dti champions its incentive programmes

2012-12-09 10:00

Department maintains the schemes attract investment and will create thousands of jobs

The department of trade and industry (the dti) has defended the track record of the country’s incentives programmes, which in the past have been less than effective in attracting investors and creating jobs.

The department responded after reports earlier in the week that created the impression the Jobs Fund was a colossal failure.

In 2005, the dti discontinued a popular tax incentive after it created few jobs despite the National Treasury sacrificing R10?billion in forgone tax revenue.

The tax incentive, known as the strategic investment programme, gave tax deductions to capital investments worth more than R50?million, but this only created 7?000 direct jobs between 2001 and 2005.

It, however, attracted R30?billion in new investments, but these were capital intensive.

The dti was also forced to scrap the small and medium enterprise development programme in 2005 after it ran into financial difficulties because of alleged mismanagement. It was paying out R600?million in cash grants to small businesses and attracted investments valued at more than R67?billion during its life span.

However, the dti reinstated these programmes in 2008 and it says the new versions have performed well. The strategic investment programme was renamed the enterprise investment programme and the small and medium enterprise development programme was renamed the 12I Tax Incentive.

“The objective of the enterprise investment programme is to stimulate investment in the manufacturing and tourism sectors, and provide a grant of up to 30% of the value of qualifying investment costs in machinery and equipment, commercial vehicles, and land and buildings.

“The programme is available to small and medium manufacturers as well as to tourism enterprises,” said the dti’s director-general, Lionel October.

He said the 12I Tax Incentive provided support to greenfield and brownfield investments, especially to greenfield projects that are located at one of South Africa’s three industrial development zones.

Since its inception in August 2008, the enterprise investment programme has attracted R44?billion in investments and is projected to create 53?148 jobs. The dti has so far approved R6.3?billion in incentive payments and has disbursed R1.4?billion.

October said the South African incentives regime had done well in enticing private investors, and pointed out the success of other incentives schemes, such as the motor industry development programme (MIDP) and the textile and clothing competitiveness programme.

“The MIDP and its successor programme, the automotive investment scheme, have repositioned the South African automotive sector as a leading export sector, with a number of our auto assemblers receiving global recognition for product quality. It is unlikely the sector would have attained this level of competitiveness without active government support,” October said.

“Recently, the textile and clothing competitiveness programme has been credited with restoring confidence to the clothing and textile sector, arresting the rapid decline in production and employment.”

He also pointed to the success of the film and television rebate programme, which has been credited with strengthening local film production and positioning South Africa as a viable location for big-budget foreign film productions.

October spoke to City Press following confusion this week over the Jobs Fund employment figures, which led to Business Day publishing a retraction.

The daily reported that the Jobs Fund had created only 745 jobs at a cost of R4?million each to taxpayers since its launch last year. This enraged the Treasury, which published a statement saying that R3?billion worth of investments have been approved since the fund’s establishment. Treasury said the investments would create 65?000 jobs.

Some analysts believe the Jobs Fund should have been given to the dti to administer instead of to the Development Bank of Southern Africa, which many view as too inexperienced for the job.

“I think all incentives should be centralised under one roof. The dti should manage the Jobs Fund because it has experience in administering incentives,” said Duane Newman, managing director at Cova Advisory & Associates.

October said the dti had the capacity to manage all its incentives, but declined to comment on challenges faced by the Jobs Fund.

“The dti has the necessary institutional capacity to manage all its programmes, including the incentive programmes targeted at industrialisation and small business development. We do not have enough information on the progress and challenges encountered by the Jobs Fund and as such cannot comment on the matter,” October said.

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