Several queries relating to management of Manufacturing Competitiveness Enhancement Programme remain unanswered

by Amanda Visser

THE decision to suspend government’s competitiveness enhancement scheme has raised serious questions about the overall management of the initiative.

The Department of Trade and Industry announced at the end of October that new applications for the Manufacturing Competitiveness Enhancement Programme (MCEP) had been suspended "temporarily".

Several questions relating to the management of the programme, including the number of applications received to date and the number of payments made, have remained unanswered.

The department said the suspension was due to the "large number" of applications which far exceeded the funds set aside for the programme. The aim of the scheme was to increase competitiveness and help companies to retain jobs.

In January this year the department said it had received more than 2,033 applications and 848 were approved since the inception of the project (2012). The incentive value then was R5.1bn of which R1.5bn had been disbursed at the time.

In its presentation to Parliament, the department said the allocated Manufacturing Competitiveness Enhancement Programme for 2015-16 amounted to R1.38bn and there was R1.53bn for 2016-17 and R1.48bn for 2017-18. This allowed for an allocated budget of R7.4bn from 2012-2017.

The department said in its October statement that 1,153 entities had been supported, but neglected to say how many of the applications were still pending when the programme was suspended.

Duane Newman, head of the South African Institute of Tax Professional’s tax incentive committee and director of Cova Advisory, said it was clear that the programme had been oversubscribed for at least a year. "Why have many manufacturers spent time and money on preparing applications which had a very slim chance of being approved?"

Small manufacturers who have relied heavily on getting the grant say they have lost faith in the department. Some of them have already started retrenching staff.

Others have threatened to "unwind" their black economic empowerment (BEE) plans, which were a prerequisite for qualifying for the grant.

Lawrie Kramer, owner of Ethnic Style, a manufacturer and distributor of juice powders and cosmetics in KwaZulu-Natal, said the department did not seem to be concerned about the effect its inefficiency was having on small businesses.

He said his initial application took six months to be approved. However, by that time the cost of the machinery and equipment needed for his expansion plans had increased "significantly".

On the advice of the department he reapplied with the new amounts, assured that as the original application had been approved there would be no problem in getting approval.

While waiting for approval the second time, he had to pay for the equipment to begin his expansion plans. He was forced to obtain financing.

Despite numerous calls and e-mails, he received no response from the department. "Personnel at the (department) always seemed to be out of the office, or on study or sick leave."

After several months of delays and new compliance requirements, Ethnic Style was told that its application was unsuccessful.

"I have dismissed six staff members when, in fact, I should be employing more people.... We also have a high level of poverty in our area so getting rid of staff does not help."

Mr Newman said the programme had lofty objectives to help manufacturers.

"The poor administrative process has let them down. There has been very poor communication between the (department) and applicants. In addition, there have been very long delays between application and approval. In some cases the process has been inconsistent, so there are questions on whether the (department) handled applications on a first-in-first-out basis."

The department said the suspension would apply to only new applications.

"Sadly, this is not true as many applications which have been in the system for a year have already received rejection letters on the back of this announcement," said Mr Newman.

He added that the real challenge would be to rebuild the trust gap that had been created.

The department said a new application window would be opened in April next year "pending the availability of funds". It added that all approved applications would be honoured.