R5.7bn incentives for SA manufacturing

16 May 2012

The Department of Trade and Industry (DTI) will offer incentives worth R5.75-billion over the next six years to help South Africa’s manufacturing sector become more competitive in an increasingly difficult global environment.

Speaking at the launch of the Manufacturing Competitiveness Enhancement Programme in Cape Town on Tuesday, Trade and Industry Minister Rob Davies said the world was going through a second wave of the recession brought on by the 2008-09 global financial crisis, with manufacturing coming under particular pressure.

Manufacturing under global pressure

Davies said the sector had been struggling with increasing input costs as well as the monetary policy response of advanced countries – whose ultra-low interest rates had led to money flooding into emerging countries where interest rates were higher, pushing up currencies such as the rand and making exports uncompetitive.

The manufacturing sector contributed 14.6% to South Africa’s GDP in 2011, compared to 21% in 1977, while in fast-growing Asian countries manufacturing had been growing – in Korea from 23.6% in 1977 to 30.6% in 2010, in Malaysia from 19% to 26.1% over the same period.

If South Africa wanted to be a leader in Africa, it had to raise its competitiveness, Davies said, adding that those manufacturers that had not boosted their competitiveness around the onset of the global financial crisis were the ones that were hardest hit.

The new programme, which takes lessons from the successful Clothing and Textile Competitiveness Improvement Programme, will complement the state’s Industrial Policy Action Plan (IPAP), which was launched in April.

Of the R5.75-billion available to manufacturing firms over the next six years, R1.25-billion had been allocated for this financial year. The programme will be complemented by a loan facility from the Industrial Development Corporation (IDC).

Jobs commitment, BEE rating

Firms that apply for support from the programme are required not to reduce employment during the duration of their participation in the programme. Applicants must also be at level 4 on the BEE scorecard, or have a credible plan on how they plan to do get to level 4 within the next four years.

Davies thanked industry role players, particularly the Manufacturing Circle, for their contributions in compiling the programme, saying he was pleased that the organisation had become more prominent in the manufacturing sector.

Tumelo Chipfupa, deputy director-general of The Enterprise Organisation, said the incentives would be calculated according to manufacturing value added and credits awarded – smaller firms, for example, as well as black-owned and managed firms, would be given a higher weighting when points were calculated.

Grants would be based on a cost-sharing principle, with smaller firms being able to allocate a higher percentage of grants to cover funding for their competitiveness-enhancing projects than bigger firms.

Range of incentives

The coverage offered by each incentives differs, as follows:

  • The Capital Investment Grant to upgrade capital equipment and expand productive capacity will cover between 30% and 50% of the investment.
  • The Green Technology Upgrading Grant for investment in technology and processes that will make the production process greener will cover between 30% and 50% of the investment.
  • The Enterprise-Level Competitiveness Improvement Grant for investment in the adoption of improved manufacturing practices will cover between 50% and 70% of project costs.
  • The Feasibility Studies Grant, a cost-sharing grant towards developing a bankable feasibility study for new manufacturing projects, will cover between 50% and 70% of project costs.
  • The Cluster Initiatives Grant to help fund shared infrastructure such as a sector technology development centre, market research, international advertising and publicity costs, will cover 80% of qualifying project costs. The grant aims to encourage smaller firms to band together in joint marketing or buying.
  • The Working Capital facility will include a revolving 180-day, 6% fixed interest rate facility, while the Distressed Fund consists of a concessionary 6% fixed interest rate loan for applicants that are accessing the IDC’s Distress Fund.

IDC to cover for small business applicants

Because most of the grants are in the form of reimbursements paid out only later – often after a firm has had to spend the money it requested coverage for – many small business applicants were likely to experience cashflow shortages.

To counter this, Chipfupa said the IDC would be able to provide upfront to small enterprises while their grants were being processed.

Double dipping in funding, and enterprises that charged import parity pricing, would be excluded from the programme, he added.

Chipfupa said the DTI’s current target for addressing applications was 60 days, but said the Enterprise Organisation was aiming to reduce this to 45 days.

DTI director-general Lionel October said applications for the incentives were now available, with the programme due to go live on 1 June.

Source: BuaNews