weak incentives
14 July 2008
The trade and industry department has taken a significant step in bringing its national industrial policy framework to fruition, announcing its new incentive programme for manufacturing and tourism. And about time. The scheme replaces the old small and medium enterprise development programme it suspended almost two years ago.
The new programme makes a lot of sense and is closely aligned with the targets of the industrial policy framework.
Whereas incentives in the past were geared towards incentivising capital intensive investments, the enterprise investment programme is more favourable to investments that will create jobs, advance empowerment and take place in areas of the country that bring about a more equitable spatial distribution of economic activity. Moreover, benefiting sectors are also closely aligned with the sectors earmarked for development in the industrial strategy. A new point-scoring system means the programme is more transparent and will be easier to administer.
That’s the good news. On the downside, the scheme doesn’t seem to have the teeth to stir up all that much interest. Particularly from a foreign investment point of view, it would seem the government has missed an opportunity.
First, because of the empowerment criteria many a foreign firm would struggle to qualify for the incentive. Second, the incentive simply does not seem appetising enough for foreign firms to bother. The foreign investment grant, for instance, compensates qualifying foreign firms for the cost of moving new machinery and equipment from abroad to SA. It covers up to 15% of the value of imported machinery and equipment, or the transport cost of relocating the machinery and equipment from abroad to a maximum of R10m.
The whole industrial development prioritisation seems to be about many good intentions without adequate funding to back it up. Consider this: the finance minister in the budget earlier this year set aside R2,3bn to support the national industrial policy framework over the next three years, plus tax incentives worth R5bn for industrial investment. This pales in comparison with the $160bn that Brazil in May said it would allocate to its industrial development plan over the next five years.
Another question goes begging. The clothing and textiles industry has been earmarked as a sector for stabilisation in the industrial strategy. Given the gravity of that sector’s situation and the tens of thousands of jobs that hinge on its stabilisation, one could argue that intervention should take priority over new initiatives. That simply does not seem to be the case. The trade and industry department is yet to announce its action plan for the industry, but even more painfully absent is clarity on the duty credit certificate scheme, the export incentive scheme for the industry.
The department has been mulling its replacement for months now and still does not seem nearer to producing a solution on how to take the incentive scheme forward.
In the meantime, exporting firms cannot benefit from the scheme, because the enabling regulations allowing the trading of the certificates are not in place.The stalemate is affecting manufacturing companies in Lesotho and Swaziland in particular, and it is understood that some firms, also in SA, have been forced to close doors, laying off workers, while the confusion persists.
We ask again, when will the state provide the long-suffering clothing and textile manufacturers with clarity on how it plans to put the sector back on its feet?