Mboweni should protect incentives for manufacturing
Overall budget for industrial inducements has been shrinking year by year
The focus of this month’s budget will inevitably be on the country’s economic woes — poor growth, high unemployment, not enough taxes being collected. But instead of focusing on the problems, why not consider the solutions?
It seems likely that the bailouts of state-owned enterprises (SOEs) will continue, but who seriously believes this will do much to boost GDP, make a dent in the unemployment numbers or fire up exports?
We must seriously consider giving more help to SA’s manufacturing sector. Recent budgets have shown an alarming trend. Despite the successes of the black industrialists’ scheme, and the subsidy-guzzling car sector, the overall budget available for industrial incentives has been shrinking year by year, and that is just in cash terms.
The department of trade & industry (DTI) has been fighting a constant battle with the Treasury to squeeze out extra cash, and it gets far less funding for industrial incentives than it seeks. But there a few incentives that offer support for the broader manufacturing sector, and these need protection and expansion in the imminent budget.
An existing tax incentive known as 12I is closing for applications on March 31. Apart from this 12I tax incentive, the agro-processing support scheme (which has failed due to its narrow focus), and the black industrialists’ scheme, no grants or tax incentives are broadly available to fund capital investment in SA manufacturing.
And the 12I cupboard is now bare. A total of R20bn was initially approved by the government in the form of a tax allowance, but the Treasury did not increase this kitty and it has now nearly all been allocated.
Historically, not all projects approved by the department for tax incentives end up actually being established. This opens up the possibility that a small amount may be recovered from some projects that initially qualified for the incentive but did not deliver and thus the support was withdrawn. This windfall can be recycled.
It beggars belief that such a vital but underresourced support measure is due to expire and close down at the end of March. Unless, of course, finance minister Tito Mboweni rides to the rescue. He must be made to realise that it is imperative that 12I be extended, with an increased budget allocation from the Treasury.
Or might there be a chance that the government, through the department, could replace it with a new grant or tax incentive programme, also aimed at attracting investment projects for the manufacturing industry? That, too, might work.
Unlike the SOE bailouts, this is more modest, worthwhile and productive government spending. Over the years DTI grants and incentives have helped SA businesses gain a competitive edge and enabled them to expand their operations. The patient needs this lifeline to continue.
Monty Python parrot
The manufacturing sector has been in decline over the past decade or more, but how much worse might this have been without industrial incentives, and how else will we be able to reverse the decline?
As well as the 12I incentive there was another important incentive — the manufacturing competitiveness enhancement programme (MCEP), which focused on investments smaller than R166m (12I is for larger projects of up to R1.6bn.)
MCEP was launched in June 2012 but was suspended towards the end of 2015. More than R5bn was originally set aside for this programme and was fully committed. Like the Monty Python parrot, it has ceased to exist.
Thus, for the last four years no cash grant has been available to fund smaller companies for capital investment projects in the manufacturing sector, unless you were a black industrialist who could qualify under the BIS programme, or in the agroprocessing sector, for which the support programme set unrealistic criteria.
With 12I having nearly run out of budget and MCEP having been suspended, trade & industry minister Ebrahim Patel has precious little in his armoury to support SA industry. There is admittedly a new trend of sectoral industrial support — known as master plans — and this is to be welcomed. But it has received no additional funding; the cash has essentially been diverted from existing incentives.
It is widely predicted that the budget will involve further tax increases, which will put a dampener on the economy. Surely Mboweni needs to make an extra effort to use some of this extra tax revenue to help revive and nourish SA manufacturing? Tax incentives such as 12I are self-funding, so why is there a delay?
Turn off this stuttering engine of the economy, and the consequences will be too dire to contemplate.
• Meyburgh is an incentives manager at Cova Advisory.