Industry hopes for good news on incentive

Oct 4, 2016 | Duane Newman

Pravin Gordhan must ensure the producer incentive programme remains a South African success story, writes Duane Newman

IT IS going to be an anxious few weeks for manufacturers in the run-up to the medium-term budget policy statement. It is hoped that Finance Minister Pravin Gordhan will announce that new funds are available for what has been our most successful industrywide incentive programme, known as the Manufacturing Competitiveness Enhancement Programme (MCEP).

While it has brought billions of rand in support for industrial investment, the MCEP has been the victim of its own success. Funds ran out and it was suspended in October 2015.

One bit of good news emerged on September 19 when Trade and Industry Minister Rob Davies announced that one section of the MCEP — a loan facility administered by the Industrial Development Corporation — would be reopened. Money has been trickling back from loans that were granted earlier, and this cash can now be reinjected through fresh loans. It is back to business.

Less comforting is the news that as yet, the main element of the the enhancement programme is still frozen. We would argue strongly that MCEP has been a big success in job creation and in boosting investment, and there is every reason for it to be fully reopened as soon as possible.

Davies gave the reason for the current problem — a negotiation his officials are holding with Treasury officials to secure fresh funding for what the Department of Trade and Industry is calling the MCEP2. If a deal is done and new cash is made available for grants, we hope it will be announced by Gordhan in the so-called minibudget later in October.

Certainly, industry groupings such as the Manufacturing Circle are working tirelessly behind the scenes to secure this breakthrough, and we are aware of a queue of companies that would be interested in securing MCEP grant funding.

Of course, we are all well aware that Gordhan is at the centre of a political whirlwind, with reports of a power struggle with President Jacob Zuma. However, his officials remain focused on preparations for the minibudget, and there is no reason other than the wider fiscal squeeze why the MCEP should not be given new life.

There are other reasons why manufacturers should be closely watching the MCEP issue, as the department is busy with an exercise to refocus support.

A new incentive programme for agribusiness is already on the cards. This could also be launched in the minibudget, along with one for the locomotive industry.

Davies has already announced that the incentive pie would be cut up in a different way, with more focus on black business and on sector-specific help, and less through the industry-wide MCEP. This revamping of SA’s industrial incentives will be of major importance to manufacturers.

We also hope S12I (for section 12 of the Income Tax Act) — the additional tax incentive for large projects — is given more budget. This should be easier as it is a tax allowance and not a cash budget line.

Business hates uncertainty, and while we await the outcome of the gladiatorial battle between the Treasury and Department of Trade and Industry some investment decisions are being put on hold. We have been hearing a lot recently in SA about investor confidence and the need for clarity and certainty.

We need a positive story to tell. Get it right, and we get the investment. But in this global market, if we get it wrong, there is every likelihood that investors will go elsewhere.

None of this will be novel to the departmental officials who are working hard to secure the full restoration of the MCEP, albeit in an updated and refocused sequel. Manufacturers are keen to support these officials in this process. We just have to hope that as they grapple with so many other pressing demands from very limited resources, the Treasury officials fully appreciate the vital importance of the manufacturing sector to SA’s future prosperity, and take a positive step with the MCEP.

• Newman is a co-founder of Cova Advisory, which supports companies as they seek state support for investments

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