This article, authored by Duane Newman (lead director for Deloitte Tax Management Consulting), explains how the R25 billion allocated by National Treasury will be used to support growth in South Africa. You may contact Duane at firstname.lastname@example.org
Click Here to access the original article published on MoneyWeb
Grants and incentives will be a national focus over the next six years
The Medium Term Budget Policy Statement (MTBPS) issued by Finance Minister Pravin Gordhan on 25 October 2011 announced that the Medium-Term Expenditure Framework (MTEF) will introduce an economic support package to encourage improvements in competitiveness and promote structural change within the South African economy.
Following the contraction of capital expenditure during the 2009 recession, private capital investment has started to revive, expanding at an annual rate of 4% during the second quarter of 2011. The growth is largely attributable to purchases of machinery and transport equipment. Despite the capital investment recovery, real investment during the second quarter of 2011, remained 8% below pre-recession peak levels.
In response to the slowdown in the global economy South African’s fiscal and monetary policy remains supportive of growth. The employment gains and poverty reduction that government aspires to achieve require structural reforms to set the economy on a different growth path that increases labour absorption, improves international competitiveness, ensures a more equitable distribution of wealth and a transition to a green economy.
To achieve these goals government will make R25 billion available over the next six years through various grants and incentives to assist enterprises, boost industrial development and accelerate job creation.
The primary focus of the R25 billion grants and incentives fund is to facilitate investment that attracts employment intensive industry and services to South Africa. The incentives will build on the current incentives on offer for industrial investment, technology and training. Current incentives have not achieved the jobs creation estimates as initially planned. In many instance less job opportunities have been created. Also the incentives have not been widely accessed. Incentives for IDZs will be improved. At the moment there are no real incentives for investing in an IDZ. The goal is to develop the IDZs into competitive logistics hubs participating in global supply chains and entrenching South Africa as a crucial gateway for trade into Africa. Also very important is the alignment of trade, investment and energy policies to support the transition to a green economy. Policy coherence in this instance is required to successfully transition to a green economy.
Government acknowledges that investment in economic infrastructure has to coincide with a more competitive labour market that supports higher economic growth. Transforming the South African labour market can only be achieved through adequate job creation, training and community works projects. These objectives are being pursued by means of the recently launched Jobs Fund administrated by the Development Bank of Southern Africa. The Jobs Fund was established at the beginning of the year with a value of R9 billion. So far only R352 million has been spend. A far more effective administrative system is required going forward to assist with job creation.
The transition of South African economy to a green economy can only be achieved through major investments in renewable energy by the private sector. To facilitate the required investment the Industrial Development Corporation and the Development Bank of Southern Africa will have a specific focus on funding green projects.
The Department of Energy has moved away from a capital subsidy systems. It will rather provide appropriate feed in tariffs. Other initiatives include reducing carbon emissions through government’s integrated resource plan, the proposed carbon tax and the introduction of a dedicated fund for green economy initiatives.
Grants and incentives will be a national focus over the next six years as government attempts to achieve the country’s economic goals through incentivising investment that correlates with these objectives.
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