Incentives offered by the Department of Trade and Industry amounted to R12 billion for the 2016-2017 financial year which attracted an estimated R39 billion in investment.
The department recently published its Annual Incentive Performance Report setting out progress in terms of job creation and the support for business in a “globally challenging” economic environment.
Duane Newman, incentives expert and director of Cova Advisory, says the dti has for the first time published the full list of grant recipients at the back of the report. “I applaud this as there has been resistance by the dti to publish a list of recipients.”
Approvals for the tax allowance for new industrial projects are gazetted, and other grant programmes like the Jobs Fund also publish its recipients. These incentive programmes also publish the values of the grants received and approved.
Newman says it is vital that the dti publish a full list of values in future. It is taxpayers’ money being spent, and business needs to know which businesses they are giving funding to.
“The more transparent the dti is, the more confident business should be. The trust gap between business and government needs to close.”
Trade and Industry Minister Rob Davies says more than 23 000 projected new jobs were recorded during the reporting period and claims of R4.6 billion were paid to beneficiaries.
There has been a major drop in projected new jobs, and it has been attributed to an almost 24% drop in the number of approvals under the Incentive Development and Administration Division (IDAD).
The division offers grants, loans and tax allowances. The majority of the incentives are in the form of cost-sharing grants. The cost-sharing grants increased from R4.4 billion in 2015/16 to R6.3 billion in 2016/17.
Newman says the significant drop in projected new jobs (85%) has been across the board. In terms of the statistics offered in the performance report the number of jobs in agro-processing decreased by 99%.
Other sectors where there has been a major drop in projected new jobs include infrastructure (96%), metals (96%), chemicals, aquaculture (83%) and transport (86%).
The value of the approved projects increased by 34%, however the projected investments because of the incentives declined by 16%.
One of the incentives, the Manufacturing Competitiveness Enhancement Programme (MCEP), which was implemented in 2012, is aimed at promoting job retention and competitiveness. The R5.75 billion budget was fully committed by October 2015, resulting in its suspension.
Newman says one of largest recipients of the programme was agro-processing which has a large job multiplier. “A few incentive programmes have jobs as a requirement to pay out the incentive such as the MCEP, while others monitor jobs, but it is not a requirement for the payment of the incentive.”
Newman says this created quite a few problems for applicants who were not as accurate as they should have been in the application process.
In some cases those who did not achieve the expected job levels lost their grants. He says he has not seen any statistics which track the number of jobs from approval to payout.
“I think monitoring needs to improve and needs to be tracked over a five- to ten-year period. There is quite a delay from approval to claiming of the various incentives,” Newman notes.
The Black Industrialist Scheme became effective in February last year and projects from 36 enterprises were approved to the value of R1 billion. Approximately 56.4% of the R1 billion was earmarked for projects in Gauteng.
The scheme aims to promote industrialisation, sustainable economic growth and transformation through the support of black-owned entities in the manufacturing sector.
Newman, who is the chair of the South African Institute of Tax Professionals incentive tax work group, says the capital value of the investments approved under the scheme is more than R3 billion, while the grants approved is R1 billion.
It seems as if projects, which received grant approval, are struggling to get financial assistance. “We do recommend that applicants apply for finance and get an indication from the bank whether they will fund the transaction before they apply for the BIS (Black Industrialist Scheme) grant.”
There is also increased focus on adherence to black economic empowerment. According to the report more than 80% of the projects approved, including 1 079 small and medium enterprises, supported through the Export Marketing Investment Assistance (EMIA) and Sector-Specific Assistance Scheme, complied with at least level 4 black economic empowerment.
The focus is evident in the automotive industry which has recently been required to provide a compliant BEE certificate in order to obtain their grants.
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