DTI had two types of incentives. One comprised of industrial incentives to promote the manufacturing sector called the Enterprise Investment Programme (formerly the Small Enterprise Development Programme) and the Automotive Investment Scheme (AIS). The other type was Broadening Participation incentives such as the Black Business Supply and Development Programme (BBSDP) and Cooperatives Incentive Scheme (CIS). In terms of budget, incentives totalled over R4.5 billion (excluding AIS) and made up almost 70% of the DTI budget. BBSDP was an 80/20 cost sharing scheme for business development services to assist small Black-owned enterprises with marketing activities and quality improvement. The BBSD programme had existed since 2002, but was re-worked and re-launched in 2011. The DTI had set up infrastructure in all nine provinces and trained intermediaries to assist the Department in facilitating applications. Most targeted enterprises were micro-enterprises. The CIS was a 90/10 cost sharing scheme and Limpopo accounted for 7% of GDP, but in terms of co-op incentives it only received 27%. Funding towards co-ops could be improved in the Northern Cape by working more closely with provincial and local governments. DTI’s work in the services industry was mainly in job creation, both domestically and in exporting services - a growing part of international trade. The Business Processing Services Scheme targeted 30 000 jobs and DTI had applications approved over the next three years that would create over 15 000 jobs.
Manufacturing consumed most of the DTI budget. The idea was to support the DTI Industrial Policy Action Plan (IPAP) and focus on job creation, value addition and increased productive capacity in the manufacturing industry. Key programmes were the Manufacturing Investment Programme (MIP), the Critical Infrastructure Programme (CIP), Industrial Development Zones (IDZs), Automotive Investment Scheme (AIS) and the Investment and Training Allowance (12-I).
The objectives of the Critical Infrastructure Programme (CIP) were to reduce the costs of logistics and infrastructure, as well as to provide skills development. CIP was a 70/30 cost sharing grant, where the company, municipality or province would pay 70% of developing the infrastructure and the DTI would pay 30% towards the cost of the infrastructure. Examples of such projects included setting up an electrical grid or building a road. The scheme had supported 42 projects in 10 years worth of work with an investment value of R88 billion. Other incentives were focused on competitiveness promotion. The idea was to perform industrial upgrading and to promote exports. These programmes were the Export Marketing and Investment Assistance (EMIA) Programme, Sector Specific Assistance Scheme (SSAS), Capital Projects Feasibility Programme. The Capital Project Feasibility Programme provided South African engineering companies with an incentive to perform feasibility studies in Africa.
Members raised concerns that the Tourism programme was unfairly supporting provinces already doing well in tourism and that historically disadvantaged people had not been able to access such schemes. They suggested that DTI needed a different approach with the grants to get them to the places where infrastructure and jobs were needed. The Committee wanted to see increased project funding for emerging exporters in rural areas. Committee members expressed concern at the tension between investing in the automotive sector at the expense of the agro-processing sector.
Incentive Schemes: briefing by the Department of Trade and Industry (DTI)
Mr Lionel October, DTI Director General, noted that the DTI had two types of incentives. One was the industrial incentives to promote the manufacturing sector; this was the Enterprise Investment Programme (which used to be the Small Enterprise Development Programme) and the Automotive Investment Scheme (AIS). The other type of incentive was that of broadening participation such as the Black Business Supply and Development Programme (BBSDP) and the Cooperative Incentives Scheme (CIS). The incentives were having a big impact. The biggest incentive scheme was the AIS; the automotive industry secured R14 billion of committed investment from large automotive companies such as
Mr Tumelo Chipfupa, Deputy Director General: The Enterprise Organisation, stated that incentives had been grouped into four clusters: broadening participation and competitiveness, services, manufacturing and infrastructure. The focus for the broadening participation incentives was to increase participation by historically disadvantaged individuals in the economy. This aspect had been a growing part of DTI’s work, as most incentives in the past were not reaching marginalized communities and Black entrepreneurs. The idea was to grow existing small Black enterprises and rural enterprises and get them to be part of the mainstream of the economy. The main instruments were the BBSDP, CIS, the Emerging Exporters Development Programme and the Enterprise Investment Programme (EIP) - with a strong emphasis on SMMEs. BBSDP was an 80/20 cost sharing scheme for business development services to assist small Black-owned enterprises with marketing activities and quality improvement. The Department would pay 80% of the development activity and the enterprise would pay 20%. Last year the scheme was expanded to look at things like acquisition of machinery and equipment to improve the productivity of the business. The CIS was a 90/10 cost sharing scheme where the DTI would pay 90% of the cost of an intervention and the co-op would pay 10%. The Emerging Exporters Development Programme gave rural enterprises the opportunity to understand export markets. Relative to other parts of the Department, the budgets were quite small but were growing fast as DTI gained experience working with this market.
Unlike normal DTI incentives, where the concentration was around
The BBSD programme had existed since 2002, but was re-worked and re-launched in 2011. Initially most approvals tended to be around
Project funding for the Emerging Exporters Scheme took emerging exporters and exposed them to external markets. DTI worked with export councils, industry associations and municipalities. Typically a municipality would connect a micro-enterprise with the DTI and the Department would pay for the cost of taking an entrepreneur to an exhibition overseas or locally.
DTI’s work in the services industry was mainly around job creation, both domestically and in terms of exporting services - a growing part of international trade. The instruments were the Business Process Services (BPS), Film and Television and the Tourism Support Programme. The scheme had been reworked so that the incentive amount a South African company received was directly related to the number of jobs created. The BPS Scheme targeted 30 000 jobs and DTI had applications approved over the next three years that would create over 15 000 jobs. The Film and Television incentive was initially focused on bringing international films to
Manufacturing consumed most of the DTI budget. The idea was to support the DTI Industrial Policy Action Plan (IPAP) and focus on job creation, value addition and increased productive capacity in the manufacturing industry. Key programmes were the Manufacturing Investment Programme (MIP), the Critical Infrastructure Programme (CIP), Industrial Development Zones (IDZs), Automotive Investment Scheme (AIS) and the Investment and Training Allowance (12-I). 12-I was launched as a tax incentive that did not provide cash grants, but DTI approved companies investing between R30 million and R1.5 billion were able to claim an additional allowance saving significantly on tax. 12-I focused mostly on industrial upgrading and promoting new capacity in manufacturing. The focus was on energy efficiency, process innovations, improving production time, reducing production costs, improving quality and creating employment in IDZs. DTI launched the programme in December 2010 and had approved five projects with a total of R4.3 billion in capital investment. Most of the projects were in agro-processing, chemicals and metals.
The EIP and MIP offered grants of between 15-30% of qualifying investment for first time Foreign Direct Investors (FDI) in
The objectives of the Critical Infrastructure Programme (CIP) were to reduce the costs of logistics and infrastructure, as well as to provide skills development. CIP was a 70/30 cost sharing grant, where the company, municipality or province would pay 70% of developing the infrastructure and the DTI would pay 30% towards the cost of the infrastructure. Examples of such projects included setting up an electrical grid or building a road. The scheme had supported 42 projects in 10 years worth of work with an investment value of R88 billion. The grants DTI had approved totalled nearly R1 billion. Total infrastructure and development costs were R5.3 billion. The CIP had a good provincial spread. Since most projects located in rural areas would struggle to get infrastructure, seven projects were purposely located in the
Other incentives focused on competitiveness promotion. The idea was to perform industrial upgrading and to promote exports. These programmes were the Export Marketing and Investment Assistance (EMIA) Programme, the Sector Specific Assistance Scheme (SSAS), and the Capital Projects Feasibility Programme. The Capital Project Feasibility Programme provided South African engineering companies with an incentive to perform feasibility studies in
Mr October mentioned that the briefing did not deal with the IDZs, because DTI would ask for permission to do a special presentation surrounding the new legislation being introduced concerning IDZs.
M B Mnguni (ANC:
Mr K Sinclair (COPE:
Ms E Van Lingen (DA: Eastern Cape) asked whether the Tourism Support Programme was specifically promoting job creation in non-traditional Tourism clusters or was it concerning rural development. In addition, she wondered about bulk services such as permanent water for the
Mr F Adams (ANC:
Ms M Dikgale (ANC: Limpopo) noted that
The Chairperson asked if, given the history of co-ops in
Mr October agreed in a broad sense that more had to be done for the “marginal provinces”. In principle, DTI had experienced some progress in the past two years, but were still not where it wanted it to be. The co-ops and the BBSDP scheme had been growing but the failure rate was highest amongst those businesses. He identified two problems: 1) expanding the programme rapidly 2) high failure rate amongst small businesses and co-ops. The Department needed to look at how support could be expanded, for example, by establishing extension offices where management support for access to machinery and marketing were offered in addition to the loan. DTI was looking at having more staff available for mentoring and direct support.
When helping communities, there were two problems: 1) financing and supply side 2) marketing and the demand side of the economy. Unfortunately, on the advice of the World Bank, the Government took away the agricultural support structures post-1994. There used to be marketing boards to took care of that aspect so that the individual farmer did not have to worry about marketing his product. Hopefully new co-ops introduced ways in which DTI can give support and technical assistance through the extension offices.
In response to the
Mr October said the point on the problem of turnaround time was taken. The DTI was putting teams into place that could respond more rapidly to programmes, on a request basis.
In terms of the 12-I scheme, DTI used to have the Strategic Investment Programme Scheme (SIPS), which was a tax-based scheme and Treasury did not extend that programme. The Department believed this new scheme could work as it had been fast with turnaround times for new investments.
On a state level, DTI could focus on sending out its CIP team. Traditionally DTI had focused on manufacturing rather than agriculture. However with the increased demands, the Department had expanded its focus. Social Infrastructure was another department’s work, however if there was an economic link then DTI would connect with the municipalities around relevant issues.
The only incentives that the DTI had on lending for boat building fell under the IDC. The Department had just added this sector to IPAP to assist with the boat building industry.
DTI had had engagement with the
Mr Chipfupa stated that in the metropolises, tourism infrastructure tended to be located in particular areas so
Previously the DTI had worked with the boat building industry as such enterprises qualified for the MIP. The boat building industry deserved particular attention now, due to issues surrounding exchange rates. The work on co-ops in the Department was mainly done by the Empowerment division, whereas the Enterprise Organization focused more on enterprise development within the co-ops.
The DTI had not kept statistics on disabled people; therefore it was an area that was a challenge and something to be looked at in the future. The Department had no specific programme for disabled entrepreneurs as it had just begun to move into the market of Black entrepreneurs and co-ops. As it moved into more programmes on economic participation, disabled entrepreneurs was an area that the Department should be looking at.
The Chairperson stated that people with disability were also included in the Black entrepreneur category and should not be treated differently as they formed part of the pool of Black entrepreneurs and should be seen.
Ms Qondani Rwigema, Director of the Business Development Unit, pointed out that the Department had just finished a pilot project on disabled entrepreneurs in
In response to Mr Adams question about the Tourism Support Programme, the scheme tried to encourage entrepreneurs in this sector to move away from B&Bs and into areas of adventure cultural villages, theme parks and diversified activities packages. This addressed the concern of transformation because it led to higher capital investment in the sector.
Mr October stated that the DTI would be coming with a new co-op strategy, as a “big push” was needed on this front in order to deal with issues of exclusion, underdevelopment problems and development of rural areas in the agricultural sector. The twin objectives both as a Department and as a country were to expand the industrial and manufacturing base and broadening participation. This was not an either or proposition; the goal was integrated development.
Ms Jodi Scholtz, Group Chief Operating Officer, added that DTI was working on a project on the process around incentive administration and internal processes management limitations. The goal was to establish a system that could extract all of the relevant information. Going forward the information that the Department provided to the Committee would be more robust.
Mr Adams was told in a meeting with Western Cape MEC, Alan Winde, that there was currently no capital for boat building in the
Mr Sinclair asked for more details on a
Mr Chipfupa responded that the CIP project involved a mining company in the
There had been lots of engagement with the commercial banks and other private sector institutions around funds for corporate social responsibility and funds for enterprise development. The BBSDP did not provide collateral, but the funding for equipment lowered the cost for entrepreneurs. The idea was that the funds could complement what companies put aside for corporate social responsibility and for enterprise development.
The Capital Projects Feasibility Programme would not simply be beneficiating gold in
Mr Donald Mabusela, Director of EMIA, Co-operatives, responded to the issue of the banks raised by Mr Sinclair by stating that the DTI had met with the Banking Association last year to establish what their appetite was in terms of risk as DTI was introducing the BBSDP. The banks were positive with regards to the 65/35 cost sharing breakdown that DTI had proposed. The problem was that they had not disseminated this information to various provinces and the branches at lower levels so that people could access this. It had been pitched at this level.
Mr October accepted Mr Adams’ point around boat building and stated that DTI would call a meeting on this. The Capital Projects Feasibility Study Programme was for engineering and construction companies with lots of experience. Similarly there were teams working with
Mr Sinclair stated that there must be a differentiation in the jobs created in the
Mr October responded that the DTI had expanded the amount of incentives in the past three years and the DTI wanted to constantly expand the number of programmes for different sectors of the economy. The country would never develop if it started choosing winners and losers. New areas must be identified. Agro-processing was an area that needed to be added to - but not at the expense of the automotive industry.
Ms B Abrahams (DA:
Ms Dikgale raised the issue of mining, where the DTI was investing a lot of money in creating jobs but the people working in the mines were from
The Chairperson stated that the Committee still required answers on the automotive versus agro-processing issue as the tension that Mr Sinclair raised required follow-up on the new approach.
Mr October stated that the Department would follow up on agro processing and how to assist that project. The Department needed to let find solutions to the problems of co-ops and give more and different kinds of support. The problem was not on the supply side but to get producers into chains that they had been historically excluded from. The failure rate among businesses with ten or less employers was 51% so there needed to be a tolerance for turnaround and for failure but there needed to be more monitoring and more skilled LED officers to work with provinces. He thanked the Committee for the feedback on projects and stated that DTI would follow-up to see where improvements could be made.
The meeting was adjourned.
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