1. 1 INCENTIVE PRESENTATION FOR DOH PHARMACEUTICAL INDUSTRY 4 September 2008

2. 2 Incentives for investors and exporters Enterprise Investment Programme Investment and Training allowance (section 12i) Contents

3. 3 Incentives for investors and exporters Incentives for Investors and Exporters The South African government uses a range of incentives to support investment, trade, competitiveness and growth Investment support –Enterprise Investment Programme –Foreign Investment Grant (FIG): –The Critical Infrastructure Programme (CIP): –The Sector Specific Assistance Scheme –The investment and training tax allowance (section 12 i)

4. 4 INCENTIVES FOR INVESTORS AND EXPORTERS Export assistance and support –Export Marketing and Investment Assistance Scheme: –Industrial Development Zones (IDZs): –The African Growth and Opportunity Act (AGOA): –EU-SA trade agreements: Innovation and Technology –Technology and Human Resources for Industry Programme (THRIP): –Support Programme for Industrial Innovation (SPII): –The Venture Capital Fund: Competitiveness and Skills –Competitiveness Fund –Skills Support Programme

5. 5 EIP & INVESTMENT AND TRAINING ALLOWANCE Enterprise Investment Programme replaces SMEDP The approved EIP budget for 2009-2011 is R1.2 billion (in operation for 6YRS) effective 21 July 2008 Investment and training Tax allowance programme to being developed will be in operation January 2009 and approved tax allowance amounts to R5 billion Skill Support programme as well as the Competitiveness Fund to be implemented by April 2009

6. 6 Majority of projects assisted are within the manufacturing sector, Within manufacturing, both capital intensive (chemical) and labour intensive sectors (agro, clothing textiles) are covered Tourism makes up 35% of the project approved under SMEDP SMEDP Performance By March 2007: Projects approved: 12,359 Projected investment: R67 billion Projected jobs: 336,205

7. 7 Key Changes EIP Increase additionality of projects by: –Considering the economic benefit of the project is an eligibility criteria –Funding projects that are likely not to materialise without the grant (Funding gap in cash flow; high risk; low returns) –Approval of the grant prior to the investment Increase scale of funding for larger projects in order to influence investment decisions for new/expansion SMEDP Could consider applications 6 months after start of production as enhancing survival rates of enterprises one of its key objectives From 9% of capex to 15%/20%, increased project cap from R100m to R200m

8. 8 Key Changes EIP Expansions should be significant increases in investment (50% increase in machinery & equipment at cost), increases in turnover in year 1 and 2 of 15% and 25% respectively SMEDP Expansions = 35% increase in machinery & equipment, but increase in turnover in year 1 and 2 of 25% and 50%

9. 9 Enterprise Investment Programme

10. 10 Programme Overview AimIncreased investment in manufacturing sector Increased Manufacturing Production Capacity & Output Increased FDI Sustained Enterprise Growth Increased Employment Outputs Outcomes

11. 11 Programme Overview PURPOSE To address the following market failures: Low fixed investment rates in manufacturing sector Limited access to finance for small and medium enterprises Low return on investment in manufacturing for large and FDI firms FOCUS ON ADDITIONALITY

12. 12 Programme Description OFFERING Investment grant of up to 30% of qualifying investment costs in machinery & equipment, commercial vehicles, land & buildings. TARGET PROJECTS Establishment of new or expansion of existing production facilities in manufacturing (SIC 3) Investment by projects capped at R200 million Local and foreign owned projects Applicant must be a registered entity in RSA (Companies, CCs, Co-ops) Projects must apply and receive approval prior to acquiring investment assets (with the exception of projects relocating to RSA).

13. 13 Programme distinguishes between two types of projects: FactorProject Below R5mProjects Above R5m BarrierAccess to financeRisk of and return on investments Eligibility Criteria 1) Demonstrate commitment to project (financing structure & funds sourced) 2) Viable project - business plan 3) Substantiate need for project - show how grant improves financial viability 4) Demonstrate need or funding gap in terms of cash flow, IRR/NPV, gearing, location 5) Fulfill economic benefit criteria in terms of target sector, HR ratio, BB BEE &/or location Economic benefi ts At least 50 points Contribution to BEE Incentive per employee ratio Locating in areas advancing spatial economic activities (high unemployment & IDZ) At least 4 points Investment in priority sectors Incentive per employee ratio Compliance with BBEE Location

14. 14 Economic Benefits criteria Evaluation 1) Fatal flaw analysis & business plan evaluation1) Fatal flaw analysis & business plan evaluation2) Financial ratio analysis 3) Funding gap analysis 4) Economic Benefit criteria

15. 15 Grant Calculation  LESS THAN R5m investment: -a grant of 30% towards qualifying investment costs payable over a period of 3 years -Additional 10% for year 3 on achievement of HR remuneration vs manufacturing cost of 30%.  More R5m = R200m investment -a grant to a maximum of 15% of qualifying investment costs up to a maximum of R30m -Must get at least 4 points  The grant is disbursable on a bi-annual basis on meeting performance requirements (of investment, employment, turnover, economic benefit criteria)  Grant is payable on condition of the approved project meeting the performance requirements  Grant is tax exempt

16. 16 Qualifying & Non-Qualifying Assets Qualifying Assets/Investment CostsNon-Qualifying Assets/ Investment Costs Machinery & equipment (owned or capitalised financial lease) at costAssets owned by operational lease Owned land and buildings at cost Commercial vehicle (owned or capitalised financial lease)Passenger vehicles 100% second hand assets eligible for projects below R5m, black owned entities or majority black owned. Investment in second hand commercial vehicle may not exceed 20% of investment in machinery and equipment Damaged assets or assets not used for qualifying production process

17. 17 EXPANSIONS Increase in qualifying investment of at least 50% (above the historic qualifying investment in machinery and equipment); must be made in year 1 Additional investment in vehicles will be excluded for the purpose of calculating the increase in investment Expansions may not result in base year employment reduction during the incentive period Project must achieve 15% increase in turnover in year 1 and 25% increase in year 2. Only one expansion per district of metropolitan area Period between base year for the expansion and the end of its first full financial year may not exceed 24 months

18. 18 Foreign Investment Grant Provided to qualifying foreign investors for costs of moving qualifying machinery and equipment (vehicle excluded) from abroad to RSA Establish production facilities for the first time in RSA The grant is the lower of 15% of the value of qualifying imported machinery and equipment or the actual relocating costs to a maximum of R10 million

19. 19 Thank you