How incentives can make a strategic difference to your

businessJuly 2015

Agenda

• International incentive performance• South African incentive performance• IPAP and Incentives• The business cycle• Status of incentives• Conclusion

2011 - 30 %

2012 - 15 %

$15 billionValue of incentives awarded globally

10 000Deals done in 2013

Average incentive deal as % of capex

366 007 jobs created globally in 2012

Tax IncentiveMost common

type of incentive

awarded but moving to cash

grantsBEPS and OECD

impact?Source -

International incentive performance

South African incentive performance

EIP – 43 570

12I - 3 326

Tax forgone estimates (2012/13)

R343 million – R&D S11DR3 million – 12G/12I

R15 billion – MIDP & APDPR119 billion – Total Jobs created/maintained

Cash incentive expenditure – R2,7 billion.

2011 2012 2013 2014 2015

Cash incentive expenditure – R3,2 billion

Cash incentive expenditure – R4,4 billion

Cash incentive expenditure – R5,5 billion

Cash incentive expenditure – R5,6 billion

MCEP - 33 551

14,7%2012/13 tax

expenditure as % of total gross

revenue

R6,7 billion2016 cash incentive budget

Medium Term Expenditure Estimate• CIP– R182 mil• SEZ– R500 mil.• MCEP – R924 mil.• APDP – R703 mil.

• CIP– R190 mil• SEZ– R750 mil.• MCEP – R1,4 bil.• APDP - R920 mil.

• CIP – R203 mil• SEZ – R1 bil.• MCEP – R1.8 bil,• APDP – R 917 mil.

Build competitive manufacturing with strong growth and

employment multipliers.

Trade policy – Standards, strategic

tariff regime, clampdown on

illegal/substandard imports.

Mineral and resources beneficiation. Grown

upstream/downstream value chain.

Deepen support programmes in

automotive, metals, agro-processing, clothing, textiles,

leather and footwear.

Create jobs.

Leverage state infrastructure spend through localisation

programme and designations.

Support green industries, renewables,

energy efficiency, advanced

manufacturing and materials.

Expand and deepen the industrial financing

and incentive framework.

Competition policy – Clampdown on

collusion and price – fixing.

IPAP and Incentives – Iteration 7

Incentives – acronym cityNIPP

MCEP

SPII BBSDP

CIP

AIS11D

12I

EMIA

IDZ

SEZ

THRIP

PII Innovation Fund

APDP Jobs fund

ISP

CIS

CPFP

ADEP

BBSDP

BPS

TSP Film incentiveSSAS

EMIAP-AIS

CTCIP STP

PI

The business cycle

7

R&D• S11D• SPII• APDP• Thrip• PII• Innovation

Fund• Green

Fund

Enterprise Developme

nt•APDP/AIS•NIPP•S12I•MCEP•CIP/MIG•SEZ• ISP•Black Industrialist

Competitiveness

•NIPP•BBSDP•APDP•MCEP•S12L - energy•Carbon Credits and S12K•DSM/IDM•Green Fund•Jobs Fund

Export• EMIA• IDZ• SEZ• CPFSP• NIPP• Drawback

s

Status of incentive

12I 12LMCEP S11D

• Extended to 2017

• Budget of R20

billion not increased

• Only between 15%

of budget remaining

until 2017

• Very well managed

incentive with good

turnaround times

• Energy

measurement

• Reduction of

maximum project

size to R50 million.

• Oversubscribed?

• 18 month

turnaround

• Customer service

layer inserted

• Rules changes –

BEE level 4

• 150% tax deduction

• Slow turnaround

times.

• Uncertainty with

regard to

interpretation of

legislation.

• Pre-Approval

•Minister approval

• Global best practice

• BEPS impact

• Benefit increased

from 45 to 95 cents

• Capital incentive?

• Good administrative

system

• benefit too low?

• only available for

one year of energy

savings

Status of incentive

SEZBlack

Industrialist

ISP NIPP

• Not effective yet

• IDZ’s to be

converted

• 15% corporate tax

rate for 10 years

• New SEZ’s to be set

up and determined

• Regulations to be

finalised

• Single site SEZ’s

need to be

considered

• 50% grant

• R10m per annum

• 3 years

• Low approval rate –

net 16% to date

• Structure could be

complicated – tax

issues

• New BEE rules

could assist

• Countertrade

obligation

• For contracts with

government

• Greater than

USD10million

imported content

• Excl

Eskom/Transnet

• Police consistently?

• Link with local

procurement

• Target of 100

• 75% black

ownership

• In development

• R1 billion budget

• Treatment of

current incentive

applicants?

Conclusion

What future costs to be incurred in major categories Need to understand what incentive available – holistic view needed Most incentives need monitoring to ensure compliance – business needs to comply BBBEE level key requirement for most grant programmes Applicants need to understand rules and government priorities Some programmes need to improve administration to be more effective Attempt to link industrial financing and incentives – Possible? Ultimate is to build incentive questions into decision making process – then will make a

difference

CONTACTS

Duane NewmanDirector082 783 5057dnewman@cova-advisory.co.za

Mari WichmannManager083 542 7762mwichmann@cova-advisory.co.za

www.cova-advisory.co.za

Tumelo ChipfupaDirector082 789 8915Tchipfupa@cova-advisory.co.za