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New incentive scheme to boost agro-processing and exports

Aim is to spark more local agriculture projects, assist in transformation and enhance the export-readiness of companies.

An incentive scheme designed to boost investments in new and existing agro-processing projects has kicked off with a R1-billion cost-sharing grant fund.

The Agro-processing Support Scheme (APSS) targets food and beverage value addition and processing (including black winemakers), furniture manufacturing, fibre processing, feed production, and fertiliser production. It aims to increase capacity, create employment, boost competitiveness and contribute to transformation in these five sectors.

The Department of Trade and Industry (the dti) has set aside R1 billion in this financial year to fund the scheme. It offers a 20% to 30% cost-sharing grant, to a maximum of R20 million, over a two-year investment period. The minimum investment value is R1 million.

Duane Newman, joint MD of Cova Advisory and head of the tax incentives committee of the South African Institute of Tax Professionals (Sait), says the dti has a lot of experience in working with the agro-processing sector.

“It’s clear which assets qualify as the incentive is industry-specific,” he says. “We expect the incentive to stimulate the creation of more local agriculture projects such as apple, potato and vegetables farms, which should also assist in transformation objectives.”

Melanie Harrison, associate director at KPMG, says the purchase of a business does not qualify for support under the programme. However, once an existing entity has been purchased, further investment in the upgrading or capital expansion of the operations may qualify for support.

Mandatory conditions apply: the applicant must be a taxpayer in good standing; must undertake an investment project which should result in retaining and creating direct employment; and must demonstrate that at least 50% of the inputs (raw materials) will be sourced from South African suppliers, with at least 30% sourced from black South African suppliers in particular.

Newman says the requirement relating to the sourcing of local raw material will exclude many food products. “Sadly, many food products are imported only for further packaging in South Africa.”

According to the dti’s website, applicants must provide a motivation, including a plan to adhere to the sourcing requirement within two years where inputs cannot immediately be sourced locally and from black suppliers.

Christo Engelbrecht, MD at Catalyst Solutions, says it will be difficult for a lot of companies to achieve the 30% black South African procurement requirements within two years due to the current lack of black economic empowerment supplier scale in the agricultural industry.

Newman also foresees problems with the timelines set out in the scheme. The start of a project or activities must take place within 90 calendar days of an application being approved.

However, as Newman points out, agro-processing projects rely on inputs from agriculture, many of which are seasonal, while large capital items have long lead times (around six months to a year), with upfront deposits that have to be made.

“The current rules are too restrictive,” he says. “Uncertainty around when approval will be received and the short time to implement a project after approval will exclude many projects from much needed support.”

He sees implementation of projects 12 to 18 months after approval as a more appropriate timeline.

“We recommend that the dti works with the various business organisations in agro-processing to ensure that the rules are amended where needed.”

This will ensure the programme meets its desired objectives in stimulating investment and job creation,” he says.

Engelbrecht says three months to project implementation will be unreasonably tight if a plant needs to be built or equipment upgraded.

“In most cases machinery would have to be ordered and possibly imported. As a result, constructing a new plant or acquiring machinery would most likely take six to 12 months.”

In terms of the scheme, any reduction in the total number of employees over the duration of the incentive, will disqualify the applicant. Any claims not yet evaluated or paid will immediately lapse and no obligation will accrue to the department on such claims.

Costs that will not qualify include land, wages and salaries, and staff-related costs incurred in implementing any of the projects. The cost of passenger vehicles such as sedans or luxury 4x4s will not qualify, neither will any costs incurred before approval is granted.

The dti has also introduced an exporter training programme (the Global Exporters Passport Programme), which is part of the broader National Exporter Development Programme (NEDP) and will be funded and managed by the department.

Nicole de Jager, senior manager at KPMG, says the expansion of South Africa’s exporter base is vital for economic growth and employment creation. “The training is designed to enhance the export-readiness of companies, while ensuring sustainability in the global market.”

The programme has been introduced because South Africa is lagging in the development of the exporter base, and government recognises the need to improve the country’s trade position, says De Jager.

Read more from Amanda:

New reporting requirements for SA financial institutions

Rise in tax disputes set to continue

Non-executive directors must charge VAT on fees

The price of a wealth tax in South Africa

Tax and employee transport

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