- Manufacturing is a crucial sector for SA’s economic growth.
- There are hundreds of grants and incentives available for industrial businesses in SA, but they don’t always reach those they’re intended for.
- Sometimes people don’t know how to access them or that they exist, and other times officials intended to assist with applications aren’t able to do so.
- Niche businesses have evolved to help with applications, assisting thousands of entrepreneurs.
How many South African business owners know that there are over 200 grants and incentives for industrial businesses in South Africa?
These are available for the industrialisation of South Africa, and almost all of them are administered through either the South African Revenue Service or the Department of Trade, Industry and Competition (DTIC).
With the aim of driving growth and development in the country, as well as addressing capacity gaps, they include various enterprise and supplier development initiatives as well as sectoral-specific incentives. Enterprise and Supplier Development comprises part of the B-BBEE scorecard, which is ultimately measured through the DTIC (formerly the dti).
Yet for many, the question remains how to access and benefit from these incentives.
Critical economic development
According to Jorge Maia, head of the Research and Information Department at the Industrial Development Corporation, South Africa has a sizeable, diversified and generally technologically-advanced industrial base.
The manufacturing sector contributed 13.2% to gross domestic product (GDP) and employed 1.21 million people (11.8% of total formal non-agricultural employment) in 2019. The sector also accounted for 56.4% of overall merchandise exports in 2019.
The manufacturing sector contributed 13.2% to gross domestic product (GDP) and employed 1.21 million people (11.8% of total formal non-agricultural employment) in 2019. The sector also accounted for 56.4% of overall merchandise exports in 2019.
Although diversified, the industrial base is dominated by the sub-sectors manufacturing food and beverages; chemicals, rubber and plastics; base metals and fabricated metal products; machinery and equipment; as well as transport equipment (including motor vehicles, parts and accessories).
“While several sub-sectors of manufacturing largely serve the domestic market, others are heavily reliant on export markets. Either way, competitiveness is critical to their success as fierce competition prevails across the board,” explains Maia.
Capacity shortage
But while development of industrial businesses is essential, the incentive space suffers from a capacity shortage, says Keith Engel, CEO of the South African Institute of Tax Professionals (SAIT). And moreover, businesses owners themselves often do not know where they can go for assistance.
“Most government workers have no background on these issues when they are employed for these tasks,” he says. “There are boutique incentive specialists and firms that are quite helpful given their deep understanding of the situation.”
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Engel says many small and medium business do not apply for these types of incentives because of a lack of awareness and a suspicion that the funds are not worth the effort.
“The application process is also typically onerous with many hidden traps. There are silent rules that may stop a grant. Poorly phrased applications are rejected,” says Engel.
“Unfortunately, each incentive is often subject to multiple requirements with multiple objectives. These requirements tend to weigh down the benefits. Some of the requirements are unrealistic in terms of measurements.”
Covid-19
Before the economic reality of the Covid-19 lockdown was truly understood, there was very limited coordination of policy and prioritisation of activities between the private and public sector, according to Zahra Rawjee of finance advisory firm Uzenzele, which operates from Pretoria.
Apart from corporate finance work, Zahra and her sister Nadia help entrepreneurs access a variety of grants and incentives, including the Black Industrialist, Agro-Processing Schemes and the Automotive Investment Scheme as well as the Export Marketing and Investment Assistance (EMIA) programmes.
In the past decade, they have assisted over 2 000 SMEs to access a variety of grants and incentives, with an average of R53.5 million raised per SME. Nadia also sits on the steering committee for incentives at the South African Institute of Tax Professionals (SAIT).
Gap in the market
According to Zahra, there was a gap in the market to provide business and financial support to transformed and industrial businesses post-1994.
“The challenge for a lot of people is that they don’t understand what they had to do to make themselves bankable enough to access these funds,” she says. Capital raising is not a short-term process, and deals can take six to 18 months to materialise.
As the Covid-19 pandemic struck, so demand has changed. Now, industrial manufacturing for ventilators and personal protective equipment (PPE) is being prioritised.
If we can get South African manufacturing working again, we can create a lot of jobs.
“If we can get South African manufacturing working again, we can create a lot of jobs. Again, this is rarely for start-ups but for experienced manufacturers looking to pivot their product ranges,” says Zahra.
The challenge, explains Nadia, is that industrial businesses are capital-intensive. You need machinery, a factory to store stock, and vehicles for distribution.
“Raising capital is not the end goal – building a sustainable business is. Too often entrepreneurs see the words “grant” or “incentive” and they immediately think that they will get given money to do with as they please,” says Nadia.
Sisters Nadia and Zahra Rawjee (supplied)
“Firstly, most grants or incentives are not going to fund salaries – if this is your business strategy, you won’t get very far.”
The incentives Uzenzele works with are for acquiring capital equipment and developing manufacturing capacity.
“Secondly, you will need your own skin in the game and most incentives are either rebates or will require you to provide a matching portion,” she says.
In other words, if you are looking for R10 million in capital, you could be expected to make a matching contribution of between R3 million and R5 million with a good portion of that being from your own cash and the balance which can be raised as a loan.
“Lastly, you need your financials in order. Applying for finance will require things like your tax clearance, your B-BBEE certificates and your audited financials,” says Zohra.
“Don’t bet your business strategy on raising capital – find out ways to use the right incentives to make your capital work as hard as possible.”
