Parliament Portfolio Committee on Trade and Industry Briefing

Parliament Portfolio Committee on Trade and Industry Briefing

Parliament Portfolio Committee on Trade and Industry Briefing on Strategic Industrial Projects (SIP) Presented by: Francisca Strauss Chief Director The Enterprise Organisation 13 June 2007 1 CONTENTS Objective Qualifying Industry Sectors Mandatory requirements Point scoring Benefit Admin Process

Statistics Monitoring 2 STRATEGIC INDUSTRIAL PROJECTS SIP 12G of the Income Tax Act Additional industrial investment allowance R10b 1 August 2001 to 31 July 2005 Objective Encourage investments from local and foreign investors Contribute to the growth, development and competitiveness Upgrade industries Create employment opportunities 3 QUALIFYING INDUSTRY SECTORS QUALIFYING INDUSTRY SECTORS

Manufacturing SIC 3 Computer and computer related activitie Research and development activities MANDATORY REQUIREMENTS Investment in new qualifying assets more than R50m Increase annual production No substantially displace production and /or jobs Demonstrate long term commercial viability Promote employment and production Not concurrently benefiting from certain incentives 4 POINT SCORING UPGRADING A SOUTH AFRICAN INDUSTRY Criterion Description Points New product/process New processes, technologies and products 1 Filling a cluster gap

Benefiting other related industrial projects Improving efficiency and effectiveness Becoming a key component in a cluster 1 Value added process Add value of at least 35% 1 SMME procurement Acquiring raw material intermediate products and services from SMME 1 (10%) 2 (20%) Infrastructure provision Addition to infrastructure open to the public. At least 5% of qualifying assets 1 Employment opportunities Create direct and indirect full time jobs for each R1m 3,4,5,6 or more jobs 1,2,3,4 5 QUALIFYING CRITERIA Maximum points - 10

Point scoring Qualifying Status Applicable Allowance 4 or 5 points Qualifying project without preferred status 50% of the cost of the qualifying assets not exceeding R300m 6 and more points Qualifying project with preferred status 100% of the cost of the qualifying assets not exceeding R600m 6 ADMIN PROCESS Application Evaluation

Recommendation by Adjudication Committee Approval by the Minister of Trade and Industry Letter to applicant Letter to the Commissioner of South African Revenue services Publish in Government Gazette 7 APPROVED PROJECTS PER SECTOR AND PROVINCE Regions Chemical s Metals Packaging Printing Wood & Pulp

Gauteng 2 2 3 3 Kwa Zulu Natal 2 5 1 Eastern Cape 1 5 1 7 Western Cape 2 1 3

Mpumulanga 3 Free State 5 Ship Building 1 11 1 1 1 11 1 7 1 1 1 1 1 15

Total 3 Northern Cape Total Textiles 1 Limpopo North West Agro Processing 14 3 3 4 1 4 1 1 845 APPROVALS BY SECTOR

18,000 16,000 14,000 Total Investment Value Rm 12,000 10,000 Qualifying Assets 8,000 6,000 Allowance 4,000 2,000 0 Sector 9 INVESTMENT PER PROVINCE Investment per Provice 14,000 12,000 Value Rm

10,000 8,000 Qualifying Assets 6,000 Allowance 4,000 2,000 0 10 STATISTICS Greenfields or Brownfields projects 7 Greenfields projects 28 Brownfield projects Foreign Direct Investment and Local Investment 4 Foreign Direct Investment 41 Local Investment Projects Complied but no budget available 13 Projects with R4.9b investment

Additional allowance of R3.06b required 11 ESTABLISHED PROJECTS 25 projects have established to date Investment worth R9,8 billion 12,018 jobs Approved Established Textile & Clothing Metals &allied Shipbuilding Agroprocessi Paper &wood ng Chemicals Packaging Printing Approved 1

14 1 4 4 15 3 3 Established 0 10 0 1 0 9 2 3 12 IMPACT ON JOB CREATION 25 Established Projects Sectors

Actual Investment Actual Jobs Chemicals R3.9b 4 629 Metals R4.9b 6 068 Printing R507m 514 Paper & Wood R89m 94 Agro Processing R320m 309 Textiles

R137m 404 R9.853b 12 018 Total 13 MONITORING Prescribed by section 12G of the Income Tax Submit annual progress report and financial statements Evaluation report Recommendation by Adjudication Committee Minister Accept, amend or disqualify Inform client

Inform Commissioner of SARS Report to parliament 14 SIP Review (Feb 2004) Methodology Independent assessment commissioned by the dti in conjunction with the NT A survey amongst 19 approved projects; 8 in-process applications; 4 prospective applicants; 4 tax consulting firms Study objective to assess need for amendments to the programme in order to enhance project selection. Key questions: Perceptions on Marketing and Promotion of SIP

Assessment of Impact of SIP on the firms Investment Decision Assessment of the suitability of the project selection criteria Perceptions of Administrative Processes. 15 SIP Review (Feb 2004) Observations and Lessons Awareness challenges: Of the 75 manufacturing Capex projects announced by IDC (Jan 2001 to Jun 2003), only 7 of the 38 projects potentially eligible for SIP applied Chemicals, metals dominance: Most applicants were from sectors with a natural diversity in products, processes and technology, which can easily match the industrial upgrading criteria Only 3 out of 19 approvals were FDI: SIP seemed to attract investors with existing operations in SA that are able to exploit the tax allowance soon after project implementation Impact on investment decision: SIP was effective in influencing investment decision of 2/3 of approved projects Bias for capital intensive projects: due to the R50m investment requirement, SIP attracted more capitalintensive that labour-intensive projects. The projects however had potentially larger spin-offs for other economic activities

Cost-benefit analysis: In a longer term, the additional tax revenue from SIP approved project will more than pay for the cost of the incentive (tax allowance) 16 SIP Review (Feb 2004) Way forward Impact analysis: A further analysis is necessary to determine the real economic impact of the SIP approved projects that have established to date Better targeting: Future [tax] incentive programmes can be structured to better target strategic (including FDI) in line with the National Industrial Policy Framework Maintain good practices: Independent review by Paul Babour (Dec 2006) indicates that SIP has a sound design framework, has transparent processes and the Act requiring regular reviews and reporting to parliament. 17 Thank you 18

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