Incentives could give factories relief

There is a need “to talk the economy up” while the high exchange rate remains a challenge, according to the Department of Trade and Industry (dti).

The government must also send “appropriate signals” like new tax incentives to bolster greenfield industrial investments in the current difficult economic environment, director-general Tshediso Matona told the trade and industry portfolio committee yesterday.

The government on Monday announced the tax incentives in the context of what Matona described as “the greatest challenge” to the economy at present – the high rand exchange rate which, he said, was facing “a short-term crisis”.

He told MPs the incentives were needed to promote and support manufacturing.

He said that the department had held talks with manufacturers last week and they were unanimous in the view that the exchange rate was a key challenge to the sustainability of their businesses.

Trade and Industry Minister Rob Davies announced that investors in greenfield projects – new projects that use manufacturing assets with a capital investment of R200 million up to R1.6 billion – would be able to apply for a tax allowance of between 35 percent and 55 percent of the project’s value.

The incentive, which will also apply to brownfield projects where there are expansions and upgrades, will run until December 2015.

Business Unity SA economist Simi Siwisa welcomed the tax incentive. She said it built on industrial policy action plan objectives and could “further stimulate” domestic manufacturing sectors. “Indeed it is supportive of a new growth path,” she said.

Asked if the department had the capacity to carry out the programme, Siwisa said business would be meeting with the department next week to find out how to assist it in implementing the programme.

“This will require a partnership between dti and business in general.” Siwisa added that the tax incentives to spur industrial development had to be supported by “non-direct” measures, including beefing up transport infrastructure.

Responding to concerns from DA trade and industry spokesman Tim Harris, Davies acknowledged that there were certain incentives where uptake had been slow. However, the motor industry incentive programme had worked well, largely, Harris believed, because it has been carefully planned with the industry.

Investec investment strategist Brian Kantor said he was “all for low business taxes… investment allowances are one way to do that”. Kantor added that whether it would work would depend on how it was implemented.

ANC MP Joan Fubbs, the committee chairwoman, said it was important the currency issue be resolved at this week’s Group of 20 meeting in Seoul.

Nedbank group economist Dennis Dykes said the green economy was something the government was looking “to bolster” through tax incentives and possibly even subsidies. - Donwald Pressly(Business Report)