. The investment setting is examined by presenting the views

of provincial IPAs, as well as government office-bearers at provincial and national level.

Finally, a catalogue of economic incentives is presented which constitutes the government’s

economic support measures to encourage domestic and foreign firms’ to invest in specific

regions or sectors.

A b o u t t h e A u t h o r

Lesley Wentworth is project manager in the research division of the Africa Institute of South

Africa (AISA). Her area of research and practice is socio-economic development through

foreign direct investment especially in Africa. She completed an MBA through the University

of Wales, where her thesis dealt with risk-management and innovation in public-private

partnerships in developing countries. Apart from work on promoting investment projects

in Africa, she spent several years at the World Bank’s Multilateral Investment Guarantee

Agency, on foreign investment related capacity-building programmes for member

governments in developing regions.

4

S A I I A O C C A S I O N A L P A P E R N U M B E R 10 5

E C O N O M I C D I P L O M A C Y P R O G R A M M E

A b b r e v I A t I o N S A N D A C r o N Y M S

APDP AutomotiveProductionandDevelopmentProgramme

AIS AutomotiveInvestmentScheme

ANC AfricanNationalCongress

BBBEEAct Broad-basedBlackEconomicEmpowermentAct

BPS BusinessProcessServices

BRIC Brazil,Russia,India,China

BRICS Brazil,Russia,India,China,SouthAfrica

CCA customscontrolledarea

CCAE customscontrolledareaenterprise

CFC controlledforeigncompany

CIP CriticalInfrastructureProgramme

CTCIP ClothingandTextileCompetitivenessImprovementProgramme

DBSA DevelopmentBankofSouthernAfrica

thedti DepartmentofTradeandIndustry

EIP EnterpriseInvestmentProgramme

FIAS InvestmentClimateAdvisoryService

FDI foreigndirectinvestment

HEI HigherEducationInstitutions

IDC IndustrialDevelopmentCorporation

IDZ industrialdevelopmentzone

IMF InternationalMonetaryFund

IPA investmentpromotionagency

IPAP IndustrialPolicyActionPlan

M&A Mergersandacquisitions

MIDP MotorIndustryDevelopmentProgramme

MNC multinationalcorporation

NGP NewGrowthPath

OECD OrganisationforEconomicCooperationandDevelopment

PPD ProductProcessDevelopment

PPP public-privatepartnerships

R&D researchanddevelopment

SADC SouthernAfricanDevelopmentCommunity

SARS SouthAfricanRevenueServices

SEDA SmallEnterpriseDevelopmentAgency

SETI Science,EngineeringandTechnologyInstitute

SEZ specialeconomiczone

SME SmalltoMediumEnterprises

SMEDP SmallandMediumEnterprisesDevelopmentProject

SMME Small,MediumandMicroEnterprises

SPII SupportProgrammeforIndustrialInnovation

TEO TheEnterpriseOrganisation

THRIP TechnologyandHumanResourcesIndustryProgramme

TIPA TradeandInvestmentPromotionAgency

TISA TradeandInvestmentSouthAfrica

S O U t h A f R I C A ' S I N v E S t M E N t L A N D S C A P E

5


TLAB TaxationLawsAmendmentBill

UNCTAD UNConferenceonTradeandDevelopment

VAT valueaddedtax

VCC ValeColumbiaCentre

WAIPA WorldAssociationofInvestmentPromotionAgencies

6



I N t r o D u C t I o N

Afavourableinvestmentclimatefosteringoptimumeconomicgrowthrestsonastable

investmentregimewithinanationalpolicyframeworkthatsupportsproductive,

sustainableinvestment.Thisistrueofanyeconomy.Throughouttheworldgovernment-

mandatedagencieswooinvestors,worktoreduceoreliminateredtape,andfacilitate

investor-governmentrelations.Inaddition,governmentsaddresssystemicorstructural

weaknessesinsectorsorregionsdeemedstrategicallyimportantfordevelopment,usually

byofferingincentivestotipthecommercialscalesinfavourofaparticularlocation.Such

measuresmayincludefinancialincentives(eggrantsandsubsidies)toreducetheinitial

costofcapital,andtax-reliefincentivesdesignedtoincreaseanenterprise’snetincome.

Inthemain,SouthAfrica’seconomyhasbeencharacterisedbylownationalsavings,

andinvestmentfinancedlargelythroughunpredictableportfolioflowsratherthanby

longer-termforeigndirectinvestment(FDI).Somelong-standingpoliticallegaciessuch

aswidespreadunemployment,highcrimeratesandgenerallyloweducationandskills

development,haveproveddifficulttoshakeoffinthe18yearssincethepresentAfrican

NationalCongress(ANC)governmenttookoffice.Despitethis,SouthAfrica’sDecember

2010acceptanceintotheforumofthe‘bigfour’emergingeconomies(Brazil,Russia,India

andChina:BRIC)–whichconsequentlybecameBRICS–gavethecountryaroleon

theglobalstage.TheSouthAfricangovernmenthasbeenpursuingwhatitseesasits

economicpriority:measurestoboostemploymentingeneralandjob-creatingprojectsin

particular.Thegovernmentsupportsitseconomicvision,expressedintheNewGrowth

Path(NGP)releasedinDecember2010,withtwoIndustrialPolicyActionPlans(IPAP1

and2).Inaddition,arelativelysophisticatedinvestmentpromotionframeworkisinplace,

togetherwithanascentpolicyframeworktomanagethecostsandbenefitsofcross-border

mergersandacquisitions.Finally,theauthoritieshaveputinplaceapackageofincentives

tofosterthedevelopmentofsmallandlocalbusinesses,topromoteemploymentand

competitiveness,andencourageFDI.

Withinthatgeneralcontextthefirstsectionofthepaperpresentsashortreviewof

SouthAfrica’seconomyinthewakeoftheglobalcrisisthatbeganin2007–2008.This

sectionalsoconsidersthegovernment'seconomicvisionandindustrialpolicies,aswellas

the‘Gateway’initiativeaimedatestablishingSouthAfricaasaninvestmentavenueintothe

restofAfrica.ThesecondsectionexaminesissuesfundamentaltodiscussionsonFDIand

domesticinvestment:investmentpolicy,investmentpromotionandinvestmentincentives.

Sectionthreeoffersanoverviewofthreemajorinvestment-focusedareasintroducedin

sectiontwo,inaSouthAfricancontext.Thisconcludingsectionalsopresentstheresults

ofasurveydistributedtoprovincialinvestmentpromotionagencies(IPAs),aswellasa

catalogueofeconomicincentivesaimedatdevelopingspecificgroups,regionsandsectors.

S o u t h A F r I C A A N D t h e g L o b A L e C o N o M I C r e C e S S I o N

The2011WorldInvestmentReport1fromtheUNConferenceonTradeandDevelopment

(UNCTAD)chartsasignificantdeclineinFDIflowsintoSouthAfrica,whichfellfrom

$5.4billionin2009toonly$1.6billionin2010.Thisrepresentsadropofmorethan70%

on2010andover80%fromthe$9billionpeakreachedin2008.Thenegativetrendis


7


largelyattributedtoSouthAfrica’shighunitcostoflabourwhencompared,forinstance,

withthatofIndiaandChina.2SouthAfricawasadmittedtoBRICnotwithstandingthis

inferior investmentperformance.Althoughnoneof theBRICScountrieshasproved

immunetothecurrentglobaleconomiccrisis,in2010theotherfourcountrieswerestill

rankedamongthetop20globalFDIrecipients:Brazilwithreceiptsof$48billion;Russia

with$41billion;India$25billion;andChina$106billion.3

FDItoSouthAfricaisexpectedtoreboundin2011,inparticularduetothe$2.4billion

acquisitionof51%ofSouthAfrican-basedretailchainMassmartbyUS-basedWal-Mart.

Thattransactionwasfinallyapproveddespiteadegreeofambivalencetowardsforeign

investmentshownbothbyorganisedlabourandthedepartmentsofAgriculture,Tradeand

IndustryandEconomicDevelopment.Likeallmajormergersandacquisitions(M&A),

however,thedealissubjecttoscrutinybytheSouthAfricancompetitionauthorities.(The

governmentisimposingstringentconditionsonforeignM&Adeals,principallytoprotect

againstlocaljoblossesandtoensurethatlocalsuppliers’interestsarenotjeopardised.)

InadditiontotheWal-Martissue,thenationalisationdebatehasnotbeensilenced

bytherecentlypublicisedreportbyanindependentpanelofexperts,commissionedby

theANCayearago,concludingthatnationalisationofminesshouldonlybeconsidered

asalastresort.Althoughthegovernmenthasstatedthatnationalisationisnotonits

agenda,theyhaveaskedtheirpaneltoprovidemoredetail interaliaontheother12

miningcountrieswithexperienceofstateintervention(Chile,Norway,Sweden,Finland,

Zambia,Brazil,Venezuela,Namibia,Botswana,Malaysia,ChinaandAustralia).However,

governmenthasmadeclearitsdedicationtothe‘maintenanceofanopenenvironment

forforeigndirectinvestmentwhileaddressingthespecificpublicinterestconsiderations

emanatingfromcrossborderdirectinvestmentsforthecountry’.4

In2011SouthAfricaperformedunremarkablyonmostglobalcompetitivenessindices

(seeTable1).Forexample,ontheWorldBank’sDoingBusinessscaleitranks34thout

of137economies;ontheInwardFDIpotentialIndex74thoutof141;andontheWorld

EconomicForumGlobalCompetitivenessIndex54thoutof139.Pervasivepoverty,high

levelsofcrimeandun-andunder-employmentareamongtheproblemsfrequentlycited

bypotentialinvestors,especiallysincetheglobalrecessiontookhold.

Table 1: South Africa: competitiveness rankings

Corruption Perceptions Index 54 out of 178

Ease of Doing Business 34 out of 183

E-readiness 40 out of 70

freedom of the Press 70 out of 196

Global Competitiveness Report 54 out of 139

Global Enabling trade Report 72 out of 125

Global Manufacturing Competitiveness Index (GMCI) 22 out of 26

Global Services Location Index 45 out of 50

Index of Economic freedom 72 out of 179

8



South Africa’s economic strategy

Onthedomesticfront, theSouthAfricangovernmentconcedeslowsuccessrateson

employmentcreationbetween1994and2008.Inequalityratiosremaindisappointingly

high5andthecountry’shighgreenhousegasemissionsreflectitsincreasingrelianceon

fossilfuels–whichprovide90%primaryenergyandemitmorethan400milliontonsof

carboneachyear–forelectricitygeneration,ratherthanrenewableenergy.6Strategiesare,

however,inplacetoreversethesetrends.

The New Growth Path and Industrial Policy Action Plan

InhisStateoftheNationaddressinFebruary2011,PresidentJacobZumadeclared2011

the‘yearofjobcreation’.InrelationtotheNGPheoutlinedthegovernment’splanto

accelerategrowthandemployment,concentratingoncertainkeyareas:

• expandingpublicinvestmentininfrastructure;

• concentratingonlabour-intensivevaluechainsinagricultureandmining,aswellasin

manufacturing,constructionandservices;

• promotinginnovationthroughlow-carboninitiatives;and

• supportingruraldevelopment,includingagricultureandregionalintegration.

ThevisionbehindtheNGPis,atleastnotionally,aresponsetomanyofthechallenges

facingtheeconomy.Nodoubt,thedevilwilllieinthedetail.TheIndustrialPolicyAction

Plan2011–2012to2013–2014(IPAP2)7isintricatelylinkedtoandviewedasacrucial

componentoftheNGP,givingimpetustoa‘newpathofindustrialisation’.High-value

industrialandservicessectorsandthosewithstrategicimportancebasedontheNGP,have

beenunderreview;whilekeyactionprogrammesforspecificsectors,aswellasa‘skillsfor

theeconomy’programme,havebeenrevisedandconsolidated.

International Logistics Performance Index (LPI) 28 out of 155

Inward fDI Potential Index 74 out of 141

KOf Index of Globalisation 50 out of 186

Management Index (Political Leadership towards Democracy and a Market Economy)

33 out of 128

Networked Readiness Index (NRI) 62 out of 133

Open Budget Index 1 out of 94

Status Index (Political and Economic transformation) 31 out of 128

tax Misery and Reform Index 51 out of 63

Source:GlobalEDGE,MichiganStateUniversity,http://globaledge.msu.edu/countries/south-africa/

rankings/


9


TheDepartmentofEconomicDevelopmentwasestablishedin2009.Itisresponsible

for co-ordinating the government’s response8 to the global economic crisis and for

economicdevelopmentplanning,andworkswithotherdepartmentstoensureharmonised

programmesthatplaceworkopportunitiesatthecentreofthegovernment’seconomic

policies.Post-crisispoliciesandprogrammesaredesignedtoameliorateSouthAfrica’s

recessionaryhangoverandreversetheslow-downineconomicgrowthsoastobuilda

strongandcompetitiveeconomy.

The importance of private sector investment is highlighted in related policy

documents.Forexample,theMediumTermStrategicFrameworkcallsforlarge-scale

privateinvestmentprojectswithhighlabour-absorptivecapacity,aswellasexpansionof

socialandeconomicinfrastructuralprogrammestopromoteenvironmentalsustainability,

growthandemployment.

Gateway into Africa initiative

TheNationalTreasuryhasalsobeenmakingeffortstocompetewithtax-friendlyAfrican

neighbours,especiallyMauritiusand, increasingly,KenyaandNigeria.Mauritius, for

example,hasnoexchangecontrolregulationsandoffersalowtaxratepeggedat3%on

Mauritianholdingcompanies.Tohelpmeetsuchcompetitionthegovernmentproposedits

‘headquartercompany’regimeaspartoftheGatewayInitiativeintroducedbytheTreasury

in2010.Thisschemecentresonthreeareasseenassignificanttax-relatedobstaclesto

channellinginvestmentsintoAfrica.Theseare:

• controlledforeigncompany(CFC)rules.TheproposedchangesimplythatCFCrules

andtheirassociatedadministrativeburdenwouldnotapplytoheadquartercompanies;

• secondarytaxoncompanies(STC).Headquartercompanieswouldnotbesubjectto

secondarytaxoraproposednewdividendtax;henceprofitscouldbeexpatriated

withoutfearoftaxleakage;and

• ‘thincapitalisation’rulesthatreducetheabilityofforeigninvestorstofinancetheir

operationswithdebt.Undertheproposedchanges,headquartercompaniescouldbe

financedwithdebtwithoutrestriction,providedthedebtisusedtofinancesubsidiary

companies.

FurtherreviewledtorepresentationstotheSouthAfricanRevenueService(SARS),which

inAugust2011respondedwithadditionalrecommendationsthataretobeputbefore

parliament.Theseincludethefollowingstipulations.

• Aheadquartercompanymayuseitsoperatingcurrency(usuallynotrands)toreport

taxandwillthereforeavoidexposuretotaxoncurrencyfluctuations(theprevious

requirementwasforcompaniestorecordtransactionsinrandsfortaxpurposes).

• Possible amendments to exclude headquarter companies from exchange control

regulations.

• Shouldawithholdingtaxoninterestpayments(expectedin2013)beintroduced,it

willnotapplytointerestpaidbyheadquartercompanies.

• Dispensationfrom‘thincapitalisation’ruleshasbeenconfirmed,solongasdeductions

ofinterestexpensearelimitedtotheinterestincomeearnedfromsubsidiaries.

10



• Aheadquartercompanywillnotberequiredtoretainaninterestmarginonanyback-

to-backloanarrangementswithitssubsidiariesinrespectoftransferpricing.

• DividendsreceivedbyaSouthAfricanresidentfromaheadquartercompanywillnot

betaxed.

• Disposalsoncertaininterestsinaheadquartercompanywillbeeligibleforexemption

fromcapitalgainstax,onthesamebasisasifitwereaforeigncompany.

• Totheextent that intellectualproperty licensedto it isnotused inSouthAfrica,

royaltiespaidoutbyaheadquartercompanyshouldbefreeofwithholdingtax.9

ItshouldbenotedthatsomeexpertsmaintainthatSouthAfricaneednotcompeteso

aggressivelyagainstcountriessuchasMauritius.Givenitsreliablefinancialinfrastructure

andeconomicstability,thecountryneedonlyimproveslightlyonitscurrenttaxand

exchangecontrolpositionto‘reinforceSouthAfrica’spositionasthegatewayofchoice

into the rest of Africa’.10 Khan11 however believes that the gateway initiative (with

necessarytaxreliefforforeigners)iscrucialtoSouthAfrica’seconomicparticipationand

competitivenessinBRICS.Therelativelysmallsizeofitseconomyandmarket(atleast

comparedwithanyoftheotherfourBRICScountries)makesregionalintegrationan

imperativethattheSouthAfricangovernmentmustactivelypursue.Aseriesofactions

towardseconomicintegrationisplannedtocomplementa2008initiativetowardafree

tradeareabetweentheCommonMarketforEasternandSouthernAfrica,theEastAfrican

Community,andtheSouthernAfricanDevelopmentCommunity(SADC).Acustoms

unionwasplannedfor2010butpostponed;althoughplansarestillinplaceforaSADC

monetaryunionfor2016andasinglecurrencyin2018.Suchfurtherintegrationinto

SADCwouldextendSouthAfrica’smarketbyabout200millionconsumers.

It will be interesting to see whether by virtue of their location on international

boundaries,thefiveprovinces(KwaZulu-Natal;Limpopo;Mpumalanga;NorthernCape

andNorthWest)thatborderMozambique,Zimbabwe,BotswanaandNamibiarespectively,

eventuallyenjoysimplifiedcustomsproceduresandrelatedspecialeconomiczone(SEZ)

incentivesthroughtheSEZBillandpolicyopenedforpubliccommentonJanuary16,

2012.Countries suchasThailandandChinahavehadsomesuccess inestablishing

‘bordereconomiczones’withrelatedindustrialestates,toexpandeconomicco-operation,

regionaldevelopmentandharmonisedcustomsregulationswiththeirneighbours.12

I N v e S t M e N t P o L I C Y , P r o M o t I o N A N D I N C e N t I v e S

Toimplementtheireconomicdevelopmentstrategy,mostgovernmentstrytocreatean

optimal investmentpolicy framework,promoteactivities tosupport investment,and

establisheconomicincentivestopositivelyinfluenceinvestorperceptionsofcostsand

benefitsrelatedtobusinessinaparticularsector.SouthAfricadoesnothavesuchaspecific

legalinvestmentcode,buttheNationalTreasuryrecentlyissuedasadiscussiondocument

a‘reviewframeworkforcross-borderdirectinvestmentinSouthAfrica’.Thereviewis

expectedinteraliatofeedintotheprocessofsupportingandinformingM&As,andany

restructuringofexistingSouthAfricanbusinessespromptedbyforeigninvestment.More

generally,thedocumentsetsoutapolicyframeworkthatseekstoalignFDIneedsand

criteriawiththepoliciesofallrelevantgovernmentdepartments.



11

Whileeconomistscontinuetodebatethemeritsandde-meritsofforeigninvestment,

thereisenoughevidencetosupporttheviewthatbenefitsdoinfactflowtoFDIhost

countries.Theyincludeaccesstoforeigncapital,adegreeofinternationalisation(ieastake

intheglobaleconomy)andinthelongerterm,increasedproductivityandemployment,

relativelyhigherwages,andpositivesocio-economicsystemicchange.13Inaddition,the

argumentsfortechnologyandskillsspilloverfrommultinationalcorporations(MNCs)

tolocalinvestorsandsuppliersthroughthelatter’saccesstoglobalenterprisesarewidely

documented.14ResearchbyMcKinseyGlobalInstitute15hasrevealedthatunambiguous

benefitshavederivedfromFDIinmanufacturingandservicesindustriesinBrazil,India,

MexicoandChina.IneachcasetherippleeffectfromFDIledtoimprovedproductivity,

outputandstandardsofliving.

AlfaroandChanda16stresstheimportanceofthehostcountry’sabsorptivecapacity

throughFDIspillovers.Whenlocalconditions,includingfinancialmarkets,educational

levelsandhumanresourcecapital,areunfavourable,FDIhasnosignificanteffect.Given

well-functioningfinancialinstitutions,however,domesticenterprisescanentertheMNC

supplychain.EvidencealsosuggeststhatdomesticsupplierstoMNCsdobetterthan

non-MNCsuppliers.

Proksch17underscorestheneedtoputinplacenationalcompetitivenessdevelopment

strategiesbeforeFDIpromotionbegins.Thesecompetitivestrategiesareregardedas

thefoundationforFDIwithoutwhichnocountrywillbelikelytodevelopinaglobal

context.Itfollowsthattypically,FDIinflowswillremainlowinmostsectorsofanational

economythatiswithoutsuchabasis.Furthermoreitcouldbecontendedthatthemain

considerationforforeigncompaniesseekinglocationsforinvestmentisthenatureofthe

subsidiaryoperationtobeestablished:thatis,whetherornotitisintendedtomeetlocal

marketdemand,ortoproduceforexporttothehomecountryorothermarkets.

I N v e S t M e N t P r o M o t I o N A N D F A C I L I t A t I o N

In thepast, inward investmentpromotionhasusually included investor facilitation;

nationalimage-building;investortargetingandgeneration;andpolicyadvocacy.18Inthe

late1990sthe‘one-stop-shop’becamefairlywidelyadoptedbyIPAs,theideabeingthat

theIPAwouldofferarangeofservicesfromadvisorybureausthroughtoauthorising

licencesandpermits,andevenlobbyingothergovernmentunitsonbehalfofinvestors.At

present,manyIPAsattheveryleastenjoyaninvestment-andatrade-promotionmandate.

Investmentpromotion,intendedtoinformorassistinvestorsinmakingacommitment

toinvest,isaformofnon-monetaryinvestmentincentivethatisverydifficulttoquantify

andmonitor.IPAsoperateinablurredinstitutionalenvironmentwithparalleljurisdictions

andaccountabilitytoalargerangeofministriesatdifferentlevelsofgovernment.Not

onlydotheythemselvesliaisewithothergovernmentbodiesbuttheyalsohelpinvestors

navigatethebureaucraticwatersinvolvedinestablishinganewproject.

Much attention has focused on countries targeting sustainable FDI, with recent

researchfromtheNewYork-basedValeColumbiaCentre(VCC), inassociationwith

theUnitedNations’WorldAssociationofInvestmentPromotionAgencies(WAIPA)19

examiningtheextenttowhichIPAsfocusonattractingsustainableinvestmentprojects,

thelatterdefinedagainstfourcriteria:

12



• economic development (including linkages, training, and skills and technology

transfer);

• environmentalsustainability(centringonminimisingenvironmentalimpact);

• socialdevelopment(includingemploymentstandardsandcommunitydevelopment);

and

• goodgovernance(addressingissuesoftransparencyandfairnessincontracting).

TheVCC-WAIPAsurveyalsoconsideredtheroleofincentivesinsupportingsustainable

FDI. Itconcluded thatof the fourmeasurescited, IPAsgenerallyplacedmost stress

on investments and associated investment incentives aimed atpromoting economic

development.Whilethismaybetrueinthecurrentstageoftheglobaleconomiccycle,it

isatleastplausiblethattheemphasiswillshifttowardstheotherthreedimensionsasthe

globaleconomyrecovers.

L o C A t I o N D e C I S I o N S

MNCsinsearchofnewresources,cost-efficientprocessesand/orlargermarketswillseek

opportunitiesinforeignlocations.Table2providesanoverviewofmotivationalfactors

forspecific typesofFDI.Countrieswhichhavenotaddressedshortcomings in their

macro-economicfundamentals, infrastructureandforeigninvestmentpolicieswillbe

atadisadvantage.Thoseofferingpoliticalandeconomicstability,aswellastransparent

governance,willweighfavourablyintheinvestmentdecision.

Table 2: Factors affecting four types of FDI

Type of FDI Factors influencing locating decisions

Natural resource-seeking

Availability, cost and quality of resources, as well as processing and marketing; infrastructural development; availability of joint venture partners.

Market-seeking Size, growth of domestic and regional markets, cost of labour, infrastructure quality, institutional competence, agglomeration economies and service support, macro-economic policies of host government.

Efficiency-seeking Production costs, skilled and professional labour, industrial competitiveness quality of infrastructure and institutions, macro-economic policies, knowledge and innovation development, cluster specialisation (eg science and industrial parks).

Strategic asset-seeking

Availability of knowledge-related assets (eg technology and management expertise), markets and geographical dispersion of such assets, price and availability of synergistic assets to foreign firms, and access to different cultures, institutions and systems.

Source:CleeveE,‘HowEffectiveareFiscalIncentivestoAttractFDItoSub-SaharanAfrica?’paper

presentedattheInternationalAcademyofAfricanBusinessandDevelopment(IAABD)5thinterna-

tionalconference,Atlanta,April2004


13


I N C e N t I v e S D e F I N e D

UNCTAD’s2004IssuePaperonIncentives20outlinesthreemajorclassesofincentives

intendedtoencouragebusinessestoinvest.Theyare:

• financial(eggrantsandloansatbeneficialrates);

• fiscal(egtaxholidaysorreducedtaxrates);and

• other,suchassubsidisedinfrastructureorservices,accesstopreferentialmarkets,and

regulatoryallowances(egexemptionsfromlabourorenvironmentalstandards).

TheWorldBank’s InvestmentClimateUnit recognisesa slightlydifferent taxonomy,

acknowledgingthattherecouldbefiscalornon-fiscalelementswithinthetwotypesof

incentive.Theincentivesitidentifiesare:

• regulatory: for example by guaranteeing property rights; correcting for external

economicfactors;andpreventingabusebymonopolies21,orbyeasingoforexemption

fromcertainregulatoryrequirements;and

• financial:egsubsidies,grantsoradministrativeassistance.

Thetwotypesarefurtherrefinedasbeingeitherfiscal–tax-based–incentives(suchas

reducedcorporatetaxationandspecialtax-privilegedzones);ornon-fiscalincentivesthat

mayincludesubsidiesandpreferentialloans;investorfacilitationandafter-carefacilities,

andincreasedengagementbetweengovernmentandbusiness.

Inmuchoftheliterature,incentivesareseenasinducementsbygovernmenttoshift

aninvestmentdecisiontowardsaparticularregion,sectororproject.Thisviewisbased

onasuppositionthatinvestorshavelargelydecidedupon,oratleastshort-listed,alikely

investmentlocationwithoutdirectconsiderationofincentivesonoffer.Consequently,

investmentincentivestiltthebalanceatthemarginoftheinvestmentdecision.Criteria

suchas futuredemand; thepolitical andeconomic stabilityof thehost country; its

financial,technologicalandphysicalinfrastructure;andastableandtransparentlegal

andregulatoryframework,aremuchmorecriticaltotheinvestmentdecisionthanare

incentivesperse.

Financial incentivessuchasgrantsandsubsidiesareimportanttotheextentthat

theylowerinvestmentcostsandthereforereduceinitialprojectrisk.Taxincentivesare

generallyconsideredasthosefavourabletax-reliefmeasuresthatreducethetaxburden

andtherebyleadtoanincreasednetincomeforthebeneficiary.Onthisdefinitionageneral

cutintaxesorauniversaldepreciationallowancewouldnotconstituteataxincentive.A

taxincentivetypicallyindicatesthataggregatecapitalstock,orthatinaregionorsector,

isseenastoolowandthatthetaxsystemisitselfanobstacle;orthatotherbarriersexist

thatmaybelimitedoreliminatedbyachangeinthetaxsystem.22

Theimpactofincentivesvaries.Itdependsonthestrategiesandmotivationsofthe

investingfirmandthemarkettowhichtheinvestmentisdirected(forinstancewhether

theinvestorhasanestablishedpresence,orisanewcomer).Inaddition,theinvestor’s

countryoforigin andparticular sectorofoperationsplay apart indetermining the

influenceand impactof incentives.23Fiscal incentivesare typically lesseffective for

resource-seekingFDIorforinvestmentsintendedtoservethedomesticmarket.Incentives

14



offeredtoresource-ormarket-seekinginvestorsmaybewasted,sincesuchinvestments

wouldprobablyhaveoccurredanyway.Efficiency-seekingFDI,ontheotherhand,or

investmentintechnologyindustriesorexport-orientatedinvestmentprojects,aremuch

moresusceptibletotaxrelief,notleastbecausefirmsinthosefieldscanmovelocation

withrelativeease.24

Inanumberof countrieseconomic incentives, sometimesaccompaniedbyovert

protectionism, have helped develop high-performing global sectors. For example, a

combinationoflow-costlabourandgovernmentincentivestopromoteFDItransformed

China intoaglobalmanufacturingpowerhouse.TheChileangrape industrybenefits

greatlyfromitsgovernment’sresearchanddevelopment(R&D)incentiveprogramme.

InSouthAfrica,thegovernment’smotorindustrydevelopmentprogrammehashada

‘positiveandsignificant’25effectonautomotiveandcomponentsmanufacturing,including

thecatalyticconvertersub-sector.ReportsfromSouthAfrica’sprovincesalsosuggestthat

FDIinsectorssuchasagro-processingprobablywouldnothaveoccurred,orwouldhave

beenlesseffective,intheabsenceofincentivessuchastheSmall,MediumandMicro

Enterprises(SMME)developmentprogramme.

S t u D I e S o N I N v e S t M e N t C L I M A t e A N D t A X I N C e N t I v e S

ResearchandeconometricanalysesbytheWorldBank,theInternationalMonetaryFund

(IMF)andtheOrganisationforEconomicCooperationandDevelopment(OECD)all

conclude that countrieswithanunappealing investmentclimatewillnot effectively

addressimbalancesbyofferingfiscalincentives.Theirstudiesfoundthattaxincentives

werefarmoreeffectiveineconomieswithastrongerinvestmentclimate.26Government

incentivesforattractingforeignandlocalinvestorshaveproliferatedworldwide.There

iscontinuingdebateconcerningtheefficacyandcostof incentives,especiallyof tax

incentivesandparticularlyineconomiesthatcanill-affordtheaddedfiscalburdenof

reducedtaxationrevenues.27

Barbour28 advances a schedule of characteristics for an effective and efficient

investmentincentivescheme,advocating:

• asystemtoensurethatrevenuelossisminimised;

• acaponexpenditure;

• atimelimitonthedurationoftheincentive;

• thatincentivesbetransparent;

• thatincentivesbeuncomplicated;and

• thatincentiveshavelowadministrativecostsforbothbusinessesandgovernment

Investorsmayqualifyautomaticallyforincentives,orinducementscouldbeprovidedon

adiscretionarybasis.Barbourcautionsthatdiscretionaryallocationallowsforeconomic

distortionssuchas,favour-seeking,corruptionorproceduralineffectiveness.Wellset

alnotethat ‘incentiveswillgenerallyneithermakeupforseriousdeficiencies inthe

investmentenvironmentnorgeneratethedesiredlong-runstrategies.’29Governmentmay

hopetocounterbalanceanunfriendlyinvestmentenvironmentbymeansofincentives.

Whileinparticularcasestargetedinterventions(egfiscalincentives,exportprocessing


15


zones,orclustersupportmeasures)mayleadtohigherinvestment,employment,and

relatedspillovers,thereislittlesupportingevidencethatsuchinitiativesaresystemically

successful.30

S o u t h A F r I C A ’ S I N v e S t M e N t L A N D S C A P e

Since1994SouthAfrica’spolicyframeworkhastacitlyacknowledgedtheneedanddesire

forFDI,eventhoughforeign-sourcedM&Asoveraspecificrandvaluemaybereferred

tothecompetitionauthorities.Moreover,projectsinstrategicsectorsmustbecarefully

assessedintermsofprivateversussocialreturnsoninvestment.Theobjectivesgoverning

manydomesticandforeigninvestmentapprovalsinthosekeysectorsarethattheydo

notrepresentarisktotheeconomyandthattheyareinthepublicinterest.Asmentioned

above,inthisrespectthereisagapintheinvestmentpolicyframeworkthatgovernment

isattemptingtoaddress,initiallythroughtheNationalTreasury’sdiscussiondocumenton

cross-borderinvestment(seeendnote4).

Bythestandardsofemergingmarketsgenerally,SouthAfrica’sinvestmentpromotion

frameworkisstableandmodern.ThenationalinvestmentpromotionagencyTradeand

InvestmentSouthAfrica(TISA)andthenineprovincialagencies,aswellasseveralmunicipal

IPAs,arerelativelywell-resourced,andsectoraltargetingstrategiesareinplace.Inaddition,

TISAandtradeandinvestmentpromotionagencies(TIPAs)havebeeninstrumentalinthe

implementationandadministrationofthenationalinvestmentincentivesscheme.

Table3(seepages16and17)outlinesthepromotionalactivitiesatthoseTIPAsthat

participatedintheSAIIAsurveyandinterviews.

g o v e r N M e N t M A N A g e M e N t o F I N C e N t I v e S P r o g r A M M e S

TheSouthAfricangovernmentand its agenciesoffervarious investment incentives,

targetedatspecificsectorsortypesofbusinessactivities(seebelowforextensivelist).31

Inadditiontoregulatoryinterventions(forexampletherighttofreelyestablish;acquire;

anddisposeofcommercialinterests)andmarketstructureortariffnorms,thegovernment

provides financial and fiscal incentives to investment. In some instances, financial

incentivesalsohaveatax-relief,orfiscal,component.

TheEnterpriseOrganisation(TEO)isaunitoftheDepartmentofTradeandIndustry

(dti)responsibleforthedevelopmentofcompetitiveenterprisesthroughprovisionof

effectiveandaccessibleincentivesinsupportofnationalpriorities(forinstancethose

encompassedbytheNGPandIPAP).TEOisauthorisedto ‘amendrules for firmsin

distress[andto]administerthedtiincentiveprogrammesthroughmakingadministrative

requirementsmoreuserfriendly’.32Thedtioutlinestheeconomicfoundation33of its

incentivesschemeas:

• broadeningparticipation;

• competitiveness;

• services;

16



Gau

teng

(Cit

y of

Jo

hann

esbu

rg)

Kw

aZul

u-N

atal

Lim

popo

Mpu

mal

anga

Nor

ther

n C

ape

Nor

th W

est

Wes

tern

Cap

e

Sect

ors

for r

ecen

t in

vest

men

t pr

ojec

ts

• Pr

oper

ty

deve

lopm

ent

• to

urism

• fo

od a

nd

Beve

rage

s•

Reta

il de

velo

pmen

t•

fina

ncia

l ser

vice

s•

Agr

i-bus

ines

s

• A

irpor

ts a

nd p

ort

infra

stru

ctur

e•

Urb

an a

nd s

port

infra

stru

ctur

e•

hot

el d

evel

opm

ent

• Re

tail

prop

erty

de

velo

pmen

t•

IDZ

infra

stru

ctur

e•

Road

infra

stru

ctur

e

• Q

uarr

ying

• M

inin

g (p

latin

um)

• C

oal m

inin

g•

Reta

il de

velo

pmen

t•

Wat

er in

frast

ruct

ure

(dam

s)

• fo

od p

roce

ssin

g•

Min

ing

(gol

d)•

Agr

i-pro

cess

ing

• En

gine

erin

g/

cons

truct

ion

• Re

new

able

ene

rgy

(sola

r)•

Min

ing/

b

enef

icia

tion

(dia

mon

d hu

b)

• h

ospi

talit

y•

Reta

il•

Min

ing

(pla

tinum

)•

Min

ing

(iron

-ore

)•

Qua

rryi

ng•

Aut

omot

ive

com

pone

nts

• A

gri-b

usin

ess

• A

gric

ultu

re•

Road

infra

stru

ctur

e

• C

onst

ruct

ion

• Re

new

able

ene

rgy

• M

anuf

actu

ring

• BP

O•

ICt

• A

gri-b

usin

ess

• Re

al e

stat

e

Rece

nt

ince

ntiv

es u

sed

by

inve

stor

s

• Se

ctio

n 12

i•

Com

petit

iven

ess

impr

ovem

ent

• C

ritic

al in

frast

ruct

ure

• In

cent

ives

in th

e ca

tego

ry: S

MM

E D

evel

opm

ent

fina

ncia

l Ass

istan

ce•

Man

ufac

turin

g In

vest

men

t Pr

ogra

mm

e;

• to

urism

Sup

port

Prog

ram

me

• C

ritic

al In

frast

ruct

ure

Prog

ram

me

• C

oope

rativ

e In

cent

ive

Sche

me

• Bl

ack

Busin

ess

Supp

lier D

evel

opm

ent

• M

anuf

actu

ring

• C

ritic

al In

frast

ruct

ure

Prog

ram

me

• En

terp

rise

Inve

stm

ent

Prog

ram

me

• C

ritic

al In

frast

ruct

ure

• Ex

port

Mar

ketin

g &

In

vest

men

t Ass

istan

ce

• C

oope

rativ

e In

cent

ive

Sche

me

• C

ritic

al In

frast

ruct

ure

Prog

ram

me

• ta

x In

cent

ives

• In

dust

rial

Dev

elop

men

t fi

nanc

ial A

ssist

ance

• SM

ME

Dev

elop

men

t

• M

anuf

actu

ring

Inve

stm

ent

Prog

ram

me

• Ex

port

Mar

ketin

g &

In

vest

men

t Ass

istan

ce•

film

& t

elev

ision

In

cent

ive

• R&

D t

ax In

cent

ive

• BP

S In

cent

ive

Wer

e in

vest

ors

awar

e of

the

ince

ntiv

es p

rior

to in

vest

men

t?

No

Yes

Som

e in

vest

ors

wer

e aw

are,

oth

ers

not

No

No

Man

y in

vest

ors

wer

e no

t aw

are

of th

em,

but

a fa

ir pr

opor

tion

wer

e aw

are

Ab

out h

alf w

ere

awar

e of

them

, and

ha

lf w

ere

not

hav

e in

vest

ors

had

diffi

culty

un

ders

tand

ing

for w

hat

ince

ntiv

es th

ey

qual

ify?

No

No

Occ

asio

nal d

iffic

ulty

di

ffere

ntia

ting

ince

ntiv

es, s

o th

e pr

ovin

ce o

ffers

se

min

ar

Lack

of p

rior

know

ledg

e ha

s re

sulte

d in

som

e di

fficu

lties

Sinc

e th

e ap

poin

tmen

t of d

ti re

pres

enta

tive

to

adm

inist

er in

cent

ives

, no

repo

rted

diffi

culti

es

Som

e in

vest

ors

repo

rted

the

appl

icat

ion

proc

ess

som

ewha

t cu

mb

erso

me

Inve

stor

s ha

ve s

ome

diffi

culty

inte

rpre

ting

‘lang

uage

’ of t

he

ince

ntiv

e

Tabl

e 3

: Sur

vey

resp

onse

s fr

om p

rovi

ncia

l and

one

cit

y TI

PA(s

)


17


Gau

teng

(Cit

y of

Jo

hann

esbu

rg)

Kw

aZul

u-N

atal

Lim

popo

Mpu

mal

anga

Nor

ther

n C

ape

Nor

th W

est

Wes

tern

Cap

e

hav

e yo

u b

een

able

to m

odify

th

e in

cent

ive

in

any

way

?

No

No

Not

the

natio

nal

ince

ntiv

es. A

t m

unic

ipal

leve

l, no

n-fin

anci

al in

cent

ives

ca

n b

e va

ried

Not

the

natio

nal

ince

ntiv

esN

oN

o, th

is re

mai

ns th

e ar

ea o

f inf

luen

ce

of d

ti

No

Dom

estic

to

fore

ign

% ra

tio o

f in

vest

ors

usin

g in

cent

ives

?

Estim

ated

60:4

0Es

timat

ed95

:5Es

timat

ed45

:55

Estim

ated

80:2

0Es

timat

ed90

:10

Estim

ated

40:1

0Es

timat

ed60

:40

has

ther

e b

een

eval

uatio

n or

pe

rform

ance

m

onito

ring

of in

cent

ive

sche

me?

No

eval

uatio

nN

oN

o ev

alua

tion

No

eval

uatio

nN

o ev

alua

tion

Afte

rcar

e se

rvic

e fo

r in

vest

ors

– w

heth

er

or n

ot th

ey u

tilise

in

cent

ives

No

eval

uatio

n

Wha

t is

the

exte

nt o

f you

r in

vest

men

t pr

omot

ion

activ

ities

?

• A

dver

tisin

g•

Out

reac

h m

issio

ns•

Adv

ertis

ing

• Pr

oduc

t roa

d sh

ows

• In

vest

or c

onfe

renc

es•

Out

reac

h m

issio

ns

• A

dver

tisin

g•

Inve

stor

con

fere

nces

• O

utre

ach

miss

ions

• D

istric

t Sum

mits

• St

akeh

olde

r en

gage

men

ts•

Prov

inci

al e

vent

s

• A

dver

tisin

g in

fo

reig

n jo

urna

ls•

DtI

-led

outre

ach

miss

ions

• In

vest

or c

onfe

renc

es

• O

utw

ard

miss

ions

w

ith t

ISA

• A

rticl

es p

lace

d w

ith

trad

e an

d In

vest

SA

• Pr

ojec

t roa

d sh

ows

• O

ne-o

n-on

e w

orks

hops

with

tEO

at

dti

• In

vest

or

conf

eren

ces,

trade

fa

irs a

nd tr

ade

miss

ions

• dt

i out

reac

h m

issio

ns/p

roje

ct ro

ad

show

s•

Med

ia re

leas

es,

inve

stor

dec

lara

tions

, b

ell r

ingi

ng

for s

ucce

ssfu

l de

clar

atio

ns

Not

e:E

aste

rnC

ape

and

Fre

eSt

ate

wer

ein

vite

d,b

ut

did

not

res

pon

d

18



• manufacturing;and

• infrastructure.

TEOco-ordinatesnationally,provinciallyand locallywithgovernmentdepartments;

withtheSmallEnterpriseDevelopmentAgency(SEDA)andvariousbusinesssupport

agencies;andwithdevelopmentfinanceinstitutionssuchastheIndustrialDevelopment

Corporation(IDC)andtheDevelopmentBankofSouthernAfrica(DBSA),aswellaswith

provincialTIPAs.Thismulti-levelapproachpresentschallengestothedepartment,inthe

lightofwhicheffortsarebeingmadetoforgestrongworkingrelationships.

Anumberofincentivesaremanagedbyothergovernmentagencies.Usually,ifanother

agencyhasacomparativeadvantageinadministeringaspecificprogramme,itisthengiven

responsibilityforit.ForinstancetheIDC,areputabledevelopmentfundinginstitution,is

well-placedtomanagetheSupportProgrammeforIndustrialInnovation(SPII)described

below.Finaladministration,however,remainswiththedti.The11incentivesmanaged

andadministeredbyTEOwithinthedtiareshowninTable4.

Table 4: Overview of dti-managed incentives

Critical Infrastructure Programme

Launched in August 2000, it has supported 42 investment projects worth ZAR34 88.4 billion in investment. Grants of ZAR 1,147,054,564 have been issued, creating 47 219 permanent jobs.

Enterprise Investment Programme

a) Combined: Manufacturing Investment Programme (MIP) and foreign Investment Grant (fIG): 2008 to March 2011, 846 projects approved, with ZAR 2,292,008,317 of funds committed at total cost to fiscus of ZAR 198,380,873, creating 2 851 direct jobs; projected to create 23 996 direct jobs.

b) tourism Support Programme: Between 2008 and March 2011, 401 projects approved: ZAR 869,369,283 in investment commitments costing the fiscus ZAR 64,039,658; 283 direct jobs created.

Automotive Investment Scheme

July 2009–March 2011, 36 projects approved and ZAR 2,155,688,982 investment commitments at total cost to fiscus of ZAR 249,252,065; 15 014 direct jobs created.

a) Business Process Outsourcing and Offshoring Incentiveb) Business Process Service Incentive

a) December 2006–March 2011, 18 projects approved worth ZAR 362,788,365 in commitments and total cost to fiscus of ZAR 260,743,329; 7 275 direct jobs supported.

b) January 2011–March 2011, 10 projects approved with ZAR 157,760,000 funds committed; 3 944 projected direct jobs.

12-i tax Allowance four projects recommended by adjudication committee since 31 March 2011, total investment ZAR 4.1 billion, with investment allowance of ZAR 1.3 billion and training allowance of ZAR 13.3 million; 370 direct jobs created.

film and television Incentive

Approval granted to 169 films with ZAR 704,165,844 funds committed at total cost to fiscus of ZAR 377,620,856.


19


Cooperative Incentive Scheme

from 2005 to March 2011, 455 projects approved worth ZAR 100,509,964 in commitments and total cost to fiscus of ZAR 92,523,000. Study commissioned in June 2011 aims to determine why most co-operatives so far assisted by CIS to date are still performing poorly. Recommendations for the co-operatives include marketing, technical assistance, mentoring and administrative assistance.

Export Marketing and Investment Scheme

August 1997–31 March 2011, 7 295 projects approved with ZAR 452,947,886 funds committed, at total cost to fiscus of ZAR 350,866,370; 10 545 jobs supported.

Black Business Supplier Development Programme

from 2002 to March 2011, 10 761 projects approved of ZAR 458,189,045 in investment commitment and total cost to fiscus of ZAR 303,889,103.

Industrial Development Zones

Since first operator permit issued in 2007, total investment of ZAR 5,749,650,000 with total cost to fiscus of ZAR 4,830,842,000; 41 229 projected direct jobs (construction and investor combined).

Capital Projects feasibility Programme

twenty-two feasibility projects approved, of which three are bankable; a total commitment of ZAR 67,272,343 at total cost to fiscus of ZAR 32,219,901 in agro-processing, mining and infrastructure.

Source:dtipresentationtoPortfolioCommitteeonTradeandIndustry,19October2011

TEOhaspointedtotheneedforacomprehensivesetofincentivestoaddressdiverse

economicobjectives:

[I]ndevelopingsoundpolicy ...eachpolicy instrumentshouldhave limitedobjectives

whichtalktothetypeofmarket/institutionalfailurethatisbeingaddressedorobjective

thatisbeingpromoted.Havingonlyoneincentiveschemewith[forexample,]themultiple

objectivestopromotejobcreationinthemanufacturingsector,assistsmallcompaniesto

accessexportmarkets,andattractBPOproviderstolocateinSouthAfricawouldcausemore

confusionthanhavingthree[separate]schemes.35

C A t A L o g u e o F I N C e N t I v e S

ProgrammesundertheSMMEdevelopmentfinancialassistanceincentives,forthemost

part,concentrateontheaimsoftheBroad-BasedBlackEconomicEmpowermentAct

53of2003(BBBEEAct).Otherincentivesorsub-programmes,however,alsocentreon

entrepreneursorsmallbusinessesfrompreviouslydisadvantagedsectorsofthepopulation.

OneexampleistheProjectFundingforEmergingExporters,asub-programmeofthe

Sector-SpecificAssistanceScheme(SSAS).

ThroughtheBBBEEAct,thequesttoaddressandcorrectnon-participationinthe

economybyhistoricallydisadvantagedcommunitieshasbecomeacriticalgovernment

obligation.TheActisdesignedtotransformtheeconomysothatblack(ieAfrican,Indian

20



andColoured)people,andwomen,youth,thosewithdisabilitiesandpeoplelivingin

ruralareas,areintegratedintoownership,managementandlabourforcesinenterprises

andproductiveassets.Suchassetsincludecompanies,co-operativesandothercollective

enterprises.

SMME development financial assistance incentives

IncentivesgearedtowardsincreasingparticipationfromSMMEsincludethefollowing

programmesandsub-programmes.

• BlackBusinessSupplierDevelopmentProgramme

• CooperativeIncentiveScheme

• EnterpriseInvestmentProgramme,formerlytheSmallandMediumEnterprise

DevelopmentProgramme

• IsivandeWomen’sFund

• SmallEnterpriseDevelopmentAgency(SEDA)TechnologyProgramme

• SupportProgrammeforIndustrialInnovation

Operationalsince2002butrevisedandre-launchedin2011,theBlackBusinessSupplier

DevelopmentProgrammeaims to improvecorecompetencies,upgrademanagement

capabilitiesandpromoteblackbusinesscompetitiveness in themainstreambusiness

environment.TheprogrammehasagrantmaximumofZAR1million(ZAR800,000for

tools,machineryandequipmentandZAR200,000forbusinessdevelopmentservices)

madeavailableona65:35and50:50cost-sharingbasisbetweenthedtiandthebeneficiary

enterprise.From2002toMarch2011,ZAR458,189,045hasbeencommittedto10761

businesseswithatotalcosttothefiscusofZAR303,889,103.Gautengprovincereceived

5849outofthetotal10761approvals.

The Cooperative Incentive Scheme permits maximum grants of ZAR 300,000 to

co-operativeenterprisesthatcanmakemultipleapplicationsprovidedthecumulative

awarddoesnotexceedZAR300,000.Accordingtothedti,from2005untilMay2011,

455co-operativesreceivedgrantstotallingZAR100,509,964,costingtheexchequerZAR

92,523,000.Workshopsrunbythedtiintheprovinceshaveresultedinahighervolume

ofapplications.TheEasternCapeshoweda20%increase,Limpopo27%,Gauteng16%,

theNorthernCapeandNorthWesteach3%,KwaZulu-Natal15%,theWesternCape9%,

andFreeState1%.

TheEnterpriseInvestmentProgramme(EIP)consistsofthreesub-programmes.

• TheManufacturing InvestmentProgramme,aimedat stimulating investmentand

employmentinthemanufacturingindustry.

• TheTourismSupportProgramme,aimedatstimulatingjobcreationandencouraging

thegeographicalspreadoftourismactivities,aswellasBBBEEimplementation.

• TheForeignInvestmentGrant,whichcompensatesqualifyingforeigninvestorsfor

costsincurredintransportingnewmachineryandequipment(exceptvehicles)to

SouthAfricafromabroad.Intendedbeneficiariesaresolelyforeigninvestors.Benefits

includeacashgrant(thelesseramountof15%ofthevalueofnewmachineryand

equipment;oritsactualrelocationcost)toamaximumofZAR10million.


21


TheEIPisconsideredbythedtiasthemainincentiveinthedepartment’ssuiteandis

thelargestbyvolumesofapplicationsassessed.TheEIPisalsothefirstincentivepackage

tobemadeavailableforonlineprocessing36.

The Isivande Women’s Fund was established by the dti Gender and Women

EmpowermentUnitinpartnershipwithOldMutualMasisizaneFund.Thefundistargeted

at60%female-ownedor-managedenterprisesthathaveoperatedfortwoyearsormore.It

offersaloanrangeofZAR30,000toZAR2million.Managementofthefundiscontracted

outtotheIDC.

The SEDA Technology Programme was set up in April 2006 in an attempt to

consolidate small enterprise activities. Grants range up to ZAR 800,000 for tools,

machineryandequipment;madeona35:65cost-sharingbasis(withthedticarryingthe

smallerproportion);andtoZAR200,000forbusinessdevelopmentservicesona50:50

cost-sharingbasis.

TheSupportProgrammeforIndustrialInnovation(SPII)arosefromarestructuring

inApril1993oftheInnovationSupportforElectronics,whichwasinitiallyconfinedto

theelectronicsindustry,inordertospreaditsdevelopmenteffortsacrossalleconomic

sectors.TheoriginoftheSPIIliesinthischange.TheSPIIanditssub-programmes–

theProductProcessDevelopment (PPD), theMatchingSchemeand thePartnership

Scheme–areaimedatpromotingtechnologicaldevelopmentandcommercialisationin

SouthAfrica.Theprogrammeprovidesfinancialassistancefordevelopingcommercially

viable, innovative products or processes and facilitating commercialisation of such

technologies.SPIIishousedinthedevelopmentfundsdepartmentwithintheIDC,and

theadministration team is ledbya senior fundmanager, responsible for theoverall

managementoftheSPIIfund.

Inthefinancialyearto31March2011,20projectstotallingZAR22.8millionwere

approved,asagainstZAR100.9millionfor57projectsinthe2009–2010financialyear.

Approximately95%ofprojectapprovalsweretocompanieswithtotalassetsoflessthan

ZAR10millioninthePPDandMatchingSchemes,upfrom84%inthepreviousfinancial

year.TherewerenoPartnershipSchemeapprovals,noranyforwomen,andonlyoneBEE

approvalunderthePPDScheme.

ThePPDgainedfurtheracceptance,with11oftheSPII’s20projectallotments(55%)

inthefundingperiod.ThePPDschemeaimstoencouragenewproductdevelopment

insmallenterprises.NationalBEEandgenderobjectivesaresupportedinsofarasfirms

canapplyforgrantsoverandabovethe50%baselevel,upto85%dependingonthe

percentageoftheirownershipbyblackpeople,womenorthedisabled.

Duringthe2010–2011financialyear,eightapprovalswereallocatedtoelectronicsand

softwaresectors,whichjointlyreceived40%ofthetotal,whereasin2009–2010thetwo

sectorsaccountedfor52.6%oftotalapprovals.Otherimportantsub-sectorswereplastics

(15%)andmedicalandelectro-machinery(10%).37

Industrial development financial assistance incentives

Incentivesfordevelopingindustrialprogrammesinclude:

• IncomeTaxandTrainingAllowance(Section12i);

• IndustrialDevelopmentZones;

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• BusinessProcessServices(BPS);

• theCriticalInfrastructureProgramme;

• theCapitalProjectsFeasibilityProgramme;

• theClothingandTextileCompetitivenessImprovementProgramme(CTCIP);and

• theTechnologyandHumanResourcesforIndustryProgramme(THRIP).

BasedonSection12iof the IncomeTaxAct (ActNo.58of1962), the IncomeTax

Allowanceprovidesataxandtrainingincentiveformanufacturingoperations.Intended

beneficiaries include investors in greenfield (ie new industrial) and brownfield

(ieexpansionsorupgrades)projects.AllowancesareprovideduptoZAR900millionin

greenfieldprojectswithpreferredstatus;38ZAR550millioninothergreenfieldprojects;

ZAR550millioninbrownfieldprojectswithapreferredstatus;andZAR350millionfor

otherbrownfieldprojects.Inadditiontheallowanceschemepermitsthedeductionfrom

taxableincomeofanadditionaltrainingallowanceofZAR36,000foreachemployee,as

wellasamaximumtotaladditionaltrainingallowanceperprojectofZAR20millionin

thecaseofaqualifyingproject,andZAR30millionforapreferredproject.

Box 1: Industrial Development Zone (IDZ) incentive

the IDZ programme was introduced in the Manufacturing Development Act (No. 187 of 1993). IDZs are purpose-built industrial estates linked to an international air or sea port, aimed at attaining increased levels of fDI in the formal, developed economy. the scheme is intended to boost foreign and local investment. typically, IDZs contain one or more Customs Controlled Area (CCA) for manufacturing and storage of goods to boost beneficiation, investment, economic growth and the development of skills and employment in the region concerned.

the South African Revenue Service offers the following tax incentives to enterprises in CCAs:

• relief from customs duties at time of importation;• relief on goods for storage;• relief on raw material for manufacture; and on• machinery used in manufacturing.

Measures to simplify customs procedures, including those concerning:

• clearance of goods (importation, exportation and transit);• applications for designation, licensing and registration;• release of cargo;• consideration of stage consignments if the requirements are met;• consideration of release under embargo; and• lesser amounts levied for security (licensing, registration and movement of bonded goods).

fiscal incentives on goods when:

• goods are imported for storage; • raw material is imported for manufacture; • machinery is imported for use in the manufacturing process; • any material is imported for use in construction of CCA infrastructure;


23


• goods are exported from the CCA to a foreign country; and• any services are rendered to a Customs Controlled Area Enterprise (CCAE), or in the CCA.

Subsidised infrastructure.

• No import duties to be payable on goods imported for use in the construction and maintenance of the infrastructure of a CCA in an IDZ (rebate item 498.02).

• No value-Added tax (vAt) shall be payable on goods imported for use in the construction and maintenance of the infrastructure of a CCA.

• No vAt is payable on land supplied to a CCAE in the CCA for sale, letting or any other agreement.

• No vAt is payable on electricity or water supplied to the IDZ operator or a CCA enterprise in the CCA.

In terms of the Customs and Excise Act39 the following activities are allowed in a CCA:

• production or manufacture of any goods (other than goods liable to any excise duty, fuel levy or environmental levy), produced or manufactured in accordance with the provisions of section 75, the item of the relevant Schedule and section 21A and these rules;

• production or manufacture of any goods liable to excise duty, fuel levy or environmental levy, removed to and used in a licensed customs and excise manufacturing warehouse in accordance with the provisions of the Act; and

• storage of imported goods for export in the same condition as imported, or to undergo operations necessary for their preservation, or to improve the packaging or marketable quantity or quality or to prepare them for shipment (such as break bulk, grouping of packages, sorting and grading or re-packing) before exportation.

the taxation Laws Amendment Bill (19 of 2011) proposes further deductions for IDZ projects. the bill states that in the case of greenfield projects, manufacturers in an IDZ should be able to claim a 100% deduction of the cost of manufacturing assets (the allowed deduction in non-IDZ investments is 55%). for brownfield IDZ projects the proposed deduction is 75% of manufacturing assets (outside IDZs the deduction is 35%).

South Africa has four IDZs.

• Coega in Port Elizabeth; designated in 2001 and issued with an operator permit in 2007.

• East London; designated in 2002 and issued with an operator permit in 2007. • Richards Bay; designated in 2002 and issued with an operator permit in 2009.• OR tambo International Airport, Johannesburg; designated in 2002 and issued with

operator permit in 2010.

IPAP 2 identified the desirability of an additional IDZ at Saldanha Bay, which was declared a designated IDZ on 24 October 2011.

Black Business Quarterly Online40 recently examined the success of IDZs from the perspective of various academics and industry leaders. One pertinent observation relates to a requirement for regulation of the environment, among other things, to be balanced against the need for greater freedom for private enterprises in free trade zones. State involvement is not regarded as deficient because Coega alone has already received about ZAR 8 billion in state investment. this figure includes ZAR 3.1 billion for the port, ZAR 2 billion

24



BPSisasectoridentifiedbyIPAP2askeytoinvestmentandjobcreation.Formerlythe

BusinessProcessOutsourcingandOff-shoringincentiveprogramme,itwastransformed

intothecurrentBPSandbeganoperationsinJuly2007.BetweenthenandMarch2010it

resultedinthecreationofmorethan6000newjobsandattractedaboutZAR300million

ininvestment.

Aspartofitscontinuingeffortstotapintothemulti-billiondollarglobalBusiness

ProcessOutsourcing(BPO)industryandgainacompetitiveedgeoveritsrivalsinthe

industry, thedtiundertooka reviewof theBPS incentiveprogramme.SouthAfrica’s

incentiveswerecomparedwiththoseofestablishedoffshorelocationsinIndiaandthe

Philippines,andwithso-calledTier2competitorsinEgypt,MalaysiaandKenya.That

studyresultedinafurtherrevisionoftheBPSprogramme,starting1January2011and

terminatingon31March2014.Therevisedprogrammewill reduce thecostofBPO

operationsinSouthAfricabyupto20%,payinginvestorsZAR112,000foreachfull-

timejobcreatedandmaintained.TheincentiveincludesacomponentcalledMonyetla

(seSothofor‘opportunity’),designedtoprovidework-readinesstrainingandplacement

forentry levelagents in theBPS industry.Apilotprogrammein2008trained1117

youngunemployedSouthAfricansatacostofZAR15,000each,asumwhichincluded

adailystipend.Ofthese,77%wereregardedassufficientlycompetenttofindpermanent

employment.42

Incentivesundertheschemewillbepaidoverathree-yearperiodininstalmentsofZAR

40,000(firstyear),ZAR40,000(secondyear)andZAR32,000(finalyear).Theprogramme

willrunforfiveyears,ofwhichanythreemaybeusedforincentives.Benefitsinclude:

for infrastructure in the IDZ, ZAR 2.1 billion to upgrade power infrastructure, and a ZAR 500 million facilities upgrade investment from the South African government’s rail company Spoornet.

According to dti statistics on IDZs,41 the total value of the investment is ZAR 15,749,650,000 and the total cost to the fiscus, ZAR 4,830,842,000. the number of direct projected jobs (including those in construction) is 41 229 and the average cost per job, ZAR 117,171.

In line with IPAP 2 and the NGP, the dti has recognised the need to regionally diversify

manufacturing industries from traditional industrial hubs to new economic regions. the

IDZ scheme will be expanded into a Special Economic Zones (SEZ) programme that will

comprise IDZs and other types of specialised zone.

If effectively managed, IDZs can be useful in promoting a regionally diverse manufacturing

industry and fostering regional coherence and integration. to that end that the following

measures are now being addressed:

• developing a governance model for industrial zones;

• promoting stakeholder co-ordination (including ports, railways, electricity supply, customs,

and permits);

• re-visiting existing funding and business models; and

• developing strategies to attract more investors to the SEZ (IDZs and others).


25


• agraduatedbonusincentivetobepaidoverandabovethecurrentschemeforqualified

companies,allowingforadditionalfinancialbonuses;

• aone-offbonusof20%tobepaid tooperationsprovidingbetween400and800

offshorejobs;and

• aone-offbonusof30%tobepaidtooperationsprovidingmorethan800jobs.

ThetotalallowanceofZAR112,000isalmosttwicethatoftheincentivepreviouslypaid

andmakesSouthAfricamuchmorecompetitivethanitsTier2rivals(Egypt,Mauritius

andMorocco)aswellasseveralEasternEuropeancountries.Theprogrammeisopento

localandforeigninvestors,registeredaslegalentitiesinSouthAfrica,thatcreateatleast

10offshorejobseachyear.

The CIP provides a non-refundable cash grant of between 10% and 30% of the

totaldevelopmentcostsofqualifyinginfrastructure.It ismadeavailabletoapproved

beneficiariesuponcompletionoftheparticularproject.Infrastructureisdeemedtobe

‘critical’iftheinfrastructureisnecessaryforaninvestmentthatcouldnotgoforward

withouttheCIPcontribution;orifitwouldbedemonstrablyofsmallerscaleorlower

qualityifestablishedlaterthanintended.Potentialbeneficiariesincludepublicsector

entitiessuchasmunicipalities,privateinvestors,public-privatepartnerships(PPP)and

investorsinstrategiceconomicprojects.Benefitsconsistofamaximumcashgrantof30%

ofthedevelopmentcostofqualifyinginfrastructure.

TheCapitalProjectsFeasibilityProgrammeisacost-sharingscheme.SouthAfrican

enterprisesmayreceiveinadvanceaportionofthecostoffeasibilitystudieslikelytolead

toprojectsbeyondthecountry’sbordersthatincreaseSouthAfricanexportsandstimulate

themarketforSouthAfricancapitalgoodsandservices.Theprogrammewillcontribute

amaximumof50%ofstudycostsforinternationalprojectsoutsideAfricaand55%for

projectswithinAfrica.

The CTCIP is aimed at stimulating competition among clothing and textile

manufacturerswithaviewtoeventuallycompetinginternationally.EffectivesinceApril

2009,itprovidesinvestmentsupporttolocalandforeignenterprises,offeringacost-

sharinggrantincentiveof75%ofprojectcostforclusterprojects,and65%ofprojectcost

forsingle-companyprojects.UnderaCTCIPsub-programme,theProductionIncentive,

applicantscanusethefullbenefitaseitheranupgradegrantfacilityoraninterestsubsidy,

oracombinationofboth.TheprogrammeissupervisedbytheIDC,whichevaluatesall

businessproposals.

Established in 1992, THRIP is a partnership programme funded by the dti and

managedby theNationalResearchFoundation.Onacost-sharingPPPbasis,THRIP

supportsscience,engineeringandtechnologyresearchcollaborationsthatcentreonthe

technologicalneedsofparticipatingfirms,andencouragethepersonaldevelopmentand

mobilityofresearchpersonnelandstudentsamongparticipatingorganisations.Companies

investjointlywithTHRIPinthoseresearchprojectsthatareheadedbypersonnelonthe

academicstaffofSouthAfricanHigherEducationInstitutions(HEIs).THRIPmatches

theindustry’sinvestmentinthecaseofprojectsonwhichresearchersandexpertsfrom

Science,EngineeringandTechnologyInstitutions(SETIs)serveasprojectleaders,and

studentsaretrained.Inaddition,TransferOfPeople(‘Tiptop’)schemespromoteresearcher

andstudentmobilityamongindustrialparticipantsandtheHEIsandSETIsinvolvedin

theprojects.

26



Trade, Export Promotion and Investment Financial Assistance Incentives

Thedtihasdesignedthefollowingincentiveswiththeirsub-programmes,topromote

exportdevelopment,marketaccessandforeigndirectinvestment:

• theExportMarketingandInvestmentAssistanceprogramme;

• the Automotive Investment Scheme, already in force as part of the Automotive

Production and Development Programme that will replace the Motor Industry

DevelopmentProgramme(MIDP)in2013;

• theFilmandTelevisionIncentive;and

• theSector-SpecificAssistanceScheme.

TheExportMarketingandInvestmentAssistanceschemepartiallycompensatesexporters

foractivitiesaimedatdevelopingexportmarketsforSouthAfricanproductsandservices,

andattractingnewFDI.Theprogrammeisdirectedatlocalmanufacturersandexporters;

exporthousesrepresentingthreeormoreSMMEs,orHDIenterprises;SouthAfrican

commissionagentsrepresentingatleastthreeSMMEsorHDI-ownedbusinesses;and

SouthAfricanexportcouncils,industryassociationsandjointactiongroupsrepresenting

atleastfiveSouthAfricanentities.Benefitsincludehelpwithexhibitionparticipation,

including rental costs of exhibition space, construction of stands, translation and

interpreterfees,Internetconnection,telephoneinstallation,andregistrationfeesuptoa

maximumofZAR45,000.Inaddition,primarymarketresearchcostsandcostsincurred

bringingnewFDIintoSouthAfricathroughpersonalcontactwithpotentialinvestorsin

foreigncountries,willbecompensated.Finally,costsinvolvedincapacity-buildingand

skillstransfermayalsoqualifyforassistance.

Box 2: Incentives supporting the South African automotive industry

the manufacturing and retail automotive industry contributes about 6% to South Africa’s Gross Domestic Product and automotive exports make up almost 12% of total exports. the MIDP was started in 1995 to restructure the South African automotive industry away from import-substitution towards export-orientated production. Prior to 1995 the local content stipulation of 60% of the vehicle value contributed to a production structure of relatively low volumes and consequent high manufacturing cost.

the MIDP abolished local content requirements and introduced a phasing-down of tariffs on imports of light motor vehicles and automotive components (in the process, incidentally, going beyond South Africa’s obligations to the World trade Organisation). the programme was aimed at increasing production volumes through specialisation in vehicles and components.43 In 2002 the Ministry of trade and Industry extended the programme to the end of 2012. Import duties and duty rebates will continue to decline until the programme ends.

Under the MIDP a total of more than ZAR32 billion has been invested since 2000; and at least ZAR4 billion more is to be invested during 2011. An estimated 90 000 people are directly employed in automotive manufacture (in which at least 20 000 jobs have been lost


27


since the 2008 recession). In addition, about 200 000 are employed in the retail chain and the after-market.

In 2013 the Automotive Production and Development Programme (APDP) will replace the MIDP and will remain in place until 2020. the new incentive programme sees a shift in emphasis from exporting to more intensive production. the key objectives of the APDP include:

• increasing automotive vehicle production to 1.2 million vehicles a year by 2020, with a related expansion of the components industry;

• providing appropriate support for these targets;• expanding value-added production, investment, employment and net government

revenue directly and through the multiplier effect; • achieving better balance between domestic and export markets to meet growing

domestic demand; and• contributing to the balance of payments.

the four main components of the APDP are:

• import tariffs of 25% will be introduced from 2012 for completely built-up vehicles and 20% for components used in vehicle assembly;

• a local assembly allowance for manufacturers producing more than 50 000 vehicles a year to import 20% of their components duty-free, reducing to 18% over three years;

• a tradeable duty credit of 55% for production on the value-added element of components, measured from the selling price minus raw material costs. this will reduce to 50% over five years and an additional 5% will be made available for vulnerable sub-sectors; and

• an allowance in the form of a grant to the value of 20% of the project over three years, to support investment in new plant and machinery.

the Automotive Investment Scheme (AIS) is a cash grant incorporated into the APDP (although in force since 2010) that sets the framework for the medium- and long-term development of the industry. the AIS offers a grant of 20% of an investment subject to certain performance criteria, including growth in volumes and employment, new technology and localisation; with an additional incentive of 10% tied to development performance. the Ministry of trade and Industry estimates that the AIS has led to planned investments of ZAR13 billion by motor assemblers and component suppliers, supporting 24 000 jobs.

the Eastern Cape automobile industry, home to the automotive ‘big four’ manufacturers, contributes about 40% of South Africa’s motor sales, 60% of automotive exports and approximately 30% of the province’s employment. volkswagen South Africa has a factory in Uitenhage; ford and General Motors have plants in Port Elizabeth; and Daimler Chrysler is based in East London. Port Elizabeth has South Africa’s largest concentration of automobile manufacture and component suppliers. the IDC, having identified motor manufacture as a sector in which South Africa holds a strong competitive advantage, has a 45% stake in Umicore Autocat South Africa, a materials technology specialist with a factory in Port Elizabeth. Parent Umicore Group of Belgium holds the remaining 55%.

28



GovernmentofferstheFilmandTelevisionIncentivetopromotethefilmproduction

industry.Theincentivecomprisestwosub-programmes,theForeignFilmandTelevision

Productionincentivetoattractforeign-basedfilm-makerstoshootonlocationinSouth

Africa,andtheSouthAfricanFilmandTelevisionProductionandCo-productionIncentive

toassistSouthAfricanfilmcompaniesintheproductionoflocalcontent.Benefitsunder

theprogrammeamountto15%and35%oftheQualifyingSouthAfricanProduction

ExpenditurecappedatZAR20million.By2011,169filmshadbeenapprovedandZAR

704,165,844infundscommitted,withatotalcosttothefiscusofZAR377,620,856.

TheSectorSpecificAssistanceScheme(SSAS)isdesignedtohelpfundnon-profit

organisationsinsectorsandsub-sectorsofindustryprioritisedbythedti,throughtwo

sub-programmes:GenericFunding,fortheestablishmentofanexportcouncil;andProject

fundingforEmergingExporterstoaidinexhibitionparticipationandoutreachmissions

forexportentrepreneurs.Theorganisation’spurposeortheaimsofitsproposedproject

mustconformtotheexportstrategyofTISA,withamongotherthingsa35%localcontent

requirementforpotentialexports.

Fiscal incentives

In 2006 the Investment Climate Advisory Service (FIAS) of the World Bank was

commissionedbytheNationalTreasury, inconjunctionwithSARS, toconducta tax

burdenstudyonfiveofSouthAfrica’skeyeconomicsectors:manufacturing,agriculture,

mining,finance,andtourism.Thestudyaimedtoprovidethegovernmentwithananalysis

ofitstaxandincentiveschemesthroughmarginaleffectivetaxrate(METR)44calculations;

andwithanassessmentofthecountry’sinternationalcompetitiveness.

Thestudyconcludedthat theSouthAfricantaxsystem ‘didnotcontainanover-

abundanceoftargetedincentiveschemes’.Itdoesnotoffertaxholidays,forexample,and

therearefewtargetedinvestmentallowancesandtaxcredits.SouthAfricawasfoundto

bebroadlycompetitivewithotherSADCcountriesexaminedandwithpeereconomies

globally.Itwasfelt,however,thattherewasroomforareductioninthetaxburden.FIAS

recommendedtherevisionofboththeSmallandMediumDevelopmentProject(SMEDP)

andtheStrategicInvestmentProgramme.Theseprogrammesweresubsequentlyreplaced;

SMEDPbytheEIP(seep22),andtheStrategicInvestmentProgrammebytheIncomeTax

Allowance(Section12ioftheAct).

Fiscalincentives45availableforinvestorsinclude:

• preferentialcorporatetaxratesforsmallbusiness.SMEswithaturnoverfortheyearof

assessmentnotexceedingZAR14millionareeligiblefortaxdeductionsofupto10%

forincomesbetweenZAR59,751andZAR300,000;uptoZAR24,025forincomes

overZAR300,001andanadditional28%foramountsoverZAR300,000;

• R&Dincentives.Taxdeductionsmaybeincreasedto150%forexpenditureincurred

onorafter2November2006inthediscoveryof‘novel,practicalandnon-obvious

information’indevising,developingorcreatinganyinvention,designorcomputer

programmeoranyknowledgeessentialtotheuseoftheinvention,designorcomputer

programme;

• a special depreciation allowance. Such allowances are made for building and

refurbishmentofplantandmachinery,hotelequipment,agriculturalandmanufacturing


29


buildings and renewable energy installations. They vary between 5% a year for

refurbishmentto50%ayearforrenewableenergy.Theallowanceperiodisthreeyears;

• anUrbanDevelopmentZoneTaxIncentive.Ataxpayerwillqualifyfortheallowance

onlyinrespectoftheerection,expansionoradditiontoabuildingorthepurchaseof

abuildingfromadeveloper,forthesolepurposesofthatperson’strade,onorbefore

31March2014.Theuseofthebuildingwilldeterminetheperiodoftheallowance

(fouryearsforimprovementtolow-costresidentialunits,fiveyearsforimprovement

toexistingbuildingsortheirpurchasefromadeveloper,sevenyearsfortheerection,

extensionoraddition to low-cost residentialunitsand11years for theerection,

extension,additionorpurchaseofsuchbuildings);

• anInfrastructuralDevelopmentIncentive.Ataxdeductionof10%ofannualcostis

grantedinrespectofanyneworunusedaffectedassetsownedbythetaxpayeron

pipelinesusedtotransportnaturaloil,and5%ofthecostofallotheraffectedassets;

• PPP allowance. Qualifying government grants utilised by the taxpayer to effect

improvementstostate-ownedpropertyareexemptfromtax.Theallowancesarefor25

years;ortheperiodofthelease,whicheverisshorter;

• rollingstockdepreciation.Rollingstockisdefinedasrailwaylocomotives,carriages

andothervehicles.Adeductionispermittedof20%ayearofthecostincurredin

respectofrollingstockbroughtintouseonorafter1January2008;

• environmentalexpendituredeductions.Environmentaltreatmentandrecyclingassets

ancillarytoamanufacturingprocessqualifyforreliefof40%forthefirstyearand20%

forthesecondtofourthyears.Thereisafurther5%allowanceontheannualcostof

wastedisposalassets;

• commercialbuildingsdepreciation.A5%annualdepreciationallowanceispermitted

on new or unused buildings (and improvements) used wholly or mainly in the

productionofincome,wherethebuildingisownedbythetaxpayer;

• carbon-reducing charges. Companies which receive primary certified emission

reductions(CERs)revenuefromcleandevelopmentmechanism(CDM)projectsare

taxexemptinrespectofdisposalsonorafter11February2009;

• energyexpenditureallowances.Toprovidereliefforthedepreciationofenergy-efficient

equipment,anadditionalallowanceofupto15%isprovided,subjecttoconditions

(theeffectivedateofthemeasurehasnotyetbeenannounced);

• oilandgasincometaxincentives.Taxincentivesareofferedtooilandgascompanies

involvedinexplorationandproduction,andincidentalbusinessactivities,insideSouth

Africa.Priorto2007theincentiveappliedonlytoexplorationandproduction;

• underwatertelecommunicationcableallowances.Toprovidereliefforthedepreciation

ofunderwater cables forvoiceanddatacommunicationsoff theAfricancoast, a

depreciationwrite-offof5%over20yearsisavailable;finally

• filmrebatesubsidies.TaxrebatesforportionsofthecostinvolvedinproducingaSouth

Africanfilmareextendedtoinvestor-ownerswithouttriggeringadditionaltax.

Local and municipal incentives

Unlikerules-basednationalincentives,certainlocalmunicipalitiesarepermittedtooffer

acombinationofincentivestopotentialinvestors,someonadiscretionarybasis.They

aretypicallyofferedtocompaniesonacase-by-casebasistoinduceemployerstolocate

30



orexpandintheareaprovidedtheymeetparticularrequirementsandundertakespecific

obligations.Ascautionedearlier,discretionaryincentivesareinherentlylesstransparent

andofferopportunitiesforrent-seekingorcollusion.

Localandmunicipalincentivesmayinclude:

• discountsonservicecosts(water,electricityandrates);

• rebatesonmunicipalbuildingplanapprovalcostsforapprovedinvestments;

• discountsonratesandservicesfornewinvestments;and

• discountsonmunicipallandandbuildingrentals.

S u r v e Y A N D I N t e r v I e w r e S e A r C h

Some interesting perspectives emerged from interviews with government agencies

andIPAsattheprovinces.Aninterviewform(seeAppendix1)servedasthebasisof

questioningforface-to-face,emailandtelephoneinterviews.Participantsgenerallyhad

afewdaystoreadthequestionnaire,consulttheircolleagues,completetheformand

conductatelephoneorpersonalconsultationwiththeinterviewer.

IPAsresponsibleforinvestorfacilitationprovidedcommentsfromtheinvestorgroups

theyserved.Arelativelylargenumberofdomesticandforeigninvestorswereunawareof

theSouthAfricaninvestmentincentiveschemes.Inmanyinstanceswhereinvestorswere

awareoftheschemetheywereunsureofwhichprogrammestheirprojectsqualifiedfor,

orhowtoaccessthem.

Many,especiallyforeigninvestors,reliedonspecialisedconsultingfirmstoassistthem

withtheapplicationprocess.IPAstaffreportedthatinsomeinstancestheyencouraged

investorstouseconsultingfirmswheninvestorsindicatedthattheprocesshadbecome

tooonerous.

AmemberofstaffatoneIPApointedoutthatitwasmucheasiertoaddnewincentives

thantorevise(andreduce)existingprogrammes,whichcouldexplainsomeinvestors’

perceptions that there were too many programmes with similarly focused benefits.

Nevertheless,thedtihastakenpainstoreviewandreviseanumberofmajorprogrammes

overtheyears.It isglobalbestpracticetoevaluatecontinuallyprogrammesonoffer

andtoensurethatasingleincentiveprogrammeisnotinplacefortoolong,becauseits

effectivenesswilldeclineovertime.

Mostagenciesdidnothaveareportingsystemthatcouldaccesshistoricalinformation

oninvestorsusingtheincentives;whetherornottheyutiliseincentivesfortheentire

durationoftheprogramme,orhowmanyarerepeatusers.Manythoughtthisinformation

wouldbeuseful,aswouldthenumbersandidentitiesofinvestorswhohadunsuccessfully

appliedforincentives,andthereasonswhytheapplicationwasblockedorturneddown.

ItwasfeltthatIPAscouldassistinvestorsbyascertainingthereasonsbehindafailureto

completetheapplication,andthenaddressingtheproblem.

Withsmallerinvestments,theincentivebenefitisquestionablerelativetotheperceived

difficultyofform-filling,orthecostofemployingaconsultant.Inthecaseoflargeequity

investments,benefitsusuallyfarexceedcostsandinvestorswilltypicallycompletethe

applicationprocessdespiteregardingitascumbersome.IncertainprovincesTEOstaff

membersdeployedbythedti toassist the incentiveapplicationprocessarehavinga


31


positiveeffectonincentiveapplicationproceduresandutilisation.Inothers,however,

arelationshipbetweenIPAstafffacilitatingtheinvestmentandTEOstaffhasyettobe

established.

Theinterviewsandassessmentofprovincialmarketingassetsmadeitapparentthat

thoseincentivesspecifictotheprovincesreceivedseriousattention.Inagriculture-rich

provinces,forexample,thecooperativeschemewaswell-known,asithasbeendeployed

withsomeregularity.Therewerealsoreportsfromindividualsinsomeoftheprovinces

thatdtiworkshopshadbeenheldforsomeoftheschemes.Theyhopedthatotherswould

follow.

Arecommendationflowingfromtheinterviewsisthatastrategicmarketingeffort

maybeadvisabletoco-ordinatethemarketingmessagesonthetopicofincentives.The

nationalincentivesschemeprovidesawidevarietyofpotentialbenefitstodomesticand

foreigninvestorswhich,ifpresentedappropriately,couldproveapowerfuladditional

developmenttoolatnationalandprovinciallevels.

A P P e N D I X I : I N t e r v I e w q u e S t I o N S

Pleaselistsignificantinvestmentsthathaveoccurredinyourprovinceoverthepastfiveyearsandcommentontheirsignificance.(‘significant’refersnotonlytoinvestmentswithsubstantialequityinvestmentbutalsothose,forexample,withjob-creationpotential;emphasisinginfrastructuredevelopment;supportingbeneficiationindustries;supportinggreeninitiatives).a)b)c)d)e)f)g)h)i)

TheDepartmentofTradeandIndustry(dti)andcollaboratingagenciesoffervariousinvestment incentives(financial, fiscalandotherpreferential inducements)aimedatstrategicsectors;smallenterprisedevelopment;industrialdevelopment;andtradeandFDIdevelopment.Which incentives have been utilised by investors in the projects listed in Question 1 above?

Small, Medium and Micro-sized Enterprises (SMME) Development Financial Assistance,incl.BlackBusiness,SupplierDevelopment,EIP,SEDATechnologyProgramme,SupportProgrammeforIndustrialInnovation

Industrial Development Financial Assistance,incl.Taxandtrainingallowanceformanufacturing,CapitalProjectsFeasibility,CompetitivenessImprovement,BusinessProcess,CriticalInfrastructure,ClothingandTextileCompetitivenessImprovement,THRIP

32



Trade, Export and Investment Financial Assistance Incentives,incl.ExportMarketingandInvestmentAssistance,ForeignInvestmentGrant,Sector-specificAssistanceScheme,AutomotiveInvestmentScheme,FilmandTelevisionIncentive

Tax Incentives,incl.PreferentialCorporateRateforSmallBusiness,R&DTaxIncentive,SpecialDepreciationAllowance,CapitalIncentivesAllowances,InfrastructuralDevelopment,PPPAllowances,RollingStockDepreciation,EnvironmentalExpendituresDeductions,Carbon-ReducingExemptions,EnergyExpenditureAllowances,OilandGasIncomeTaxIncentives,UnderwaterTelecommunicationCableAllowances,FilmRebateSubsidies

WhichoftheincentiveslistedinQuestion2(above)havebeenmostpopular,ormostoftenappliedbyinvestorsinyourprovince?a)b)c)d)e)f)

Nationalandprovincialgovernmentsundertakeanumberofmarketingorpromotionalactivitiestocompetewithotherpotentialinvestmentdestinations.Theseactivitiesincludeadvertising,projectroadshows,investorconferences,outreachmissions.What types of activities has your unit/province conducted to assist in securing these investments?

Advertising

Projectroadshows

Investorconferences

Outreachmissions

Other

Other

Wereinvestorsawareoftheincentivespriortotheengagementinyourprovince,ordidyourunit/agencyconductmarketingandpromotionactivitiestobringtheincentivestoinvestors’attention?

YES,investorswerealreadyawareofincentives

NO,investorswerenotawareoftheincentivespriortoengagement


33


Inofferingincentivestoyourinvestors,hasyouragencybeenabletomodifythemtofitthecategoryofinvestment?

YES,wehavebeenabletomodifythem

NO,wehavenotbeenabletomodifythem

Hasyouragency/unitoranationalagencyconductedanyperformancemonitoringorevaluation activities relating to the investmentprojectswhere incentiveshavebeenapplied?

YES,performancemonitoringhasbeenundertaken.

Pleaseprovidedetail:

NO,performancemonitoringhasnotbeenundertaken

Inyourexperience,haveanyinvestorsreporteddifficultyinunderstandingforwhichincentivestheyqualify?Ifyes,pleasesharesomedetail.

YES,investorshavesomedifficultiesinunderstanding

forwhatincentivestheyqualify.

Pleaseprovidedetail:

NO,investorshavefoundnodifficultiesin

understandingforwhatincentivestheyqualify

Pleaseprovide informationconcerning theproportionofdomestic investorsandtheproportionofforeigninvestorsthathaveusedincentivesinyourprovince?Ifnodata,whatareyourestimates?

TYPE OF INVESTOR PERCENTAGE DATA/ESTIMATE

Domesticinvestors …….%

Foreigninvestors …….%

34



Whatistherelationshipbetweenyouragencyandthenationalauthorities(egdti,Treasury,TISA,IDC,andDBSA)intheadministrationofincentives?

dti

TISA

IDC

DBSA

Treasury

What isyouragency’sassessmentof thecostsasrelatedto thebenefits(cost-benefitanalysis)oftheinvestmentincentivesschemeasappliedinyourprovince?

…………………………………………………………………………………………….......……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………........

Arethereanyconspicuousgapsinthesuiteofinvestmentincentivesyouareabletoofferinvestors?

…………………………………………………………………………………………….......……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………........

Canyoupointtoanysignificantadministrativebarriersordelaysintheimplementationofincentivesand/orthebenefitsbeingmadeavailabletoinvestors?

…………………………………………………………………………………………….......……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………........


35


WhatdoyoufindthemostpositiveaspectoftheSouthAfricaninvestmentincentivesscheme?

…………………………………………………………………………………………….......……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………………………………………………………………………………………………………...………………………………………………………………………………………………........

A P P e N D I X 2 : I N D I v I D u A L S A S S I S t I N g w I t h I N F o r M A t I o N

F o r t h I S P A P e r

NigelGwynne-Evans,WesternCapeDepartmentofEconomicDevelopmentandTourism

NezaamJoseph,WesternCapeDepartmentofEconomicDevelopmentandTourism

NilsFlaatten,Wesgro

LauraPeinke,Wesgro

ThembinkosiSiganda,CityofCapeTown

RiaanWarie,NorthernCapeEconomicDevelopmentAgency

JacoMosterd,NorthernCapeEconomicDevelopmentAgency

NormaSali,dti(NorthernCape)

ImraanBakhas,InvestNorthWest

PareshPandya,MpumalaEconomicGrowthAgency

PJMoloisane,TradeandInvestmentLimpopo

SRLeboho,LimpopoEconomicDevelopment,Environment&Tourism

NickTheledi,CityofJohannesburg

TumeloChipfupa,DepartmentofTradeandIndustry

CecilMorden,NationalTreasury

LuckyTetse,IndustrialDevelopmentCorporation

LesterBouah,TradeandInvestmentKwaZulu-Natal

e N D N o t e S

1 UNCTAD(UNConferenceonTradeandDevelopment),Non-equity Modes of International

Production and Development,WorldInvestmentReport2011.Geneva:UnitedNations,2011.

2 McKinsey Global Institute, Lions on the Move: The Progress and Potential of African

Economies, June 2010, http://www.mckinsey.com/Insights/MGI/Research/Productivity_

Competitiveness_and_Growth/Lions_on_the_move,accessed22October2011.

3 Ibid,p.4.

4 SouthAfrica,NationalTreasury,A review framework for cross-border direct investment in South

Africa.Pretoria:GovernmentPrinter,2011.

36



5 SouthAfrica,dti(DepartmentofTradeandIndustry)Industrial Policy Action Plan 2011–12 -

2013–13(IPAP2),p.12.Pretoria:GovernmentPrinter,2011.

6 MacleodF,‘Blowstradedovercarboncapture’,Mail and Guardian Online,4November2011,

http://mg.co.za/article/2011-11-04-blows-traded-over-carbon-capture;SouthAfrica,National

Treasury,Reducing Greenhouse Gas Emissions: The Carbon Tax Option,discussionpaperfor

publiccomment.Pretoria:GovernmentPrinter,2010.

7 Government’sNationalIndustrialPolicyFramework(NIPF)ofJanuary2007ledtothefirst

IPAPinAugust2007.FurtherintensiveconsultationandanalysisresultedinIPAP2,launched

inFebruary2010.

8 In the Framework for South Africa’s Response to the International Economic Crisis by

thePresidentialEconomic JointWorkingGroupmadeupoforganised labour,business,

governmentandtheNationalEconomicandLabourCouncil(Nedlac)constituency.

9 KnightA,‘HQinSA–averyviableproposition’,MoneyWebTax,19September2010,http://

www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page450?oid=52545&sn=Deta

il&pid=450,accessed23October2011.

10 MazanskyE,‘TaxchangeswillensureSAremainsthegatewayofchoiceintoAfrica’,press

release,http://www.werksmans.co.za/content/2049/tax-changes-will-ensure-sa-remains-the-

gateway-of-choice-into-africa-ernest-mazansky-director,7July2011,accessed23October

2011.

11 KahnMJ,‘TheBRICsandSouthAfricaasthegatewaytoAfrica’,Journal of The Southern African

Institute of Mining and Metallurgy,111,July2011,pp.493–497.

12 TsuneishiT,The Regional Development Policy of Thailand and its Economic Cooperation with its

Neighboring Countries,DiscussionPaper,32.Chiba:InstituteofDevelopingEconomies,2005.

13 InstituteforDomesticandInternationalAffairs,Inc(IDIA),United Nations Conference on Trade

and Development: Foreign Direct Investment,paperforRutgersModelUnitedNations,2008.

Newark:IDIAandRutgersUniversityPress,November2008,pp.5,11.

14 For instance, inWorldBank, ‘DoesForeignDirect Investment Increase theProductivity

ofDomesticFirms?InSearchofSpillovers throughBackwardLinkages’,PolicyResearch

WorkingPaper,WPS2923.Washington,DC,2002;AlfaroL&ChandaA,‘DoesForeignDirect

InvestmentPromoteGrowth?ExploringtheRoleofFinancialMarketsonLinkages’,(a2009

updateofthe2003IMFWorkingPaperWP/03/186,‘FDISpillovers,FinancialMarkets,and

EconomicDevelopment’,Louisiana:LouisianaStateUniversityBusinessSchool,May2009,pp

1–41,http://www.bus.lsu.edu/achanda/fdi_may18_09.pdf.

15 FarrellD,et al.,‘Thetruthaboutforeigndirectinvestmentinemergingmarkets’,McKinsey

Quarterly, 1, 2004. The industries examined include automotive, banking, consumer

electronics,foodretailing,informationtechnologyandbusinessprocessoutsourcing.

16 AlfaroL&ChandaA,op. cit.

17 ProkschM, ‘SelectedIssuesonPromotionandAttractionofForeignDirectInvestmentin

LeastDevelopedCountriesandEconomiesinTransition’,Investment Promotion and Enterprise

Development Bulletin for Asia and the Pacific,2,2003,TradeandInvestmentDivision.Economic

andSocialCommissionforAsiaandthePacific(ESCAP)Bangkok,Thailandpp.1–18,http://

www.unescap.org/tid/publication/indpub2322.pdf,accessed17November2011.

18 CassF,‘AttractingFDItotransitioncountries:theuseofincentivesandpromotionagencies’,

Transnational Corporations,16,2,August2007,http://www.unctad.org/en/docs/iteiit20072a3_

en.pdf,accessed9October2011.


37


19 VCC-WAIPA(ValeColumbiaCentre-WorldAssociationofInvestmentPromotionAgencies),

Investment Promotion Agencies and Sustainable FDI: Moving Forward to the Fourth Generation of

Investment Promotion,Report,25,June2010,http://www.vcc.columbia.edu/files/vale/content/

IPASurvey,accessed11October2011.

20 UNCTAD,‘Incentives’seriesonIssuesinInternationalInvestmentAgreements.Geneva:United

Nations,2004,http://www.unctad.org/en/docs/iteiit20035_en.pdf, accessed12September

2011.

21 Theseregulatory interventionsbygovernmentarereferredto inFitzgeraldV, ‘Regulatory

InvestmentIncentives’,anOECD(OrganisationofEconomicCooperationandDevelopment)

paperwrittenattherequestoftheCommitteeonInternationalInvestmentandMultinational

Enterprises,November2001.

22 Klemm A, ‘Causes, Benefits, and Risks of Business Tax Incentives’, IMF Working Paper

WP/09/21.Washington,DC:IMF,January2009.

23 ChudnovskyD&LópezA,‘PolicyCompetitionforForeignDirectInvestment:TheGlobaland

RegionalDimensions’,paperpreparedfortheLatinAmericanTradeNetworksupportedbythe

InternationalDevelopmentResearchCentre(IDRC),July2000,http://cdi.mecon.gov.ar/biblio/

docelec/dp1409.pdf,accessed10October2011.

24 KransdorffM,‘TaxIncentivesandForeignDirectInvestmentinSouthAfrica’,Consilience: The

Journal of Sustainable Development,3,1,2010,pp.68–84.

25 MandaniD&Mas-GuixN,‘TheImpactofExportTaxIncentivesonExportPerformance:

EvidencefromtheAutomotiveSectorinSouthAfrica’,TheWorldBankAfricaRegionPoverty

ReductionandEconomicManagement,PolicyResearchWorkingPaper,5585,March2011,

http://www-wds-worldbank.org/external/default/WDSContentServer/WDSP/IB/2011/03/09/0

00158349_20110309100435/Rendered/PDF/WPS5585.pdf,accessed19October2011.

26 James S, ‘Incentives and Investments: Evidence and Policy Implications’, World Bank

InvestmentClimateAdvisoryServicesPaper.Washington,DC:WorldBank,December2009,

https://www.wbginvestmentclimate.org/uploads/IncentivesandInvestments.pdf,accessed17

September2011

27 ResideRE,Towards Rational Fiscal Incentives (Good investments or wasted gifts?),Economic

PolicyReformandAdvocacyProject(EPRA)Sector:FiscalReport,1.Manila:EPRA,7June

2006,http://www.econ.upd.edu.ph/respub/dp/pdf/DP2006-01.pdf,accessed16January2012.

28 BarbourP,‘AnAssessmentofSouthAfrica’sInvestmentIncentiveRegimewithaFocusonthe

ManufacturingSector’,EconomicsandStatisticsAnalysisUnitWorkingPaper,14.London:

OverseasDevelopmentInstitute,December2005.

29 WellsL,et al.,‘UsingTaxIncentivestoCompeteforForeignInvestment:AretheyWorththe

Costs?’,FIASOccasionalPaper,15,Washington,DC:WorldBank,2001.

30 ZhangJ,‘TargetedForeignDirectInvestmentPromotionStrategy–AttractingThe“Right”FDI

forDevelopment’,conferencepaperpresentedatFirstAnnualConferenceonDevelopmentand

Change,Neemrana,India,2–4December2005.

31 Incentivesdescriptions taken fromdtiwebsiteand theSouthAfricanLEDNetwork; ‘An

OverviewoftheDTIIncentiveProgrammes’,presentationtoSelectCommitteeonTradeand

InternationalRelations,10August2011,http://www.dti.gov.za/parliament/pc_incentives.pdf;

AGuidetotheDTIIncentiveSchemes,February2011,http://led.co.za/document/guide-dti-

incentive-schemes-201112,accessed23October2011.

32 SouthAfrica,dti,‘AnOverviewofthedtiIncentiveProgrammes’,presentationtothePortfolio

CommitteeonTradeandIndustry,CapeTown,8September2009.

38



33 SouthAfrica, dti, ‘AnOverviewofPerformanceofTheEnterpriseOrganisation’s (TEO)

IncentiveProgrammes’,presentationtoPortfolioCommitteeonTradeandIndustry,Cape

Town,19October2011,receivedviaemailfromTEODeputyDirectorGeneral.

34 SouthAfricanRands.


IncentiveProgrammes’,op. cit.

36 Applicationformathttp://www.theDTI.gov.za/financial_assistance/docs/EIP_ApplicationForm.

pdf.

37 IndustrialDevelopmentCorporation(IDC),‘SupportProgrammeforIndustrialSupport(SPII)

AnnualReport’,deskcopyfromIDCstaffmember,2011.

38 Aprojectwillbedeterminedtobewithorwithout‘preferredstatus’dependingontheextentto

whichitwillupgradeanindustrythroughutilisinginnovativeprocesses;newtechnologythat

resultsinimprovedenergyefficiency;andcleanerproductiontechnology;andprovidesskills

development.

39 Act 91 of 1964, and subsequent amendments including Act 19 of 1994. At the time of

publication,theCustomsControlBill,aCustomsDutyBillandanExciseDutyBillareatdraft

stage.

40 HeynsF,‘Sweetenthebait:Industrialdevelopmentzonesneedtobereconfiguredandredefined,

expertscontend’,10October2011,http://www.bbqonline.co.za/articles/other/411-sweeten-the-

bait,accessed20October2011.


IncentiveProgrammes’, op. cit.

42 SouthAfrica,dti, ‘ReadytoWork:SouthAfrica’sMonyetlaWorkProgrammeforBusiness

Process Outsourcing’, 2008, http://www.btrust.org.za/fileadmin/pdf/Ready_to_work.pdf,

accessed14October2011.

43 BlackA, ‘TheExport “Success”of theMotor IndustryDevelopmentProgrammeand the

ImplicationsforTradeandIndustrialPolicy’,inTheMotorIndustryDevelopmentProgramme:

Policy Implications2002,paperpresented at theTIPSForum2002:Global Integration;

SustainableDevelopmentandtheSouthernAfricanEconomy,http://www.tips.org.za/node/237,

accessed15October2011.

44 TheMETRisasummarymeasureoftheeffectiverateoftaximposedontherateofreturn

generatedbythelast,ormarginal,unitofcapitalafirminvestsin.TheMETRistherefore

asummarymeasureofthetotaldistortionintherateofreturnoncapitalimposedbythe

businesstaxsystem.

45 SourcedfromDeloitte,InvestinginSouthAfrica:EndlessOpportunities,2011,http://www.

deloitte.com/assets/Dcom-SouthAfrica/Local%20Assets/Documents/InvestingSA%202011%20

Interactive.pdf,accessed16September2011;andNationalTreasurywebsite,http://ww.treasury.

gov.za.

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