Transcript Slide 1

Incentives for the Furniture
Industry
Furniture Bargaining Council
February 2012
Background
• the dti:
– New incentive scheme that seek to address the raised issues and
complement what is currently available has been developed.
– The proposed scheme seek to address firm's needs on areas such as:
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working capital
value chain, cluster studies
product development
process improvement, and so forth
– Background on industry
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About the Furniture Bargaining Council
• Members:
– Employer Associations:
• Furniture Bedding And Upholstery Manufacturers'
Association
• Curtain Makers And Allied Products Association
– Trade Unions
• National Union Of Furniture And Allied Workers Of South
Africa
• Chemical Energy Paper Printing Wood And Allied Workers
Union
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About the Furniture Bargaining Council
• Statutory functions, including:
– to develop proposals for submission to NEDLAC or any other
appropriate forum on policy and legislations that may affect the
sector and area;
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Existing Incentives
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Section 12I of the Income Tax Act
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Black Business Supplier Development Programme (“BBSDP”)
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Critical Infrastructure Programme (“CIP”)
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Section 11D of the Income Tax Act (deduction for scientific or
technological research and development)
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Support Programme for Industrial Innovation (“SPII”)
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Export Marketing and Investment Assistance (“EMIA”) Scheme
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Recommendations
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No specific provisions for furniture required
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DBSA Jobs Fund:
Focus areas
• Enterprise Development
– For investments in product development, local
procurement, marketing support, equipment upgrading or
enterprise franchising.
• Infrastructure Investment
– For local infrastructure investment projects such as light
manufacturing enterprise zones, local market and
business hub facilities, critical transport and
communication links and upgrading of infrastructure
services.
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DBSA Jobs Fund:
Focus areas
• Support For Work Seekers
– For support programmes with a particular focus on
unemployed young people such as job search
projects, training activities and support for career
guidance and placement services.
• Institutional Capacity Building
– For projects aimed at strengthening institutions
through which job creation is facilitated.
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DBSA Jobs Fund:
Recommendations
• Presentation by the DBSA to the industry
• Identify projects that could qualify
• No specific provisions for furniture required.
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Existing Incentives
• Business Process Services Incentive (“BPS”)
– Only applicable to finance and accounting services, human
resource function, contact centres, back office processes,
IT and technical services and other specialist services.
– Furniture manufacturers will not qualify for the incentives.
– Recommendation
• New incentives such as furniture design centres that will not
only benefit offshore investors.
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Existing Incentives
• Enterprise Investment Programme:
Manufacturing Investment Programme (“MIP”)
• Enterprise Investment Programme: Foreign
Investment Grant (“FIG”)
• Furniture Industry Competitiveness
Programme (“Clothing and Textiles
Competitiveness Programme”)
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Manufacturing Investment Programme:
Investment Grant
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Ending in 2014.
• Up to 30% of the value of qualifying investment costs in:
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machinery,
equipment,
commercial vehicles,
land and buildings,
required for establishing:
– a new production facility;
– expanding an existing production facility; or
– upgrading production capability in an existing clothing and
textile production facility.
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Manufacturing Investment Programme:
Evaluation Criteria
• Small Projects (investment projects of R5m and
below)
– The project must achieve a minimum score of 50 for
contribution to industrial policy targets.
– Furniture already a priority sector.
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Manufacturing Investment Programme:
Evaluation Criteria
• Medium-to-Large Projects (investment projects of above
R5m)
– In addition to the evaluation criteria for small projects:
• The grant is necessary for the project to proceed
• The project must achieve a minimum score of 4 points to industrial
policy targets:
– investment within the priority sectors;
» Expansion or upgrading project in the furniture sector
– creation and sustainability of direct employment; and
– BB-BEE compliance and
– location in areas advancing spatial economic activities
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Manufacturing Investment Programme:
Additional Conditions T&C Expansion Projects
• Applies to > and ≤ R5m project.
• The project must show an increase in qualifying
investment of at least 10% above the historic qualifying
investment in machinery and equipment, and this must
be made in year one (1).
– as opposed to 35% and 30%
• Any increase in investment in land and buildings,
leasehold improvements and commercial vehicles is
excluded for the purpose of calculating the increase in
investment.
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Manufacturing Investment Programme:
Recommendations to dti
• Extend MIP in general or for furniture industry
beyond 2014
• Amend guidelines to include upgrading production
capability in an existing furniture production facility.
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Foreign Investment Grant
• Compensates qualifying foreign investors for costs
incurred in moving qualifying new machinery and
equipment (vehicles excluded) from abroad to South
Africa
• Available only to foreign entities establishing
production facilities for the first time in the RSA
• Offered once only to any single entity.
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Foreign Investment Grant:
Recommendations to dti
• Compensate qualifying furniture manufacturing
projects qualifying for MIP.
• On new technology machinery and equipment
(vehicles excluded) only
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Furniture Industry Competitiveness Programme
• The Production Incentive Programme (PI)
– benefit = benefit ceiling = 7.5% of Manufacturing Value-Addition
(MVA)
– MVA = sales (goods manufactured locally by the company only) material input costs (used in the manufacturing process)
– benefit used towards:
• upgrade grant facility
and/or
• a facility consisting of an interest subsidy for working capital.
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Clothing and Textiles Competitiveness Programme
• An upgrade grant can be used for the following:
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Upgrading equipment;
Developing people;
Improving manufacturing processes;
Optimising materials used;
Developing new products; or
Access to markets, logistics etc.
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Clothing and Textiles Competitiveness Programme
• Interest subsidy
– An interest subsidy equal to the ruling prime interest rate
– Pay only the difference between the interest rate determined through the IDC’s normal
pricing model and the ruling prime lending rate.
– The IDC will apply normal due diligence procedures to ensure the economic merit of
applications, and normal IDC fees will apply to such facilities.
– Funding requirements include the provision of sufficient security.
– The IDC‟s minimum funding amount of R1 million will apply.
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Lower limit
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Clothing and Textiles Competitiveness Programme
• The Furniture Industry Competitiveness
Improvement Programme
– cost-sharing VAT exclusive grant :
• ≥ 75% of project cost for cluster projects
• ≥ 65% of project cost for company-level competitiveness
improvement projects.
– excludes costs pertaining to machinery, equipment, commercial
vehicles, land or buildings in an existing clothing and textile
production facility.
– limited to a cumulative ceiling of R2.5 million over the five-year
period of programme implementation.
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Clothing and Textiles Competitiveness Programme
• Typical project outcomes are:
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Increased (maintained) market share / penetration;
Increased labour or capital productivity;
Increased skills levels of employees;
Improved product /service quality, uniformity and reliability;
Improved product design, packaging design, etc.;
Improved response times to client orders and order
changes; and
– The introduction or adoption of new technologies or
techniques that result in the diversification or extension of
the company’s or cluster’s range of saleable products or
services.
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Other incentives to consider
• Establishing SA Brands in export countries
• Review current tax provisions regarding
headquarters
• Incentives to downstream manufacturers
• Double Deduction for Freight Charges
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Comments on incentive as presented by dti
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Business Plan requirements of IDC to get access to funding is complex – this is a
barrier to smaller players in market
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We understand that raw material and input suppliers currently have no incentives
(other than general incentives)
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business plans should still be required but level of detail should be reasonable
also take into account for business plans required for new incentives
furniture industry is cost sensitive and require access to low cost raw material
Biggest challenge to the industry is high logistics costs to get product to the market
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logistics benefit either through grants or tax deduction (double deduction for example) should
be considered
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Working Capital is always required and should not be limited to only pre-shipment
costs interest rate subsidy as per the textile programme is advisable
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Funding to clusters should be available for projects that would benefit wider industry
is required – for example for productivity studies, logistic costs studies etc.
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© 2012 Deloitte Touche Tohmatsu Limited