City of Johannesburg

1. UDZ Tax Incentive – Application by Joburg Presentation to Finance, Strategy & Economic Development Committee 7 June 2004 Annex AA10: Presentation to Committees City of Johannesburg Finance & Economic Development

2. Background • Budget Speech by Minister, 2003 • Meeting between EDU & NT to determine location & size of UDZs • Mayoral Comm recommendation in July 2003 • That, in order of priority, following be recommended to National Treasury for inclusion in UDZ Incentive: Inner City, R’burg CBD, R’poort CBD & Lenasia CBD • That, if National Treasury limits selection of designated areas to one area only, Inner City be recommended for UDZ incentive • Legislation approved by President in December 2003

3. What does the Legislation cover? • Income Tax Act 58 of 1962, Revenue Laws Amendment Act: Insertion of Clause 33, Section 13quat • Accelerated depreciation deductions for construction & refurbishment (erection, extension, addition, improvement) whereas previous depreciation was zero, 2% or 5% • UDZ Incentive/Tax Allowance • Aims to support urban renewal efforts • Targets inner cities in 16 LA areas, in UDZs • Preparation of case for larger area being finalised for 23 May

4. Structure of Inner City Total Inner City is 1.1% of total Joburg area (1,786 ha excluding Zone 5); allowable UDZ is 690 ha Zone 1- office & business: 28% of Inner City (502 ha) & 4,212 erven Zone 4 – Residential +: 42% of Inner City (749 ha) & 8,856 erven Zone 3 – Fordsburg +: 7% of Inner City (118 ha) & 1,858 erven Zone 2 – Manufacturing & industrial: 23% of Inner City (417 ha) & 2,489 erven

5. Residential Profile of the Inner City Nearly 208,000 people live in Inner City (+6.5% of all population in Joburg) Highest number of households and people live in Zone 4 (69%) & in Zone 1 (27%)

6. Rationale for Extent of Application • Complex area in transition • Suffers from inner city decline like others in world • Impact of apartheid legacy being dealt with • Crucible for new approaches • Operational rationale • Application deals with possible “shadow” effect whereas smaller area will not

7. Rationale for Extent of Application, cont… • Economic supra-national city • Joburg contributes 16%, R163bn, of SA’s GDP (over R30bn more than next largest earner, Cape Town) • Joburg’s 5-year economic growth rate from 1997-8 to 2000-1 was double the national average (i.e. 5%) • The Inner City contributes over 23% to city GGP (Region 8 proxy) • Largest concentration of infrastructure in SA: infrastructure replacement costs are +R30bn

8. Inner City Economic Structure Highest concentration of retail space is in Zone 1 Industrial space is located throughout Inner City reflective of its historic mining & manufacturing economy Integrated urban economic system Provides more jobs than Sandton, Woodmead/Rivonia & Randburg combined Important anchor for E-W corridor & N-S Corridor (location of Gautrain route) Location of corporate HQs plus SMEs

9. Employment Profile of the Inner City Over 201,000 jobs located here (+15% of all jobs in Joburg) (2001) Office based workers are the majority (57%) Most employment (75%) located in Zone 1, followed by Zone 4 (16%) Unemployment at 32%

10. Rationale for Extent of Application, cont… • Focus of transformation • E.g. Better Buildings Programme • Inner City Task Force • Declining land values from 2000 to 2004 (e.g. Berea  41%, Braamfontein 18%, Fordsburg  12%, CBD & Hillbrow 38%) • 26% decline in assessment rates from +R24m (July 2000) to R18m (Feb 2004) (32% alone in Zone1)

11. Rationale for Extent of Application, cont… • Institutional integration • Inner City Office, 1998 • Adoption of Inner City by CoJ as priority intervention area in 1999 • Inclusion as one of 6 Mayoral Priorities in 2000 • Creation of dedicated Inner City committees • Role players, e.g. JDA, EDU, CJP, JICBC, Region 8, POMA, working towards same goals • Planning for Inner City as a single, integrated entity • Committed interventions, e.g. precinct projects, BIDs, Better Buildings, ICDS, housing, rates rebates, CCTV, etc, underway

12. Progress to Date • Presented to Inner City Portfolio Committee (19 May), Economic Development Subcommittee (21 May), Finance, Strategy & Economic Development Committee (7 June), then Mayoral Committee (10 June), Council thereafter • Decision to be forwarded with application (ready to go!) to National Treasury for approval –No guarantees of success for entire Inner City • Latest notification rec’d from Treasury

13. Possible Impact of UDZ allowance • Only Zone 1 showcased here today • ‘Bad’ building: Massyn Court, corner Kerk & Mooi Streets • In Fashion District • Worst building in Inner City • Overcrowded • Shacks on balconies • No services, fire risk from candles (during day) • Sanitation buckets emptied into stairwells • Valued at R600k in 1991, now 480k • Next to high-value area – good prospects for regeneration

14. Possible Impact of UDZ allowance • ‘Good’ building: Carlton Centre, Commissioner Street • Biggest single development in SA when built in 1973 • Includes hotel, • Biggest parking garage in Inner City • Tower is 50 stories high • Replacement value of R1.3bn • Empty for +10 years • Sold for R33m & now 98% occupied • Part of BID, CCTV • Now shopping centre is also over 80% let, possible hotel reopening

15. Contact Details Li Pernegger Programme Manager (Economic Area Regeneration) Finance and Economic Development City of Johannesburg Cell: +27 (0)82 464 4287 Tel: +27 (0)11 407 7031/7141 Fax: +27 (0)11 403 4125 E-mail: lpernegger@joburg.org.za