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3 July 2008

Members of the media
Ladies and gentlemen

The Enterprise Investment Programme

During the Department of Trade and Industry's (dti's) budget vote speech in May, I announced that the Enterprise Investment Programme will be launched in July and it gives me great pleasure to be part of publicising details of the programme today. The purpose of this investment programme is to ensure that that we increasingly utilise our industrial financing instruments in a targeted manner to stimulate growth, employment and the broadening of participation in our economy, in line with the vision outlined in the National Industrial Policy Framework. The Enterprise Investment Programme therefore, in essence offers a platform for customised industrial financing to meet sector specific priorities. To start-off the programme consists of two customised sub-programmes, the Manufacturing Investment Programme (MIP) and the Tourism Support Programme (TSP) but we intend adding more sub-programmes to meet specific needs of sectors targeted in the Key Action Plans identified in the Industrial Policy Action Plan.

Manufacturing Investment Programme

As far as the Manufacturing Investment Programme is concerned, it has the primary objective of stimulating investment within the manufacturing and related services sectors in a manner which will create employment opportunities and ensure sustained enterprise growth. This is particular important as manufacturing forms a key component of government's economic policy to promote exports. As it is, strong domestic demand in recent years, together with export activities, has resulted in the manufacturing sector operating at near full capacity, utilising an ageing capital base. And it is therefore vital that manufacturing investment in machinery and equipment takes place at rate that stimulates growth and expansion of the sector. The Manufacturing Investment Programme is therefore specifically designed in a manner that will encourage additional investment in the manufacturing sector by providing a grant of up to 30 percent towards qualifying investment below R200 million in plant, machinery and equipment and commercial vehicles required for establishing new and expansions of existing operations.

As I have indicated, in line with our National Industrial Policy Framework, this manufacturing investment initiative can be accessed by a range of sectors in the manufacturing industry, but we will be particularly interested in applications from the four lead sectors which we have identified as having the most potential, at this time, for achieving our growth objectives; these are the metal fabrication, capital and transport equipment; automotive and components; chemicals, plastic fabrication and pharmaceuticals; and furniture sectors. In addition, important opportunities have and will emerge through the competitive supplier development programme of the Department of Public Enterprises, which in turn seeks to leverage the public capital expenditure programme on upgrading our electricity, rail and ports infrastructure, and we envisage that manufacturing suppliers in these sectors, by taking take advantage of the MIP, will be able to become effective suppliers.

I think it is also important to appreciate that the programme complements other existing government instruments available through the provisions of the Income Tax Act designed to stimulate investment, such as the accelerated depreciation on investment assets, the revised tax incentives for research and development capital expenditure and the graduated tax rates applicable to small enterprises.

Tourism Support Programme

The second of our customised sub-programmes, the Tourism Support Programme seeks to specifically promote sustainable job creation outside the traditional tourism destination clusters of eThekwini, eKapa and Joburg and to encourage greater transformation in the sector by placing a strong emphasis on broadening participation in the sector. We chose to support this sector as currently, tourism is important to our economy and currently contribute close to R100 billion to Gross Domestic Products (GDP) and are a significant source of foreign exchange earnings. A further factor in arriving at our decision is that the sector has relatively lower entry barriers and thus has the real potential of growing the small, medium and micro enterprises (SMME) segment. Although there is some evidence to suggest that SMMEs are entering the market in greater numbers particularly wanting to capitalise on 2010 opportunities, a shortcoming we identified is that many tourism businesses remain small and do not grow into medium sized businesses and therefore have limited job creation capacity. A further challenge is that such small businesses find it difficult to obtain loan finance from banks because of the relatively longer break even periods of about five years or more. In arriving at our decision to support this sector we also considered the investment patterns which sees eKapa, Joburg and eThekwini municipalities dominating by contributing almost 40 percent of the national distribution of tourism investments. Similarly, at the provincial level, the Western Cape, Gauteng and KwaZulu-Natal are recipients of more than two thirds of tourism investment.

The Tourism Support Programme will address these market deficiencies, by offering a grant of up to 30 percent of qualifying capital investment by enterprises investing below R200 million, provided these enterprises are located outside the established tourism clusters. Additionally, the grant may be used by applicants as part of their equity contribution when approaching third party partners and may also be used to access further loans from banks. The quid pro quo that will be expected from industry is more sustainable job creation and creation of tourism products and businesses that will be sustained beyond 2010. We should also emerge with greater geographic spread and broader participation in the sector.

Again, as an investment support initiative, the programme does not exist in isolation, but is one of a slate of interventions to address key constraints , including improving tourist transportation, ensuring tourist safety and security, enhancing marketing of South African destinations, and increasing investment. The particular value-add of this programme is that it maximises short term investment whilst broader systemic issues are being dealt with in an effort to create an enabling environment for sector growth. In this regard it also complements the Department of Environment and Tourism and the Business Trust funded Tourism Enterprise Programme (TEP), which offers business development support such as training and market development.

Industrial Financing Core Principles

Finally, I wish to point out that these investment programmes signal closer alignment to current industrial policy interventions, than has been the case in some instances previously, when the original purpose of support had been met but the support continued. Thus, in developing the Enterprise Investment Programme with its sub-components of MIP and TSP, we have sought to sharpen the focus of our industrial finance programme, through specifically, encouraging investment for the MIP and job creation for the TSP. We have also incorporated some of the key principles of industrial financing outlined in our National Industrial Strategy Policy Framework, such as greater scale, by increasing the grant offered, which in turn will ensure that the incentive impacts significantly on investment behaviour and decisions. Our industrial financing principles also involve in principle support for substantively new activities or quantitatively higher levels of economic activity, and supporting the type of investments that would not or could not otherwise have taken place, without the incentive. Further criteria to improve impact are the greater levels of prioritisation and reciprocity that have been built into the design of the EIP, with more emphasis on trying to support projects with higher development or economic impact and requiring beneficiaries to meet certain performance conditions, before grants are disbursed. To measure these objectives, the dti will implement robust systems for monitoring performance and enforcing compliance. We will also review the programme periodically to ensure alignment with intended objectives and making amendments to the programme as and when necessary.

We have also carefully considered some of the feed-back received regarding previous incentives and are therefore taking steps to establish close co-operation with the National Empowerment Fund (NEF) and Industrial Development Corporation (IDC) and if necessary, private sector finance institutions to extend the impact of the financial support offered and to simplify access to incentives.

I am therefore; in conclusion, glad to inform you that the Guidelines to the Tourism Support Programme and the Manufacturing Investment Programme will be published in the Government Gazette tomorrow. We would also like as many enterprises as possible to become aware of the support being offered and the dti will therefore also be conducting a series of regional workshops to provide information and assistance on the incentive.

Indeed, we are very optimistic regarding the potential of this incentive and sincerely hope that the private sector investment will not only match but exceed our efforts.

Thank you

Issued by: Department of Trade and Industry
3 July 2008