According to ENGINEERING NEWS Trade and Industry Minister Dr Rob Davies re-affirmed on Tuesday that government planned to pursue an increasing number of sector-specific incentive schemes, with an initial focus on the creation of new incentives for the agro- processing and railways industries.
Speaking at a business briefing hosted by the American Chamber of Commerce in Johannesburg, Davies said the Department of Trade and Industry (DTI) would still retain generic schemes, but that these would play a less prominent role in the future incentives architecture.
“We will be working towards developing sector specific programmes, with their own specific incentives, for the rail and agro-processing sectors,” he said.
It was premature, though, to offer specific details on the size and timing of the packages. “That’s the piece of work that we have highlighted and identified in the new Industrial Policy Action Plan (Ipap 2016).”
The document, released in mid-May, highlights the relative success of tailored incentives in the automotive, clothing and textiles, business process outsourcing and film sectors and indicates that the DTI’s existing generic schemes will be “repackaged” into new programmes targeting “labour-intensive’ sectors.
A scoping exercise, Ipap 2016 said, would be undertaken to assess the appropriate structures and funding, with draft funding guidelines, developed in consultation with industry, to be released during the current fiscal year.
Hitherto the agro-processing and rail sectors had received support through programmes such as the 12i tax incentives and the Manufacturing Competitiveness Enhancement Programme (MCEP), with Davies reporting that the agroprocessing industry had been a major MCEP beneficiary.
Cova Advisory & Associates MDDuane Newman, who offers specialist advice to companies seeking to access the government incentives, concurred with Davies that the tailored support programmes, such as the Automotive Production Development Programme (APDP), had proved more successful than the broad-based scheme.
“Focused incentives have been proved to work better than general incentives,” Newman told Engineering News Online. However, he said DTI should initiate wide-ranging consultations with the targeted industries, and their supply-chains, to understand the bottlenecks and to optimise the design.
Engage with business
“Government needs to engage with business far more and speak to the entire value chain and not just one or two associations,” he added, arguing that such conversations would help tease out any problems with the design of the incentives well ahead of implementation.
The relationship that had developed between the DTI and the automotive industry was held up as providing a template for what should take place, with the APDP and the Motor Industry Development Programme, which preceded it, widely credited with ensuring that the automotive sector survived South Africa’s post-apartheid market liberalisation.
A team of technical experts had recently been established to develop a post-2020 Automotive Master Plan, which would guide support for the sector beyond the current APDP. The team would examine the entire automotive sector, including light, medium and heavy vehicles and motorcycles, which were not currently included under the APDP ambit.
“The DTI has done very well in the automotive sector; they have engaged with business and the incentives are designed collectively. But it’s a journey and you cannot, for instance, designed a rail incentive in a month.”
That said, Newman remained concerned about the current dearth of incentives for new investors, noting that the MCEP was closed for new applications, with the 12i tax incentive approaching its budget limits.
“They are undercapitalised and running out. There are a lot of gaps in the incentives space,” Newman said.
The 12i scheme, he argued, should be immediately extended, while DTI should review its MCEP approvals to assess whether there was room to reallocate budget from projects that were not proceeding as a result of changed market conditions.
“There is still money in MCEP, but it is locked up in approvals that are unlikely to be fully disbursed. If the DTI scrubbed their commitments, I’m convinced they would find significant underspending.”