Manufacturing grants to target sectors, not firms
The Department of Trade and Industry has redesigned its manufacturing competitiveness enhancement programme so the extension of grants will target strategic sectors rather than individual manufacturers on a first-come, first-served basis as in the past.
The programme will take effect in the new financial year, which starts on April 1, and will prioritise the labour-intensive sectors of agroprocessing and agriculture, as well as downstream manufacturers exposed to the metals sector, which has been hard hit by the global glut of steel and drop in commodity production.
“We are targeting the most vulnerable and the most jobrich,” department director-general Lionel October said in an interview on Friday.
He said there were indications that an allocation of R1.3bn for the programme would be announced by Finance Minister Pravin Gordhan when he tables his 2017-18 budget in the National Assembly on Wednesday.
In addition to grants, the department will offer low-interest loans to manufacturers in general for them to use for competitive-enhancing investments.
The old manufacturing competitiveness enhancement programme also had two elements, loans and grants. It became so oversubscribed that at one stage the department had to close the door on new applications.
The re-engineering is in line with the World Bank’s recommendation in its recent economic update on SA that the government direct its income tax incentives towards sectors which attract investment and create jobs.
It noted that the income tax incentives aimed at promoting industrial development had not yielded a significant reallocation of private capital towards industrial sectors, nor boosted industrial employment as expected.
“Since 2012, capital went to sectors such as mining, electricity, transport and other services that recorded a decline in their capital productivity and away from sectors recording increases in capital productivity such as agriculture, manufacturing, construction, trade and finance, thus reducing average capital productivity,” said World Bank programme leader Sebastien Dessus.
October was critical of the slackening of capital investment by parastatal Transnet.
As a state-owned enterprise, it should be acting countercyclically. He said with the slowdown in the global economy about 18 months ago and the associated decline in commodity prices, Transnet’s transport of iron ore, coal and other minerals had declined.
Its investment programme to acquire new rolling stock had then slowed down, adversely affecting downstream suppliers.
Transnet’s capital expenditure declined from R33.6bn in 2014-15 to R29.5bn in 2015-16. Expenditure on procured operating expenses fell from R12.8bn to R12.1bn over this period, with the 2016-17 figures only being released with the financial results later this year.
Transnet spokesman Molatwane Likhethe said the company “undertakes its procurement activities based on business requirements and approved budgets”.
He said the majority of sectors in which Transnet operated had been affected by the economic slowdown and the company would continue to adjust its investment plans in line with the economic environment.