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INTRODUCTION OF REGIONAL INDUSTRIAL DEVELOPMENT PROGRAMME TO AMBASSADORS AND REPRESENTATIVES OF FOREIGN COUNTRIES IN SOUTH AFRICA
Mr LH FICK, MP, DEPUTY MINISTER OF HOME AFFAIRS AND FOR REGIONAL AFFAIRS, 15/03/94

Ladies and Gentlemen, Welcome and thank you for your presence.

Creation of new employment opportunities, amongst others through self-sustainable industrial growth in a free enterprise system, is one of the highest priorities in Southern Africa today and should be in the new political dispensation of the next decades.

Like South Africa most developing countries of the world administer programmes of varying nature to promote domestic development of industry and business. The purpose of such programmes is universally to improve performances of Gross Domestic Product and per capita income of the average population.

The change in the political weather around South Africa now makes it possible for us to more openly and aggressively market our develop-ment programmes and I am therefore very glad to have you with us today.

More than a decade ago in 1982 a decentralisation programme was initiated through which investors were located at development points designated by Government. Incentives in various forms were aimed at compensating industries for their locational disadvantages and was in pursuit of the objective to create employment in less developed areas. It was also at the time considered possible to relieve the pressures of urbanisation on metropolitan centres by creating an opposite develop-mental momentum.

That programme created more than 235 000 jobs, it contributed R5,3 billion to the GDP, the calculated tax income was R3,35 billion and the average cost of incentives per job opportunity was R1 750. As a profitable expenditure by Government it was highly beneficial in terms of the R8,13 calculated tax recovered per R1 incentive paid.

Apart however from these several advantages, the scheme could not be maintained mainly amongst others for the following reasons:

Too many development points were designated resulting in a below optimum utilisation of many of them
Distortion of normal market forces became a counter to the aims of the scheme
Under-optimal utilisation of production factors
A large failure rate of approved projects.

Changing circumstances however, necessitate constant evaluation of Government support programmes and in 1991 therefore the new Regio-nal Industrial Development Programme were introduced. It is about this programme that we would like to inform you today.

In the three years to date 781 projects have been approved under this scheme involving a total investment of R8,6 billion and creating 48 306 jobs.

Actual establishment of approved projects exceeds 80% which we regard as very successful. These established projects contributed an estimated R6,452 billion to the GDP and the calculated direct taxes per R1 incentive is estimated at R16,70 which is more than double of the previous scheme.

The success of this scheme from the point of view of both investor and Government is that it is a kick-starter of generous proportions for the investor and short term easy to administer by Government. The details are as follows:

An establishment grant of 10,5% of qualifying assets tax free upfront for the first two years of establishment.

A profit output incentive of 20% of PBIT which is tax free for three years.

Compensation for relocation costs to a maximum of R1 million.

The 1991 RIDP introduced on 1 May 1991 is a well conceived incentive package of short duration (5 years) and easy to administer as I have mentioned. Its market and profit orientation and spatially uniform appli-cation as well as its equity threshold requirement, proved to select viable and propulsive industries, capable of creating the much needed new economic activity and resultant regional income, wealth and em-ployment - essential ingredients for the establishment of sound regional economic bases.

The programme is in fact structures in such a way that market forces will determine the entrepreneur's choice of locality, exactly in order that the highest possible output and returns may be accomplished. This dovetails with the complementary structure of the incentive package, which rewards performance. The programme therefore promotes the utilisation of the comparative advantages of local areas.

This new scheme is strongly supportive of the latest proposals for economic and regional development guidelines. It should promote free market, self-sustainable industrial growth because natural market forces determines the location and there are no distortion of other market factors.

The Board for Regional Industrial Development aim to create 20 000 direct new jobs per annum which could create a further 53 000 indirect jobs through multipliers. We further estimate that direct and indirect tax revenue of R3,5 billion over five years could be generated through this programme.

As an instrument to facilitate sustainable wealth generating industrial development this programme should yield an excellent return on investment for the taxpayer and for the investor.

THE REGIONAL INDUSTRIAL DEVELOPMENT PROGRAMME (RIDP) FOR THE DEVELOPMENT OF INDUSTRIES IN THE REPUBLIC OF SOUTH AFRICA

Introduction

Investment in South Africa becomes a very attractive proposition when reviewed in conjunction with the Regional Development Industrial Programme (RIDP) which is designed to enhance the country's excellent investment opportunities.

As a potential investor you can assure success by obtaining extensive knowledge of business opportunities and accurately weighing the risks against the reward before making a business decision.

Therefore, ascertain the facts and analyse the hi-tec infrastructure, the sophisticated telecommunication system, road and railway networks, airline and harbour facilities and our first-world financial institutions.

The availability of minerals, raw materials, labour, inexpensive electri-city, the multitude of opportunities which are afforded by fast-growing markets and those of our neighbours are all factors which will contribute to your success story.

The Regional Industrial Development Programme (RIDP) is available to investors who are interested in the optimal utilisation of these poten-tials.

The objectives of the RIDP are to:

Create wealth
Create employment
Introduce contemporary technology
Promote the utilisation of South Africa's primary raw materials
Promote export and/or import replacements
Ensure sustainability of benefits derived from projects receiving incentives
Introduce new and advanced skills in South Africa
Foster new entrepreneurship
Promote foreign investment.

How will you benefit as an investor?

Risks will be minimised and overheads will be reduced through the financial incentives based on new operational investment applicable to the RSA's manufacturing sector.

Why is the RIDP an excellent incentive scheme?

Performance orientated
Tax free
Quarterly payments contribute towards positive cash-flow
Accessibility is easy to obtain.

Do you qualify?

This incentive package is available for the establishment of new secon-dary industry or the expansion of existing undertakings in the RSA.

The Regional Industrial Development Programme (RIDP)

Initial assistance is tendered in the form of an establishment grant for the first two years providing a tax free return of 21% on operational assets up to R15 million per project. This grant is paid quarterly subject to the maintenance of sufficient equity.

Assistance is provided for a further three years in the form of a profit-based incentive calculated as follows: (20% of profit before tax) - (1 + 200% of return on assets).

Payments are effected annually and may not exceed the theoretical annual establishment grant.

Relocation of manufacturing enterprises from outside the rand monetary area are eligible for a relocation grant of up to R1 million per project, based on acceptable expenditure.

Spatial application of the incentives in the RSA

PWV and Durban Core area
Cape Peninsula and Durban/Pinetown/Pietermartizburg and the larger Durban functional Region (excluding the Durban Core area) and the deconcentration area around the PWV
All other areas