South Africa planning incentives to revive ailing economy

Cyril Ramaphosa

Embattled South Africa is planning to introduce new incentives in key industrial sectors and reduced red-tape in order to revive the country’s moribund economy.

The economy which got into technical recession recently, is getting messier because of the increasingly hostile international trade environment.

Trade and Industry Minister Rob Davies said the government would target industries such as auto and agro-processing and continental trade relations as part of a package to draw investors back to South Africa.

He said the state had also reviewed its bureaucratic red tape to make it easier for investors to start new businesses in the country.

“Some of them (incentives) are sectoral, we have the motor programme, the clothing and textile programme, we also have a business processing services programme as well as the agro-processing programme,” Davies said.

“There are also tax incentives. There are specific incentives that apply to the special economic zones (SEZ).

“In addition the Department of Trade and Industry provides infrastructure and support for the institution of the SEZ.

“In addition to that, there is a tax incentive for companies that invest in the SEZ. There is a suite of incentives which we communicate to investors domestic and foreign which are crucial for making investment decisions.”

In a frank and wide-ranging interview ahead of the Investment Summit next week, Davies painted a bleak future for the South African economy, saying yesterday that next week’s presidential summit and the medium-term Budget policy statement would help kick-start the economy.

Davies conceded that some of South Africa’s economic problems were self-inflicted, pointing to rampant corruption and state capture that had turned investors away.

He said key government institutions were also performing below their capacity and that this had undermined investor confidence in the country.

“Our abilities to influence the economy have been weakened,” he said. “Some of those include, for example, tenders that have been problematic and were given to consortiums involved in imports rather than manufacturing locally.”

Davies said the government was worried about the continuing trade spat between the US and China and its impact on South Africa’s exports to the US.

He said there were plans to increase the local content of assembled cars to 60 percent by 2035 from the current 38 percent.

South Africa fell into a technical recession after recording negative growth in the second quarter, and unemployment rising above 27 percent as output in the manufacturing and mining sectors stagnated.

The country also had to grapple with policy uncertainties and inconsistencies, onerous regulations which curtailed growth.

Davies said – without mentioning the SA Revenue Service by name – that the outlook in the immediate and medium term would remain bleak as revenue collection was expected to come under pressure.

He said the government was moving with speed to address investor concerns and had already taken steps to return create certainty in renewable energy and gazetting the revised mining charter.

“All of these have resulted in an improvement in the investment pipeline,” Davies said.

“The (investment) summit will showcase important investment announcements, and it will also be an opportunity to engage investors.

There is an appreciation for a new dawn and a willingness to realise opportunities that were put on hold in the recent past rather than being pushed forward.”

President Cyril Ramaphosa announced a bold plan to attract $100 billion (R1.42 trillion) of investment for the country in the next five years in April.

Ramaphosa also appointed envoys including Afropulse chairperson Phumzile Langeni, Standard Bank group chief executive Jaco Maree, former finance minister Trevor Manuel and former deputy finance minister Mcebisi Jonas to champion the investments drive.

Davies said the government had targeted industries such as mining, agriculture and mining to kick-start the economy.

He said the government also planned to seize the opportunities presented by regional integration and the establishment of an African Continental Free Trade Area to produce more goods for other African markets.

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