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Compiled by the Government Communication and Information System Date: 28 Oct 2011 Title: Govt set to boost job creation initiatives -------------------- By Stephen Timm With tough times expected ahead for South Africa and the global economy, the government is in October set to announce new measures to vamp up support to manufacturers, as part of a range of initiatives to improve support to businesses to create more jobs. This includes the expected announcement in this month by the Minister of Finance Pravin Gordhan of the first successful applications to the National Treasury's Jobs Fund. The Industrial Development Corporation (IDC) revealed that R786 million has so far been approved under its R10 billion jobs fund launched in February this year. The Department of Trade and Industry has tweeked government incentives in a bid to get businesses to generate more jobs. Government also plans to lower the cost of state finance to businesses. Minister of Trade and Industry Rob Davies, told BuaNews that a package of interventions to assist manufacturing businesses is expected to be revealed during Gordhan's Medium Term Budget Policy Statement on October 25. Davies says new measures were needed to assist manufacturers, as manufacturing was under threat across the world, while in South Africa the sector had been under strain for some months. The package is also part of a wider move by the department - through its Industrial Policy Action Plan (IPAP) - to boost the country's productive and value-adding sectors and curb the ongoing deindustrialisation in the country, which has seen manufacturing slip from its over 20% contribution of Gross Domestic Product (GDP) in the 1990s, to 15.5% in the second quarter of this year. Davies believes one of the biggest hurdles to growth in the sector is access to affordable finance. A study is currently under way to map the long-term transformation of the IDC, with the idea of reconfiguring the development finance institution along the lines of Brazil's successful BNDES. The Brazilian development bank last year lent out 146bn reals (R625bn) - more than six times the R102bn the IDC plans to lend out over the next five years. Davies believes that more accessible finance, as well as the designation of certain products for local procurement, under new procurement rules - which will come into force on December 7 - will boost local production. He says the regulations are expected to be aimed at some of the major infrastructure programmes in rail, electricity transmission lines and regular government purchases. The department has over R4.5bn in various incentives, which among other things are aimed at factories, component manufacturers for the auto sector, call centres, film production companies, co-operatives and small enterprises. The three schemes which so far account for the most jobs created are the Business Process Outsourcing and Offshoring (BPO&O) incentive, the Enterprise Investment Programme and the Automotive Investment Scheme (AIS). Davies says key was for South African businesses to improve productivity and pointed out that the department's new clothing sector incentive, which came into effect last year, had been successful in saving and creating new jobs by getting firms to up productivity. The department is also seeking reciprocity from businesses when it comes to granting incentives. "Basically, the principle is 'you want more, you do more'," explains Davies, pointing to the AIS which subsidises motor and component manufacturers with grants that cover 20% to 30% of investments in equipment and buildings, depending of criteria they meet. He says the department has already been able to extract more out of some companies in terms of percentage of local procurement and components procured, pointing to the example of the VW Polo which increased its local components from 30% to 70% recently. Last year about R9bn was invested by the automotive assemblers through the AIS, to come into effect over the next few years, and is expected to create 2 500 jobs in OEMs, while a further R4bn in investment by automotive component manufacturers would create an additional 20 000 jobs, he says. The department is also looking at broadening its industrial development zones (IDZs) by allowing provinces to set up special economic zones. Legislation was in the pipeline to address responsibility and management of current IDZs. Davies says while the government was in the process of developing a foreign direct investment (FDI) policy, a lot of work was already being done by the department to attract foreign investment, particularly through the BPO&O and AIS incentives. He says the department has also had a significant increase in the number of investments from call centres and back offices, after last year changing the BPO&O incentive from a capital expenditure based grant to one focused on operational costs. According to an Everest survey released in September, South Africa is the third most popular business process outsourcing centre in the world, rated behind China and Brazil. The incentives make it 60% to 70% more affordable to run a call centre than in the UK (where most of the market is), according to Business Process Enabling South Africa. So far R157.8m in grants have been approved to 10 projects which will create more than 11 000 jobs over the next five years. Old Mutual Assurance, Amicorp SA, Amazon.com are among those companies benefiting from the incentive. First Call is another such company. Graeme Johnston, managing director of First Call, says the company plans to use the incentive to grow its call centre from 145 seats to 2 000 within three years. The company currently services the UK market, but plans to break into the US and Australian market soon. First Call applied for the incentive in January and Johnston says the company's application was processed "surprisingly fast" - within 45 days. "We are proud of our involvement with these incentives and are motivated because of these commitments from the DTI," he says. He says that his company had overcome the challenge of a lack of suitably skilled South Africans by using UK trainers. The company was also constantly looking at accessing training incentives from the Services Seta and other organisations in KwaZulu-Natal. He explains that First Call had not been affected by the economic uncertainty in Europe: "We are not seeing a downturn in fact we are actually seeing more interest and enquiries with our business as the global slow down is ultimately motivating enterprise organizations to seriously considering BPO". He encourages other businesses to approach the department to access government incentives. "Our advice is to sit down with the DTI with their staff and walk through your plans and requirements with them as your business partners - they are very helpful and we could have achieved our current goals far earlier if we had seeked their assistance at an earlier stage." Meanwhile, Gordhan is expected to announce the first successful applications to the National Treasury's R9bn Jobs Fund in October. The fund, which is managed by the Development Bank of South Africa (DBSA), received about 2 700 applications by the deadline of July 31. The chief investment officer of the fund, the DBSA's Dumisa Hlatshwayo, says applications had been made by companies and organisations to fund innovative job creation solutions. The number of applications, he explains, has greatly exceeded the development bank's expectations - especially because two weeks from the deadline only 370 applications had been filed. About half of the applications were for funding under enterprise development which included business support and upgrading equipment. The remainder of applications were for local infrastructure development, support for work-seekers and institutional capacity building. Applications had come from non-profit organisations, municipalities and companies. Businesses that had applied had included large and small businesses - everything from warehousing to funeral parlours, explains Hlatshwayo. The DBSA would also work with those applications which needed technical support, so that these could qualify for the next investment round - which Hlatshwayo says is expected to open in November and close in March next year. The fund aims to create 150 000 jobs over three years and the DBSA is targeting to create at least one job for every R60 000 in grant funding. The targeted R60 000, Hlatshwayo says, could be to fund a job which runs for just a few months to one which runs for a year or more, adding that the idea was that organisations and businesses that accessed funding would also be able to match this with their own funds. Businesses can also tap into the IDC's new R10bn jobs funds or Gro-E Scheme - which is aimed at tackling unemployment The development finance institution's spokesperson Mandla Mpangase explains that the R787m approved so far by the IDC through the scheme would help create 3 710 new jobs - most of these in construction, mining, manufacturing and the services sector. The scheme will run for five years and funding will be available at prime less 3% and applications will be considered from R1 million up to R1 billion. Mpangase says since the onset of the New Growth Path in October last year the IDC had approved R11.8bn in finance to businesses, which would contribute to the creation and saving of about 42 000 jobs. Sixty two percent of approvals - 179 loans valued at R2.02bn - were for small and medium enterprises. The sector is expected to get an added boost with the imminent merger of the government's small business funding agencies - Samaf and Khula - with the IDC's small business funding portfolio to form a single small business funding institute. This follows the announcement of the merger by President Jacob Zuma in his State of the Nation address is February. Saul Levin, the Department of Economic Development's Chief Director of Development Finance Institutions, says the department's final recommendations on the merger are expected to go before cabinet soon. The merger will create a single small business funding institution, which the department has proposed should be a wholly-owned subsidiary of the IDC. It would give the new institution access to IDC funding, reduce overheads and provide the small enterprises it funds with possible synergies with the IDC's large business clients. Khula is currently piloting its direct lending model in two locations and the idea was that this would be central to the new SME funding institution, which was approved by cabinet on October 31. Levin explains that under the proposal, the idea was to have Khula's present credit guarantee scheme - which has been performing poorly - to continue. The scheme, which backs bank loans that small businesses can take out, has never topped 800 guarantees in a single year. |
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