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Manufacturing Competitiveness Enhancement Programme

(MCEP)

NCPC Briefing SessionTs’episo Makgothi26 September 2012

Outline

• Objectives• MCEP Framework• MVA Calculation• Eligibility Criteria• MCEP Components• Exclusions• Budget

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Objectives of MCEP

• Encourage enterprises to upgrade their production facilities, processes, products and up-skill workers;

• Provide for upgrading of sectors in order to maximise output and employment;

• Expand existing IDC distressed funding facility to SMEs, and reduce cost of capital for distressed enterprises;

• Reduce the price of working capital for exporters and businesses participating in govt infrastructure programmes;

• Strengthen the responsiveness of available incentive schemes to the current economic challenges.

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MCEP Framework

• Non-taxable grant calculated as a % of Manufacturing Value Added (MVA) and capped as follows:

– 7% of MVA - enterprises larger than R200m in assets

– 10% of MVA - enterprises with assets >R30m – <R200m

– 12% of MVA - enterprises with assets >R5m – <R30m

– 15% of MVA – enterprises with assets <R5m

100% black-owned enterprises

• Available over a two year period

• Grant more favourable to SMEs

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MVA Calculation

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Sales/Turnover

Less:

Sales value of imported goods

Less:

Sales value of other Bought in Finished Goods

Less:

Material Input costs (Used in manufacturing process )

=

MVA

MCEP Eligibility Criteria

• Registered legal entity in SA, with existing manufacturing facilities in SA• Manufacturing (SIC 3), engineering services & conformity assessment

agencies servicing the manufacturing sector.– Basic chemicals, Basic iron and steel, Manufacture of pulp and paper, Basic precious

and non ferrous metals, Petroleum refineries and Processing of nuclear will be considered if projects create down stream jobs.

• Employment: Projects are required to sustain existing employment levels at the date of application, for the duration of their participation in MCEP. The programme is designed to last for six years and enterprises are required to renew their participation at the end of every two years.

• B-BBEE: Applicants should achieve at least a level four (4) B-BBEE contributor status, in terms of the codes of good practice or submit a plan to demonstrate how they will achieve this status within a period of four (4) years.

– Applicants who are unable to comply to the B-BBEE and employment criteria have to provide a motivation to the dti at the time of application.

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MCEP Eligibility Criteria

• Submission of applications: Applicant/s must submit a complete application at least 60 calendar days prior to commencement of commercial use of the assets or undertaking activities being applied for.

– the dti to adjudicate and respond within 60 calendar days after submission of a complete application

– If the dti does not respond within the 60 calendar days after submission of a complete application, applicant should notify the dti in writing of its intention to commission the qualifying assets for commercial use or undertake implementation of business development activities before approval may proceed with the project before approval

– The assets or activities will not be disqualified on the basis of having been in commercial use or being undertaken before approval

MCEP (PI) Components

• A Capital Investment grant :– A cost sharing grant towards investment in upgrading capital equipment and

expansion of productive capacity. Cost sharing will be between 30, 40% and 50%of the investment with smaller enterprises receiving a larger percentage of theirinvestment. Max grant R50m.

– Minimum eligible projects: Small enterprises (assets < R5m), minimum capitalinvestment of R500,000.

– Enterprises with assets ≥ R5m; capital investment of at least 20% of the historicalcost price of machinery & equipment or a minimum investment of R2m.

– Additional 10% bonus grant for enterprises with assets > R5m, if they create newadditional jobs or procure at least 50% ‘in rand value’ of the total project budget inmachinery and equipment and tooling manufactured in South Africa (SA).

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Enterprise size No. of new additional jobs

>R5 million – <R30 million >10 jobs

>R30 million – <R200 million >20 jobs

>R200 million >25 jobs

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MCEP (PI) Components

• Green Technology and Resource Efficiency Improvement gran t:– A cost sharing grant towards investment in technology and processes that will make

the production process greener resulting in cleaner production and improved energyefficiency. Cost sharing will be between 30, 40% and 50% of the investment withsmaller firms receiving a larger percentage of their investment. Max grant R50m.

– Submission of application with a cleaner production and/energy efficiency auditreport or green technology assessment report from accredited service provider;

– Cleaner Production: Cleaner production technology such as air compressing,pumping & steam systems; building improvements capitalised in balance sheet

– Audits: Audit & accreditation costs, certification, measurement & verification costs;– Waste management Improvement: Technology for recycling, re-use of waste &

recovery of energy from waste or other beneficial use of waste;– Energy efficiency improvement: Introducing new improved processes that lead to

energy savings; improved energy efficiency technology eg Solar Panels, pumpsmotors

– Quality & environmental standards: certification, installing & upgrading lab equipment9

MCEP (PI) Components

• Green Technology and Resource Efficiency Improvement gran t:– A cost sharing grant towards investment in technology and processes that will

make the production process greener resulting in cleaner production and improvedenergy efficiency. Cost sharing will be between 30, 40% and 50% of the investmentwith smaller firms receiving a larger percentage of their investment. Max grantR50m.

– Additional bonus grant also available for enterprises that create new additional jobsor procure machinery and equipment manufactures in SA

• Enterprise-Level Competitiveness grant:– A cost sharing grant towards investment in the adoption of world class

manufacturing practices such as lean production system, Six Sigma, etc, adoptionand accreditation of conformity and quality standards such as ISO, the CE mark,improved packaging design, acquisition of IT software systems, project specificskills upgrading, etc. Cost sharing will be between 50, 60 & 70% of project costs.

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MCEP (PI) Components

• Feasibility Studies grant:– A cost sharing grant towards developing a bankable feasibility study for new

manufacturing projects. Qualifying costs will include engineering design costs, EIA costs and other relevant consulting fees. Cost sharing will be between 50 to 70% of project costs.

– Pre-feasibility study report - expected investment project: minimum investment value of R30m

• Cluster Interventions grant:– A cost sharing grant towards support for cluster initiatives to improve

competitiveness, innovation and access to new markets. Examples of initiatives that can be funded include shared infrastructure such as a sector technology development centre, market research, international advertising and publicity costs, etc. Access will be subject to a defined minimum number of enterprises (5 or more members) and cost sharing will be 80% of qualifying project costs.

– An eligible cluster should be a Special Purpose Corporate Vehicle (SPCV) incorporated in RSA. 11

MCEP (PI) Components

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MCEP Component Max Grant Assets Grant 10% Bonus Grant

Capital Investment R50m < R5m

R5m to R30m>R30m>R200m

50%

40%30%

N/A

>10>20>25

Green Technology & Resource efficiency

R50m < R5m

R5m to R30m>R30m>R200m

50%

40%30%

N/A

>10>20>25

Enterprise Level Competitiveness Improvement

N/A < R5m

R5m to R200m>R200m

70%

60%50%

N/A

Feasibility Studies R7.5m < R30m

R30m to R200m

70%50%

N/A

Cluster Competitiveness Improvement

R50m N/A 80% N/A

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MCEP (Loan) Components

• Pre/Post-dispatch Working Capital Facility: – Finance to cover working capital requirements from

• Date of receipt of order to dispatch to customer; including raw material, packaging and transportation costs

• Date of dispatch of goods to date when seller realises the proceeds of sale. Can include performance bonds and guarantees

– Finance up to R30m, fixed at 6%

• Distressed Concessionary Fund– Preferential interest rate facility for any distressed manufacturers– Finance fixed at 6%– No fees to be levied

• Niche Funding– Strategic projects proposed by IDC and dti sector desk 13

Exclusions

• Enterprises already receiving dedicated sector support such as those benefiting from the MIDP, APDP, AIS, the Clothing and Textile CTCIP are excluded.

• An automotives manufacturer with less than 25% of its base-year turnover earned as part of motor manufacturers’ vehicle (light, medium or heavy) supply chain (including after-market supply) locally and/or internationally may be considered for eligibility under MCEP

• Submission of applications, claims and enquiries – no hard copies

E-mail: mcep@the dti.gov.za

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Sector Examples

SECTOR → Investment

support

→ Working capital → Project

Feasibility Studies

→ Compe!!veness

upgrading - firm

level support

→ Compe!!veness

upgrading - sector

level support

→ Standards,

Accreditation and

Certification

Agro-processing Support for small

scale maize milling

Support to explore

feasibility of

industry canning

facility to combat

monopolistic tin and

packaging prices

Support for product

development and

commercialisation

in domestic and

export markets

Market studies to

identify processed

food opportunity

into high growth,

net food importing

developing

countries

Support for meeting

SPS standards in

new markets

Capital / Transport

Equipment

Investment in new

equipment /

technology to

supply

componentry into

rapidly scaling up

rail procurement

programmes

Pre-shipment

finance for large

orders, offered on

terms comparable

to those secured by

import competitors

Feasibility studies

into new capital

projects linked to SA

capital equipment

supply base

Support for

technolgy / skills

development e.g.

NTI

Support to meet

OEM standard and

safety requirements

Renewables: Wind

and Solar

Investment in new

equipment /

technologies to

implement existing

capabilities (e.g.

fabrication / casting,

composites) to wind

and solar

component

manufacture

Support for 'lateral

migration' of

capabilities to wind

and solar

componentry

Support for

domestic

manufacturers for

SABS system testing

of SWH systems.

Support for new

companies in wind

and solar for

certification that

e.g. blades meet

OEM tolerance

thresholds

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MCEP Budget

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Assumptions R'm 2011 2012 2013 2014 2015 2016 2017Total (2012-2014)

Total (2012-2017)

Total VA of sectors covered 2010 113,431

10% of VA cap 11,343 11,910 12,506 13,131 13,788 14,477 15,201 15,961 % of VA covered 15% 25% 30% 20% 10% 5%Amount of incentive 1,876 3,283 4,136 2,895 1,520 798 9,295 14,508 Actual MTEF

allocation 1.,250 2,000 2,500 5,750

•Selected Sectors Cover:•44% of manufacturing Jobs•15% of fixed capital in manufacturing and •33% of manufacturing MVA

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APPLICATION FORM

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THANK YOU

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MCEP (Loan) Components

• Pre/Post-dispatch Working Capital Facility: – Finance to cover working capital requirements from

• Date of receipt of order to dispatch to customer; including raw material, packaging and transportation costs

• Date of dispatch of goods to date when seller realises the proceeds of sale. Can include performance bonds and guarantees

– Finance fixed at 6%

• Distressed Concessionary Fund– Preferential interest rate facility for any distressed manufacturers– Finance fixed at 6%– No fees to be levied

• Niche Funding– Strategic projects proposed by IDC and dti sector desk

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