Manufacturing: Funds earmarked for incentive programme

SA’s Department of Trade and Industry has allocated funds for the continuation of a government programme to enhance manufacturers’ competitiveness.

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Johannesburg - The Department of Trade and Industry (dti) this week confirmed that it has allocated funds for the continuation of a government programme to enhance South African manufacturers’ competitiveness.

Dti Spokesman Sidwell Medupe said however the amount will only be announced once the department’s budget vote has been presented to Parliament. This is scheduled in two weeks’ time.

The presentation of the budget votes are followed by hearings of the committees with the departments over which they have oversight to determine whether they have kept to their undertakings of the previous year.

The Manufacturing Competitiveness Enhancement Programme (MCEP) was suddenly suspended at the end of last year when funds dried up.

According to the latest figures from Stats SA manufacturing production increased by 1.9% in February 2016 compared with February 2015.

However, figures for the three months from December to the end of February this year showed a decrease of 0.3% when compared with the previous three months.

Manufacturing’s contribution as a percentage of gross domestic product (GDP) has been shrinking from around 24% in 1989 to around 13% currently.

The programme was introduced in 2012 and government allocated R5.8bn to increase competitiveness and to help companies retain jobs. It was supposed to run until 2018, but funds dried up at the end of last year.

Duane Newman, vice-chairman of the Incentive Consultants Association, welcomed the news that the department has allocated funds to the MCEP programme.

“We hope that all the applicants who were (previously) rejected due to lack of funds will be first in the queue to be assessed. We also recommend that if the DTI intends to make any changes to the rules of the programme that they consult with business organisations like the Manufacturing Circle.”

The programme, although welcomed by manufacturers, also attracted criticism because of the way in which it was managed.

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, Newman said shortly after the suspension was announced.

Philippa Rodseth, Executive Director of the Manufacturing Circle, says they were “actively” engaged in ongoing discussions with the department.

It undertook a survey on the impact of the suspension on its members in October last year to objectively understand the situation. The outcome of the survey was shared with the dti, and a meeting to discuss it has since been scheduled.

The survey and additional statistics collated by the Incentive Consultants Association showed discrepancies between the number of applications approved, claims submitted and claims paid.

According to the survey the value of the claims submitted only represented 40% of the applications that were approved. The survey and the association’s statistics indicate that 67% and 73% of the claims submitted were paid out.

In September last year 1 212 submissions worth R10.9bn were made of which 833 with a total value of R8.6bn were processed.

According to the Incentive Consultants Association 539 claims, valued at R1.97bn were submitted and R1.44bn had been paid out.

The Manufacturing Circle says the discrepancies indicate delays that have developed in the programme’s implementation process.

“The MCEP was a positive intervention to assist the manufacturing industry in turbulent times so that investment in competitiveness enhancing measures could still take place. The programme has encouraged investment, as evidenced by the number of applications made and claims submitted,” Rodseth says.

She says the delays were unfortunate given the positive aims of the programme. “In the context of tightening budget constraints, the Manufacturing Circle is in discussions to review the current programme design and implementation to support effective government spending.”

Izak Swart, tax director at Deloitte’s research and development and government grants division, says the huge uptake of the programme show how much manufactures need assistance to remain competitive and to expand their operations.

“At the time of the suspension mention was made that the programme will be reinstated in April 2016... We remain hopeful that the dti can access the necessary funds to reinstate the programme,” he says.

Swart, vice-chairman of the South African Institute of Tax Practitioners’ incentives committee, says it remains to be seen if the programme will provide the same benefits as in the past.

“Assistance from the MCEP is now more necessary that ever give the current economic circumstances the country is experiencing,” he adds.

Manufacturing’s contribution to the Gross Domestic Product (GDP) has been slipping since 1989 from around 24% to around 13% currently.

* Additional sources: Trading Economics

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