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Johannesburg - South Africa is set to sweep investors off their feet by bringing back a popular industrial tax incentive.

Scrapped two years ago for not addressing the country's high unemployment rate, the Strategic Investment Programme (SIP), which gave tax deductions to capital investments worth more than R50m, is set to make a return to attract large investments - this time around, job-creating investments instead of capital-intensive ones.

Despite attracting more than R30bn in new investments between 2001 and 2005, SIP was terminated by the National Treasury after it created a paltry 7 000 direct jobs, in spite of the fact that the department had sacrificed R10bn in forgone tax revenue.

Even the 110 000 jobs that the tax scheme helped create in downstream industries could not save it as it was felt that the costs of administering it far outweighed the benefits. At the time it was felt that the money would be better spent upgrading the country's infrastructure, which could in turn boost the chances of netting long-term and sustainable investments.

Industrial giants such as Sasol, Alcan, Nampak, Tata Steel Company and Hillside Aluminium are some of the companies that benefited from SIP.

For instance, Anglo-Australian miner Rio Tinto said it will continue building the smelter in the Coega Industrial Development Zone (IDZ) after its takeover of Alcan. The smelter will create relatively few jobs at a cost of $2.7bn (about R19.2bn).

Once complete, the Coega smelter will create 1 000 permanent jobs at plant level but 31 000 jobs in the metal-related downstream industries.

More job creation

Lionel October, the deputy director-general responsible for industrial development at the Department of Trade and Industry (DTI), says the new SIP would be designed to support downstream sectors where job-creation potential was the greatest.

The new SIP will target downstream economic activity in the pharmaceutical, capital equipment and transport sectors, which are enjoying growth at the moment.

October says the Small and Medium Enterprise Development Programme (SMEDP) would also make a comeback. The SMEDP, which targeted businesses in manufacturing, tourism, and agriculture, was suspended in 2005 after it ran into financial difficulties due to alleged mismanagement.

This resulted in Mahlape Mohale, the former head of the Enterprise Organisation, being fired by the DTI.

The Enterprise Organisation administers the country's industrial incentives, including the IDZs, which have purpose-built customs areas that allow investors not to pay import duties and VAT.

Although the Enterprise Organisation is not taking new SMEDP applications, it is, however, still continuing to pay out grants to small- and medium-sized businesses.

Focus on poorer provinces

The scheme, which has so far attracted investments valued at R67bn, will also be expanded because of huge demand for it by businesses that are in their infancy.

"The SMEDP was oversubscribed. We are paying out over R600m a year, but we want to upscale it because this is too little," October says.

When the SMEDP returns, it will be used to improve development in the provinces beyond the wealthy provinces of Gauteng, KwaZulu-Natal, and Western Cape. About 78% of the incentive was taken up by businesses in the three provinces to the disadvantage of other provinces, which need it badly.

Duane Newman, a partner at accounting firm Deloitte, says it is important for South Africa to align its industrial incentives with the four lead sectors to increase the chances of success of the new industrial policy.

"The government has limited money and it must pump it into the lead sectors. If you make the incentives too wide you will soon run into capacity problems as it happened with the SMEDP," says Newman.

He says it is good news that South Africa was bringing back the SIP as the country needed a big incentive to entice both local and foreign investors. "The reality is that incentives for big businesses are important. It is big businesses that stimulate the economy. They also create confidence in the economy."

Article from http://www.fin24.co.za/
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Labels: South Africa - Investment

What better way to stimulate innovation among aspirant entrepreneurs in South Africa than to expose them to the thinking of some of our own innovators in the business field.

These are people who started out with good ideas that they have grown into some of the country's most successful businesses.

This was the thinking behind this week's First National Bank-sponsored Biznetwork event, which exposed hundreds of people around the country to dynamic entrepreneurs, such as Paul Harris, CEO of FirstRand Bank, Gidon Novick, the founder of kulula.com, and Ronnie Apteker, the founder of Internet Solutions and a leader in the local film industry.

Shaun Edmeston, CEO of Biznetwork, explains that the sharing of ideas among the business community is what drove this event. "We have some great thinkers in this country who have done really inspirational things in business. Why not draw on their experiences and their visions to educate others to do similar things?"

The latest Biznetwork event introduced a new format for the Business Club, a forum for entrepreneurs to meet, learn and network, which has been running for about 18 months. In response to the needs of the business community, events are now being held in the evenings, which certainly seems to suit more people than the early morning functions. "We had our biggest response ever," says Edmeston, "so we're sure that the new time is working better for more people."

Although many South African businesses have in recent years begun to focus on innovation, we are far behind other countries. According to Greg Fisher, a senior lecturer at the University of Pretoria's Gordon Institute of Business Science (GIBS), South Africa struggles with product innovation. ”We are at least three years behind other countries and our innovations tend to be copies of things seen overseas - like kulula.com and Ryanair in the UK."

This does not mean that our innovations are not paying dividends, though. Exciting innovations in the business model have created highly successful companies, such as Discovery Health and Outsurance. Here, creative individuals looked at mature industries and assessed them to see how things could be done differently, leading to business models that have significantly challenged their industries and created sectors that are far better off than they would otherwise have been.

Harris encourages business people to vigorously question the basic assumptions we hear all the time. "A statement such as, 'This is the way we've done things for many years', is a yellow card offence," he asserts. Scanning the environment and questioning the way things are done are the very things that will allow for spotting a gap or coming up with a better way of delivering a service or making a product.

Speakers at the event agreed that there are a few core issues in order for innovation to take hold:
- Implementation of an idea is difficult - you need tenacity and passion.
- An open environment allowing people to test ideas without fear of failure encourages creative thinking. This means that a business must "have great tolerance for bad ideas" - among a few ideas that don't succeed, there will be an absolute gem.

Innovation is core not only for existing businesses to expand, but also for new businesses to establish themselves. Since new business development is vital for addressing unemployment in South Africa, innovation has a major role to play in the future of business in this country.

Article from http://www.moneyweb.co.za/
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Labels: South Africa - Investment

CAPE TOWN (Business Day) -- Diamond development and exploration company European Diamonds [AIM:EPD] could take a decision by the middle of next year to proceed with a new diamond mine in Lesotho.

CEO Roy Spencer said in an interview on the sidelines of the Mining Indaba in Cape Town this week that the company would raise debt and equity finance if it decided to build a new mine and plant at the Liqhobong mine in Lesotho - depending on the outcome of the feasibility study under way.

Liqhobong is one of only two diamond mines in Lesotho. The other is the Letseng Diamond Mine which was recently acquired from JCI and Matodzi by Gem Diamonds.

Spencer said Liqhobong was first discovered in the 1960s by prospector Jack Scott who was working with De Beers.

It was not considered viable then but for 20 years it was worked by a local mining co-operative. Later, a company called Minegem bought the operation. Minegem hit a cash crunch in the early 2000s and merged with European Diamonds.

European Diamonds was founded by Spencer and Partners to explore Kimberlites in Finland. It still has those properties and hopes to build Europe's first diamond mine in time.

But in the next few years it has made the development of Liqhobong its flagship project.

Liqhobong consists of two pipes: the satellite pipe which has been the focus of activity to date, and the main pipe, which has been less accessible because it is a couple of metres below surface.

Spencer said Liqhobong's satellite pipe started to produce diamonds for the company last year with an output of 55,000 carats up to December. Then an exceptional diamond of 27 carats was found at the main pipe and sold for $500,000 in Antwerp.

From now on, with the satellite pipe at full production, European Diamonds expects to sell about 20,000 carats every five weeks. From the end of next year it expects to start mining from the main pipe which is targeting 700,000 carats of diamonds a year within three years.

European Diamonds' production is being marketed in Antwerp by BHP Billiton [NYSE:BHP].

Asked whether Billiton, which has made no secret of its plans to grow diamond production, could take a stake in European Diamonds, Spencer said: "If a price is right we would not reject an opportunity."

Article from http://www.resourceinvestor.com/
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Labels: South Africa - Investment