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Parliament Portfolio Committee on Trade and Industry

Briefing on dti Incentives and IDZs

Presented by:

Tumelo Chipfupa

Deputy Director General

The Enterprise Organisation

06 June 2007

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CONTENTS

• Overview of dti

• Current situation with incentives

• Impact of incentives

• Recommendations from the Incentives Review Process

• Action plan on new incentive programmes

• Industrial Development Zones

• Budget allocations (MTEF)

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Purpose of Presentation

• To brief the Portfolio Committee on Trade and Industry regarding:– the dti incentives

– Industrial Development Zones (IDZs)

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Incentives administration within the dti

• The dti strategic objectives– Promoting coordinated implementation of the accelerated and shared growth initiative– Promoting direct investment and growth in the industrial and services sectors– Contributing towards the development and regional integration of the African Continent

within the Nepad framework– Promoting broader participation, equity and redress– Raising the level of export and promoting global trade

• TEO is a division within the dti responsible for the development and administration of incentives

• Some incentives are managed in other divisions, for e.g.– SPII and THRIP are administered through IDC and NRF respectively– MIDP and DCCS are administered through ITAC– NIP is administered through EIDD.

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The dti House

Ministry

Office of the DG

Policy co-ordination

International Trade and Economic Development

Enterprise and Industry

Development

Consumer and Corporate Regulation

The Enterprise Organisation

Trade and Investment

South Africa

Marketing

Group Systems and Support Services

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Current Situation

• Current incentive programmes were introduced in 2000, most planned for six (6)

years

• Incentives constitute #% (Rm) of dti annual budget

• Cabinet approved the National Industrial Policy Framework (NIPF) recently

• Incentives review completed to determine appropriate types of incentive

programmes to support the NIPF, the targets and funds required for incentives

going forward

• The review considered targets set in ASGI-SA and the Customised Sector

Programmes (CSPs)

• As a result, some incentives are being phased-out; and new ones are being

introduced.

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Incentive Programmes (2000 – 2006)

Investment Grants & Tax Incentives

• Small and Medium Enterprise Development Programme (SMEDP)

• Strategic Industrial Projects

• Foreign Investment Grant

• Critical Infrastructure Programme

• Capital Goods Feasibility Study Fund

• Business Process Outsourcing and Offshoring

• Film and TV Production Rebate Scheme

• Cooperative Incentive Scheme

__ ACTIVE

__

Competitiveness

Sector Partnership Fund

Competitiveness Fund

Skills Support Programme

Black Business Supplier Development Programme

Trade Facilitation

• Export Marketing and Investment Assistance (EMIA)

PHASED-OUT __ DISCONTINUED

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Impact of dti Incentive Programmes

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Investment Incentives

1. SMEDP

2. SIP

3. CIP

4. DEPP

5. BPO

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Approved projects = 12,359EC8%

FS3%

GAU27%

KZN17%

WC27%

LIM5%

MPU6%

NW4%

NC3%

• SMEDP offered a maximum grant of 10% pa on a sliding scale for investment of up to R100 million

• SMEDP’s objective is to promote investments by SMEs

• Since 2000, approved 12,359 SMEs for an incentive grant of R13.9 billion to start new or expand existing enterprises

Small Medium Enterprise Development Programme (SMEDP)

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Small Medium Enterprise Development Programme …cont’d

INVESTMENT BY SIZE BAND

<R0.6m

>R0.6m - =R5m

>R5m - =R20m

>R20m - =R50m

>50m

<R0.6m

>R0.6m - =R5m

>R5m - =R20m

>R20m - =R50m

>50m

12Approved projects = 12,359

Motor3%

Electrical1%

Chemicals10%

Machinery4%

Tourism 35%

Textiles6%

Metals13%

Agroprocessing28%

• SMEDP is the largest incentive programme in the dti considering the number of applications and an annual budget of R650 million

• Supported investment by SMEs of R67 billion in plant, machinery and equipment

• 330,600 jobs are projected.

Small Medium Enterprise Development Programme …cont’d

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Small Medium Enterprise Development Programme …cont’d

• SMEDP is being reviewed

• The new programme will continue to support investment by SMEs

• Particular emphasis is to be placed on projects creating higher employment opportunities and those in the priority sectors

• Consultations currently underway with key stakeholders to finalise new programme guidelines

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Strategic Industrial Projects

• SIP is a tax allowance to attract investment of more than R50m to SA

• Application window lapsed in July 2005

• Projects required to establish within 4 years from SIP approval date

• 45 projects approved with qualifying investments value of R28.7 billion

• SIP assisted in raising private sector investments in large projects that have spin-offs for other economic activities, SMMEs employment and cluster groups.

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Approved

Established

Approved 1 14 1 4 4 15 3 3

Established 0 10 0 1 0 9 2 3

Textile & Clothing

Metals &allied ShipbuildingAgroprocessi

ngPaper &wood Chemicals Packaging Printing

• 25 projects have established to date– Investment worth R7,8 billion

– 12,018 jobs

Strategic Industrial Projects …cont’d

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Critical Infrastructure Programme (CIP)

• CIP provides grants to support infrastructure necessary for the establishment of investment projects

• Since 2001, 21 projects were approved for the grant amount of R1,5 billion– 18 private sector companies for the grant amount of R990 million

– 3 IDZs for the grant amount of R510 million

• 10 projects have established investing up to R9,2 billion• The infrastructure supports investment of up to R17,5 billion

Geographic spread

LP11%

MP17%

NW11%

EP11%GP

6%

NC6%

KZN38%

LP

MP

NW

EP

GP

NC

KZN

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Developmental Electricity Pricing Programme (DEPP)

• Launched in August 2006

• Provides special concessions on electricity input costs for energy intensive investment projects (minimum of 50 megawatts)

• To date, Alcan in Coega IDZ is the only project approved

• Conditions for approval requires the Alcan to supply aluminum to downstream industries at competitive prices without practicing Import Parity Prices.

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Business Process Outsourcing and Off-shoring

• Features of the BPO&O

• An investment incentive scheme to attract BPO&O investment that creates employment opportunities

• A training and skills support grants for company-specific training• Targeted at both local and foreign investors establishing

projects aimed at serving off-shore clients

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Qualifying expenditure

• Qualifying training and skills development expenditure is for:

• In-house and/outsourced company-specific training (on products / language / systems)

• In-house trainer development / facilitators /assessor training

• Cost of developing learning materials / programmes• Cost of trainer secondment into SA (airfares &

subsistence)• Cost of purchasing and installing training equipment

and facilities

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COMPETITIVENESS PROMOTION INCENTIVES

1. BBSDP2. THRIP3. SPII4. SEDA TECHNOLOGY INCUBATORS5. EMIA6. LARGE BUDGET FILM REBATE

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Approved projects = 2,091

Retail4%

Tourism7%

Manufacturing

14%

Construction14%

Business services

61%

Black Business Supplier Development Programme (BBSDP)

• BBSDP is a 80:20% cost-sharing grant, which offers support to black-owned enterprises in South Africa

• BBSDP assists black-owned small enterprises to improve their capability for supplying corporate and public sector contracts

• Since inception in 2002, BBSDP approved 2,091 projects worth over R97 million

• To date, R56 million has been paid as grants to approved applicants

• Gauteng accounts for over 70% of

the approved applications– Mpumalanga, 7%

– Western Cape, 6%

– Other, 17%

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Approved total =2,091

Market research

5%

Quality, Prod improvement

6%Training

11%

Software16%

Promotional materials

62%

Black Business Supplier Development Programme …cont’d

• Most of the BBSDP funding was used for promotional materials, such as brochures and websites

• Although small in number, activities such as quality improvement, process and product improvements are found to have significant impact on assisted enterprises.

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Technology and Human Resources for Industry Programme (THRIP)

• Administered by National Research Foundation (NRF)• Matching grant fund with industry to promote industry relevant research and HR

development at tertiary institutions and science councils• the dti funds = R154,4 m

• Output for 2006/7: – 338 projects

– 371 industrial partners (66% SMME’s)

– 3178 students (55% black, 36% female)

• Reviews:– 2006: Government’s Principle mechanism to promote industry/academic partnerships

– 2007 OECD review: THRIP recognised internationally – particularly successful when compared with similar schemes in other countries

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Support Programme for Industrial Innovation (SPII)

• Administered by Industrial Development Corporation (IDC)• Matching grant fund with industry to promote industrial research and innovation

within private sector enterprises• the dti funds = R46,9m

• Output for 2006/7: – 85 projects (> 80% SMMEs)

– 34% BEE

– 18% women-owned enterprises

– Total Sales (2005/6): R312m (R173m exports)

• Reviews:– 2006: Substantial contribution to innovation and SMMEs

– 2006: World Bank report: SPII one of best performers

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SEDA Technology Incubators

• Administered by SEDA (ring-fenced)

• Technology incubator and technology transfer programme to support SMME’s in

18 technology incubators

• the dti funds = R49,4m

• Output for 2006/7:

– Created 49 technology-based SMMEs

– Supported 272 SMMEs and 414 clients (61% BEE and 19 % Women-owned

enterprises, 753 jobs)

– 22 technology transfers (R9m)

– All 2nd economy interventions (100% BEE and 66% women-owned)

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Export Marketing and Investment Assistance (EMIA)

Outward Missions17%

Pavilions38%

Inward Missions45%

• EMIA has been in existence since the mid ’90’s• During the past 3 years EMIA assisted 3,447 SMEs to improve their export

competitiveness through the following intervention: – National Pavilions and individual exhibitions to introduce SA products to foreign

markets

– Inward and Outward missions which allow networking between local and foreign enterprises

– Primary Market Research to conduct product market research in potential markets

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Export Marketing and Investment Assistance …cont’d

0

200

400

600

800

1000

Agro

Auto

, Aer

o,R

ail $

Mar

ine

Cul

tura

l

Che

mic

als

&Bi

otec

h

Text

iles,

Clo

thin

g &

Foot

wea

r

ICT

&Ele

ctro

nics

Min

ing

&met

als

Tour

ism

Oth

er

• Working with the Export Council, EMIA has capability to reach enterprise in various sectors of the economy.

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Large Budget Film Production Rebate

• Introduced 30 June 2004• Objectives to attract large budget film productions into South Africa

• To date 17 productions have been completed and received rebates of R122 million• The programme is being reviewed in order to introduce an incentive to promote

smaller-budget local productions.

Ownership Number of productions

approved to date

Qualifying SA Production Expenditure

Rebate approved

SA-owned productions 15 R733m R134m

Co-productions 3 R118m R27m

Foreign-owned productions 20 R1,102m R137m

Totals 38 R1,953 R298

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Competitiveness Promotion Incentives

• The Competitiveness Fund (CF) and Sector Partnership Fund (SPF) were administered between 1999 and 2004 with the World Bank

• Programmes were discontinued in 2005

• An objective was to support sustainable economic growth and job creation by enhancing competitiveness of SA enterprises:

– CF approved 1,248 projects to the value of R230 million to implement firm level projects

– SPF assisted 98 partnerships, involving more than 500 firms to the value of R66 million to encourage networking and information sharing

• Enterprises that were assisted through CF and SPF have on average enjoyed annual sales and export growth that was respectively 2% and 1% higher than comparative firms.

• There is a plan to re-establish the competitiveness promotion incentives with a view to support implementation of industrial policy

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Recommendations from the Incentives Review Process

• Cluster incentive schemes according to generic themes: – Investment

– Competitiveness

– trade facilitation

– Equity

• Select incentive recipient projects according to potential for additionality and

public benefits criteria

• Apply conditions for reciprocity to allow claw-back where project fail to achieve

agreed performance requirement • Eligibility criteria for investment incentives to favour economies of scale,

increase capacity and modernising capital equipment

• Adapt and repackage existing incentives into sector-specific programmes

• Improve monitoring and reporting on impact of incentives overall.

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Action plan with new incentive programmes

Investment Competitiveness Trade facilitation and

export

Small enterprise

development and

Equity

• Develop investment

incentives to attract large

projects

•Introduce sector

targeted incentives for

BPO, Film,

•Develop an incentive for

the tourism sector

•Continue critical

infrastructure programme

•New competitiveness

promotion incentives;

manufacturing excellence

and industry upgrading

Expansion of EMIA

•Project funding for

emerging exporters

•Include BEE exporters

•Establishment of crafts

export councils

•Business summits

•Revision of Small

medium enterprise

development programme

(SMEDP)

•Expansion of Black

supplier development

programme (BBSDP)

• Roll out cooperatives

Incentives available

•Roll out rebate for local

film productions

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Action Plan: Investment Incentives

• Critical infrastructure programme to continue until YYYY

• Sector targeted incentive:– BPO incentives launched on 15 Marc 2007– Film incentives to be extended to promote local small-budget productions

by Q2– Tourism sector incentives to be introduced I Q3

• Generic investment incentives to attract large investment project (FDI) by Q4

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Industrial Development Zones (IDZs)

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Medium Term Budget Allocation (MTEF)

Incentive programmes 2006/07 2007/08 2008/09 2009/10

Manufacturing Development programme 1 8 9 1

Enterprise Development 598 628 659 691

Business process outsourcing 70 40 60 151

Film & television production incentive 72 176 179 182

Staple food fortification programee - 15 10 1

Sector development programme - 10 20 30

Export market and investment assistance 92 97 101 109

Competitiveness fund - - - -

Sector partnership fund - - -

Black business supplier development programme 25 26 27 28

Co-operative incentive scheme - 14 14 34

Critical infrastructure programme 86 383 87 99

Coega 345 510 636 866

East London 58 88 154 251

Richards Bay 19 29 45 69

Totals 1366 2024 2001 2512

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Thank you