INCENTIVE PRESENTATION FOR DOH PHARMACEUTICAL INDUSTRY 4 September 2008

1. INCENTIVE PRESENTATION FOR DOH PHARMACEUTICAL INDUSTRY 4 September 2008

2. Contents Incentives for investors and exporters Enterprise Investment Programme Investment and Training allowance (section 12i)

3. Incentives for investors and exporters • Incentives for Investors and Exporters • The South African government uses a range of incentives to support investment, trade, competitiveness and growth • Investment support • Enterprise Investment Programme • Foreign Investment Grant (FIG): • The Critical Infrastructure Programme (CIP): • The Sector Specific Assistance Scheme • The investment and training tax allowance (section 12 i)

4. INCENTIVES FOR INVESTORS AND EXPORTERS • Export assistance and support • Export Marketing and Investment Assistance Scheme: • Industrial Development Zones (IDZs): • The African Growth and Opportunity Act (AGOA): • EU-SA trade agreements: • Innovation and Technology • Technology and Human Resources for Industry Programme (THRIP): • Support Programme for Industrial Innovation (SPII): • The Venture Capital Fund: • Competitiveness and Skills • Competitiveness Fund • Skills Support Programme

5. EIP & INVESTMENT AND TRAINING ALLOWANCE • Enterprise Investment Programme replaces SMEDP • The approved EIP budget for 2009-2011 is R1.2 billion (in operation for 6YRS) effective 21 July 2008 • Investment and training Tax allowance programme to being developed will be in operation January 2009 and approved tax allowance amounts to R5 billion • Skill Support programme as well as the Competitiveness Fund to be implemented by April 2009

6. SMEDP Performance By March 2007: • Projects approved: 12,359 • Projected investment: R67 billion • Projected jobs: 336,205 • Majority of projects assisted are within the manufacturing sector, • Within manufacturing, both capital intensive (chemical) and labour intensive sectors (agro, clothing textiles) are covered • Tourism makes up 35% of the project approved under SMEDP

7. EIP Increase additionality of projects by: Considering the economic benefit of the project is an eligibility criteria Funding projects that are likely not to materialise without the grant (Funding gap in cash flow; high risk; low returns) Approval of the grant prior to the investment Increase scale of funding for larger projects in order to influence investment decisions for new/expansion SMEDP Could consider applications 6 months after start of production as enhancing survival rates of enterprises one of its key objectives From 9% of capex to 15%/20%, increased project cap from R100m to R200m Key Changes

8. EIP Expansions should be significant increases in investment (50% increase in machinery & equipment at cost), increases in turnover in year 1 and 2 of 15% and 25% respectively SMEDP Expansions = 35% increase in machinery & equipment, but increase in turnover in year 1 and 2 of 25% and 50% Key Changes

9. Enterprise Investment Programme

10. Programme Overview Aim Increased investment in manufacturing sector Outputs Increased Manufacturing Production Capacity & Output Increased FDI Outcomes Increased Employment Sustained Enterprise Growth

11. Programme Overview PURPOSE To address the following market failures: • Low fixed investment rates in manufacturing sector • Limited access to finance for small and medium enterprises • Low return on investment in manufacturing for large and FDI firms FOCUS ON ADDITIONALITY

12. Programme Description OFFERING • Investment grant of up to 30% of qualifying investment costs in machinery & equipment, commercial vehicles, land & buildings . TARGET PROJECTS • Establishment of new or expansion of existing production facilities in manufacturing (SIC 3) • Investment by projects capped at R200 million • Local and foreign owned projects • Applicant must be a registered entity in RSA (Companies, CCs, Co-ops) • Projects must apply and receive approval prior to acquiring investment assets (with the exception of projects relocating to RSA).

13. Programme distinguishes between two types of projects:

14. Economic Benefits criteria Evaluation 1) Fatal flaw analysis & business plan evaluation 1) Fatal flaw analysis & business plan evaluation 2) Financial ratio analysis 2) Financial ratio analysis   3) Funding gap analysis   4) Economic Benefit criteria

15. Grant Calculation • LESS THAN R5m investment: • a grant of 30% towards qualifying investment costs payable over a period of 3 years • Additional 10% for year 3 on achievement of HR remuneration vs manufacturing cost of 30%. • More R5m = R200m investment • a grant to a maximum of 15% of qualifying investment costs up to a maximum of R30m • Must get at least 4 points • The grant is disbursable on a bi-annual basis on meeting performance requirements (of investment, employment, turnover, economic benefit criteria) • Grant is payable on condition of the approved project meeting the performance requirements • Grant is tax exempt

16. Qualifying & Non-Qualifying Assets

17. EXPANSIONS • Increase in qualifying investment of at least 50% (above the historic qualifying investment in machinery and equipment); must be made in year 1 • Additional investment in vehicles will be excluded for the purpose of calculating the increase in investment • Expansions may not result in base year employment reduction during the incentive period • Project must achieve 15% increase in turnover in year 1 and 25% increase in year 2. • Only one expansion per district of metropolitan area • Period between base year for the expansion and the end of its first full financial year may not exceed 24 months

18. Foreign Investment Grant • Provided to qualifying foreign investors for costs of moving qualifying machinery and equipment (vehicle excluded) from abroad to RSA • Establish production facilities for the first time in RSA • The grant is the lower of 15% of the value of qualifying imported machinery and equipment or the actual relocating costs to a maximum of R10 million

19. Thank you