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Strategic Industrial Projects: Encouraging Investments and Promoting Growth

This briefing provides information on the Strategic Industrial Projects (SIP) program, which aims to encourage investments, upgrade industries, and create employment opportunities. It covers qualifying industry sectors, mandatory requirements, point scoring, administrative process, statistics, and monitoring. The review of the program suggests maintaining good practices and better targeting future incentives.

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Strategic Industrial Projects: Encouraging Investments and Promoting Growth

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  1. Parliament Portfolio Committee on Trade and Industry Briefing on Strategic Industrial Projects (SIP) Presented by: Francisca Strauss Chief Director The Enterprise Organisation 13 June 2007

  2. CONTENTS • Objective • Qualifying Industry Sectors • Mandatory requirements • Point scoring • Benefit • Admin Process • Statistics • Monitoring

  3. STRATEGIC INDUSTRIAL PROJECTS • SIP – 12G of the Income Tax Act • Additional industrial investment allowance – R10b • 1 August 2001 to 31 July 2005 Objective • Encourage investments from local and foreign investors • Contribute to the growth, development and competitiveness • Upgrade industries • Create employment opportunities

  4. QUALIFYING INDUSTRY SECTORS QUALIFYING INDUSTRY SECTORS • Manufacturing – SIC 3 • Computer and computer related activitie • Research and development activities MANDATORY REQUIREMENTS • Investment in new qualifying assets more than R50m • Increase annual production • No substantially displace production and /or jobs • Demonstrate long term commercial viability • Promote employment and production • Not concurrently benefiting from certain incentives

  5. POINT SCORING

  6. QUALIFYING CRITERIAMaximum points - 10

  7. ADMIN PROCESS • Application • Evaluation • Recommendation by Adjudication Committee • Approval by the Minister of Trade and Industry • Letter to applicant • Letter to the Commissioner of South African Revenue services • Publish in Government Gazette

  8. APPROVED PROJECTSPER SECTOR AND PROVINCE

  9. APPROVALS BY SECTOR

  10. INVESTMENT PER PROVINCE

  11. STATISTICS Greenfields or Brownfields projects • 7 Greenfields projects • 28 Brownfield projects Foreign Direct Investment and Local Investment • 4 Foreign Direct Investment • 41 Local Investment Projects – Complied but no budget available • 13 Projects with R4.9b investment • Additional allowance of R3.06b required

  12. ESTABLISHED PROJECTS • 25 projects have established to date • Investment worth R9,8 billion • 12,018 jobs

  13. IMPACT ON JOB CREATION 25 Established Projects

  14. MONITORING • Prescribed by section 12G of the Income Tax • Submit annual progress report and financial statements • Evaluation report • Recommendation by Adjudication Committee • Minister – Accept, amend or disqualify • Inform client • Inform Commissioner of SARS • Report to parliament

  15. SIP Review (Feb 2004) Methodology • Independent assessment commissioned by the dti in conjunction with the NT • A survey amongst 19 approved projects; 8 in-process applications; 4 prospective applicants; 4 tax consulting firms • Study objective to assess need for amendments to the programme in order to enhance project selection. • Key questions: • Perceptions on Marketing and Promotion of SIP • Assessment of Impact of SIP on the firm’s Investment Decision • Assessment of the suitability of the project selection criteria • Perceptions of Administrative Processes.

  16. SIP Review (Feb 2004) Observations and Lessons • Awareness challenges: Of the 75 manufacturing Capex projects announced by IDC (Jan 2001 to Jun 2003), only 7 of the 38 projects potentially eligible for SIP applied • Chemicals, metals dominance: Most applicants were from sectors with a natural diversity in products, processes and technology, which can easily match the industrial upgrading criteria • Only 3 out of 19 approvals were FDI: SIP seemed to attract investors with existing operations in SA that are able to exploit the tax allowance soon after project implementation • Impact on investment decision: SIP was effective in influencing investment decision of 2/3 of approved projects • Bias for capital intensive projects: due to the R50m investment requirement, SIP attracted more capital-intensive that labour-intensive projects. The projects however had potentially larger spin-offs for other economic activities • Cost-benefit analysis: In a longer term, the additional tax revenue from SIP approved project will more than pay for the cost of the incentive (tax allowance)

  17. SIP Review (Feb 2004) Way forward • Impact analysis: A further analysis is necessary to determine the real economic impact of the SIP approved projects that have established to date • Better targeting: Future [tax] incentive programmes can be structured to better target strategic (including FDI) in line with the National Industrial Policy Framework • Maintain good practices: Independent review by Paul Babour (Dec 2006) indicates that SIP has a sound design framework, has transparent processes and the Act requiring regular reviews and reporting to parliament.

  18. Thank you

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