Financing a Business in South Africa
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Financing a Business in South Africa
South Africa is strongly looking for foreign investors, both in the public and in the private sector. The list of opportunities is endless, particularly in those sectors granted by government funding. The first port of call is the UK Trade and Investment website (www.uktredeinvest.gov.uk, in the South Africas section). It gathers information about available call for tenders, incentives and other grants and it is updated weekly. It is a goldmine of information and useful contacts. You will need to register to the website in order to view all the sections. Registration is free. UK Trade and Investment also grants business trips in South Africa, check the website for applying. Another good source of info is www.southafrica.info/business/investing/incentives/.
Small and medium businesses may take advantage of the Enterprise Investment Programme. Launched by the government, it provides sector-specific financing in order to encourage growth in key areas. The programme works through an investment grant of between 15% and 30% towards qualifying investment in plant, machinery and equipment and customised vehicles required for establishing new or expanding existing production facilities or upgrading production capability in existing clothing and textiles operations.
There are two sub-programmes:
- the Manufacturing Investment Programme (MIP)
- the Tourism Support Programme (TSP)
The MIP programme aims to encourage further investment into the industry by providing a grant of up to 30% towards qualifying investment below £16m in plant, machinery and equipment and commercial vehicles required for establishing new and expansions of existing operations.
MIP can be accessed by a range of sectors in the manufacturing industry, in particular in metal fabrication, capital and transport equipment, automotive and components, chemicals, plastic fabrication and pharmaceuticals, furniture sectors.
The TSP is to specifically promote sustainable job creation outside of the traditional tourism destinations of Durban, Cape Town and Johannesburg, as well as encouraging greater transformation in the sector. The TSP offers a grant of up to 30% of qualifying capital investment by enterprises investing below £16m, provided the enterprises are located outside the three established tourism areas. The grant can 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.
Bigger investors may take advantage of a specific investment programme or bid for the generous South African calls for tenders.
- The incentives target investment projects starting at £16m in the case of new projects and £2.5m in the case of expansion projects. The requirements for investments to qualify for the tax breaks are available at www.treasury.gov.za The programme strongly favours projects that promote job creation, skills development and energy efficiency. Procurement from smaller businesses, innovative processes, business linkages and location in an industrial development zone will also stand in a project's favour.
- Successful project will be able to deduct from their taxable income from 35% to 55% of the costs of their investment in manufacturing assets, up to a maximum of £72.5 million. Projects will also be able to deduct an additional training allowance of £3,000 per employee from their taxable income, up to a maximum of £2.4 million.
- Information about call for tenders in South Africa are available in the Governments Tenders website (www.info.gov.za/documents/tenders/index.htm). It is crucial for UK companies interested on government tender bids in South Africa, to have a local agent or representative. For more information on Government Tender regulations: www.sars.gov.za
A selection of other sectoral incentives
- The South African Automotive Production and Development Programme aims to stimulate growth in the automotive vehicle production industry to 1.2 million vehicles per annum by 2020 with associated deepening of the components industry, with reductions on tariffs, production incentives and allowances. For instance, vehicle manufacturers with a plant volume of at least 50,000 units per annum can import a percentage of their components duty-free.
- Railways sector: last year, the Government of South Africa set an investment approximately £5.3bn over a 5-year period to improve capital infrastructure, with a progressively increased programme of investment over 10 years. The South African government had factored this investment into its own larger £52.4bn infrastructure investment plan.
- Agriculture: some funding is allocated for building silos and milling plants in the Eastern Cape, as part of a crop programme aimed at alleviating poverty in the province's rural areas. Public-private partnership arrangement was likely to be formed for managing the grain silos and milling plants. There is a plan for 100,000 hectares of different dry-land crops, mostly maize, in the rural Transkei over the next five years, expanding this to 500,000 hectares by 2032.
- Creative industries: grants will be soon available for small emerging producers. Check www.southafrica.info/business/investing/incentives/film-260909.htm