The Bottom Line
South Africa business incentives cost over R1 billion per job
If you ever visit an industry expo, do yourself a favour and ask any of the exhibitors what kind of state support they are getting for their home-grown inventions.
Just after they tell you that it has taken them three to five years to develop this technology, that it requires specialised equipment to make it, cost them millions to set up, and enabled them to export their one-of-a-kind products around the world, they will break into a resigned grin when asked about using the government’s incentive programmes.
They will tell you that the incentives are too onerous to access and don’t provide the type of support they need.
The problems with the government incentive programmes were inadvertently highlighted in the national budget released last month. In the medium term, the state had put in place business incentive programmes worth R18,9 billion to create 18,000 jobs. Put another way, running the programmes will cost the taxpayer over R1 billion per job.
To his credit, National Treasury official Duncan Pieterse said the government incentive programmes would go through a long-awaited and much-needed review this year.
Once the review commences, Pieterse and his staff should consider reading the 2018 Report on the Evaluation of Government Business Incentives.
Published by the Department of Planning, Monitoring and Evaluation, which sits in The Presidency, it noted that while the country spends billions of rands a year on an elaborate mix of business incentives that cut across multiple departments and sectors, insufficient attention is given to the rationale and design of new incentives, and the monitoring and evaluation of existing programmes.
In effect, as a whole, the government is not assessing the impact of its existing incentives or determining what new ones need to be introduced.
The report also pointed out that a large part of the incentive system is oriented towards sustaining mature industries and protecting workers in existing companies, rather than facilitating new entrants or technology diffusion.
In other words, the incentives are trying to protect jobs and well-established industries rather than create new jobs and develop new sectors.
The Automotive Investment Scheme, for example, supports the 115,000 workers in the South African automotive industry, but there have been calls to eliminate taxes on electric vehicles (EVs) as a way to foster the local EV market.
But let’s take a step back and ask why we need incentives in the first place. They are there to give businesses and industries a boost because, despite their potential, there is not enough support for their products in the market. The hope is that with some state backing, these businesses will eventually develop a market for their products.
The exhibitors at the expos are not getting this. They are developing products and markets at great risk and tremendous cost, with little, if any, support from the state.
We hope that those conducting the review of the incentive programmes will find time to go to industry expos and speak to the companies there, to get a better understanding of the support they need.
The bottom line is that it is noble that the government is trying to save jobs by protecting mature industries, but if we want to get the economy going, more support has to be given to emerging sectors.
