Call on Manuel to Introduce Tax Incentives to Attract Much Needed FDI

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 February 2009

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Despite the fact that commentators are expecting that up to R45 billion will be wiped off Government's balance sheet in 2008/09 tax year, and that a GDP deficit will be presented at Manuel's budget speech, industry is calling for Trevor Manuel to use this budget to kick-start the economy.

“I hope that Manuel will take strategic decisions in these difficult times,” says David Honeyball, Director of auditing firm BDO Spencer Steward. “In order to support the ANC's objectives of alleviating poverty, Manuel must establish South Africa as a highly attractive investment destination by introducing investment incentives including additional capital (or tax) allowances and a 5 year tax holiday for investors. In this way South Africa will attract international investment from cash-flush, investment-hungry countries such as China and India whose economies are expected to grow by 7 – 8% in 2009.”

According to Honeyball, the Government has the right vehicle to attract investment through its world-class facility for export-oriented industrial development – the Coega Industrial Development Zone. “However the duty free incentives simply aren't enough to attract the investment that Government envisaged when it established the zone at a cost of billions of Rands several years ago,” he says. “While the investment has yielded some returns, has helped to bolster the local economy and has created some jobs, Coega simply hasn't been able to attract key international or local tenants that will unleash the potential of the project. Nor has it achieved the objective of “getting the unemployed working again” and anchoring the Eastern Cape's labour force in the region.”

Honeyball is calling on Manuel to offer tax incentives that will compare favourably with those offered by global counterparts who have successfully attracted investment. “A package of tax incentives will not only encourage global investment from China and India in the short term but will also establish the facility as a viable destination in medium term. Once the global credit crunch has eased we will be better placed to attract investment from international Blue Chip Companies from developed economies,” he says.

Such tax incentives may also attract local investment into Port Elizabeth and into Coega specifically from South African entrepreneurs. It may create the impetus needed to encourage South Africa to establish factories that create end-product out of our precious natural resources and commodities (including gold and leather). Commodities that have traditionally been exported as raw product (at a relatively low price) with the value add being done offshore.

“Manuel announcing an aggressive approach towards attracting investment will create jobs, will give the poor a way of earning a sustainable income which will support the ANC's goal of alleviating poverty and will ultimately take the burden off the state,” he says.

He points out that before Coega will attract much needed foreign investment in the power-hungry manufacturing sector, however, the government must address Eskom's capacity to provide sufficient power. This, he accedes, will be tough in a year when the country will slide into a deficit.

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 February 2009