Incentives for Investors and Exporters
The South African government uses a range of incentives to support investment, trade, competitiveness and growth of small business. Below is a selection of available incentives and support mechanisms. For more detail, go to www.dti.gov.za.
- Foreign Investment Grant (FIG): A cash grant incentive scheme to foreign investors who invest in new manufacturing businesses in South Africa. The foreign investment should be free of lien or without any financial liability and can be compensated for the qualifying costs of moving new machinery and equipment from abroad. The FIG covers up to 15% of the costs of new machinery and equipment up to a maximum of R3-million per entity.
- The Critical Infrastructure Programme (CIP): A cash grant incentive for projects that are designed to improve critical infrastructure in South Africa. It covers up to 30% of the cost of development costs in qualifying infrastructure.
- Black Business Supplier Development Programme: An 80:20 cost-sharing, cash grant incentive scheme, which offers support to black-owned enterprises in South Africa.
- Export Marketing and Investment Assistance Scheme: The purpose of assistance under this scheme is to partially compensate exporters for costs incurred in respect of activities aimed at developing export markets for South African products and services and to recruit new foreign direct investment into South Africa.
- Productive Asset Allowance: The purpose of this offering is to reduce the amount of vehicle platforms and models locally assembled, coupled with increased investment and exports with increased local content. The offering will save the customer money by using the rebate certificate to off-set import duties on built up vehicle imports.
- Industrial Development Zones (IDZs): An IDZ is a purpose-built industrial estate linked to an international port that leverages fixed direct investments in value-added and export-oriented manufacturing industries. There are two IDZs in the Eastern Cape, at Coega and at East London.
- The African Growth and Opportunity Act (AGOA): The Act allows Sub-Saharan African countries to export more than 1,800 tariff line items duty-free to the USA.
- EU-SA trade agreements: The European Union is South Africa’s most important trading partner, accounting for some 35% of imports and 32% of exports in 2006. Trade agreements provide easier access to European markets.
- Danida Business to Business Programme, Credit Guarantee Scheme: The objective is to develop and strengthen business opportunities and create jobs for eligible entrepreneurs from previously-disadvantaged communities. This is achieved through support to the development of commercially-viable businesses based on formation of business partnerships between South African and Danish companies.
- Emerging Entrepreneur Scheme, Credit Guarantee Scheme: Provides up to R100,000 with the fee payable at 4% pa in advance.
- Empowerment Scheme, Credit Guarantee Scheme: This provides cover up to R5-million of a bank facility at 60%, with the fee payable at 2.5% p.a. in advance.
- Micro Credit Outlets (KhulaStart): KhulaStart uses the group solidarity methodology (gives loans to groups, not individuals). Groups have to meet the criteria established for group participation. The loans are disbursed on an incremental basis from R300-R3,500 per member within a group. The group decides, based on the activity of the individual businesses, how much each member has to receive, and will subsequently stand surety for the full amount owed by the group as a whole.
- Individual Guarantee, Credit Guarantee Scheme: The purpose is to enable an entrepreneur to access funding from a participating bank or other financial institution. The scheme enables the entrepreneur to access funding for purposes of establishing, expanding or purchasing a business.
- Regional equity funds: The need for risk capital (venture capital/private equity) to support small and medium enterprises, especially those sponsored by historically disadvantaged entrepreneurs, is not in doubt. Many banks and financial institutions have introduced equity funding into their product mix.
- Standard Scheme, Credit Guarantee Scheme: The Standard Scheme provides cover up to R1-million of the bank facility at 80%, with the fee payable at 3% pa in advance.
- Dutch funds available for investments in South Africa: South Africa is a new market that is expanding rapidly. This provides opportunities for businesses to expand investments and trade relations. The Dutch Ministry of Foreign Affairs finances companies who wish to invest in South Africa, together with a South African company. These companies can receive a contribution of 50% of the total project costs.
- SEDA Technology Programme (STP): As part of the government’s national strategy of consolidating small enterprise support interventions across different government departments and government agencies, the Department of Trade and Industry (DTI) has commenced its own process of streamlining its small enterprises support interventions. As part of this process, the DTI and the Department of Science and Technology agreed to merge the Godisa trust with the National Transfer Centre and the Technology Advisory Centre. The three DTI incubators (Mpumalanga Stainless Steel Initiative, Downstream Aluminium Centre for Technology, and Furntech) were also incorporated into the STP.
- Technology and Human Resources for Industry Programme (THRIP): THRIP is a partnership programme which challenges companies to match government funding for innovative research and development in South Africa.
- Support Programme for Industrial Innovation (SPII): This DTI innovation support programme is administered by the Industrial Development Corporation. National Technology Transfer Centre: This DTI initiative facilitates technology transfer and diffusion to small, medium and micro enterprises (SMMEs) with a specific focus on the second economy.
- The Downstream Aluminium Centre for Technology: This DTI-funded project is set to gain stature in the casting industry for sound financial, social and environmental management.
- Furntech: Government, through its National Skills Development Strategy, identified training and skills development as significant drivers of international competitiveness and organisational development. In response to these requirements, the DTI funded the establishment and operationalisation of Furntech as a world-class service provider to South Africa’s wood products and furniture industries in the fields of incubation, training, technology transfer and technology demonstration.
- National Fibre, Textile and Clothing Centre: As a technology partner to industry, the National Fibre, Textile and Clothing Centre of CSIR Manufacturing and Materials Technology promotes the growth and global competitiveness of the South African textile pipeline. Through awareness of relevant technological developments globally and the acquisition or development of technologies, the centre aims to be the best provider of knowledge and innovative solutions to the textile pipeline in Southern Africa.
- The Venture Capital Fund: This initiative primarily focuses on financing the first two stages of development of new technology-based firms – the seed stage (which involves concept development, prototyping, and product development) and the early stage (marketing, production of goods and/or services).