Design Evaluation of the City

of Cape Town’s Investment

Incentive Policy

February 2016

Table of Contents

1. Introduction ........................................................................................................................................ 3

2. Policy Context ..................................................................................................................................... 3

3. Policy summary ................................................................................................................................... 4

4. Methodology ....................................................................................................................................... 6

5. Purpose of design evaluations ............................................................................................................ 6

6. Scope of evaluation ............................................................................................................................. 6

6.1 Diagnostic analysis of status quo .................................................................................................. 7

6.2 Consideration of options............................................................................................................... 8

6.3 Theory of change .......................................................................................................................... 9

6.4 Target group ................................................................................................................................ 10

6.5 Log frame/outcomes mapping .................................................................................................... 10

6.6 Planning implementation ............................................................................................................ 10

7. Conclusion ......................................................................................................................................... 13

8. Recommendations ............................................................................................................................ 16

9. References ........................................................................................................................................ 18

10. Annexures ....................................................................................................................................... 19

Annexure 1 ........................................................................................................................................ 20

Annexure 2 ........................................................................................................................................ 49

Annexure 3 ........................................................................................................................................ 63

Annexure 4 ........................................................................................................................................ 70

Annexure 5 ........................................................................................................................................ 72

Annexure 6 ........................................................................................................................................ 85

Annexure 7 ........................................................................................................................................ 86

1. Introduction

The purpose of this study is to conduct a design evaluation on the Investment Incentive

Policy (IPP) and its implementation/operational plan (here forth referred to as the policy/the

IPP) as developed and implemented by the City of Cape Town (CCT) in 2013. This

evaluation involved analysing the theory of change, inner logic and consistency of the policy

that forms the basis of an intervention. This exercise also involved the assessment of the

quality of the indicators and the assumptions to determine whether the intervention is

designed to enable effective and efficient attainment of the policy objectives.

Design evaluation falls within the parameters of formative evaluation. Formative evaluations

are evaluation that generally takes place before or during a project’s implementation with the

aim of improving the project’s design and performance. During this process judgements are

made according to standards, goals and criteria of policies (projects and programs) to provide

feedback to persons working on the intervention in an attempt to improve the intervention’s

design and performance (Taras, 2005: 468).

2. Policy Context

The CCT’s IPP co-exists in an environment that offers a wide range of financial incentives

for businesses who want to start up or expand their facilities. The National Department of

Trade and Industry (2014:1) offer financial support to qualifying companies for Industrial

Development, Black Business Supplier Development, and Trade, Export and Investment

Incentives. It also offers Co-operative Development Financial Assistance (CIS) which is a

100% grant to registered primary co-operatives to improve the capabilities and effectiveness

of co-operatives (Department of Trade and Industry, 2015). The policy also co-exist in an

environment that offers The Urban Development Zone (UDZ) which is a tax incentive

administered by the South African Revenue Services aimed at emboldening private sector-led

suburban and commercial development in inner city areas (South African Revenue Services,

2009:1). Other incentives include Government Investment Incentives that provide incentives

for research and development to private-sector enterprises that are interested in the creation,

design and improvement of new products and processes, investment of capital expenditure

incentives for enterprises that want to acquire or upgrade assets in order to start up or expand

their businesses productivity capacity, and incentives for enhanced competitive advantage for

enterprises that want to increase their businesses competitiveness to enhance economic

growth (The South African Government. 2015).

In an attempt to be more competitive the CCT introduced further financial and non-financial

incentives to prospectively attract business to it region.

3. Policy summary

The CCT’s EDD, following a directive to promote economic growth and job creation from its

Economic Growth Strategy (EGS), assumes the role of creating and enabling environment that attract

investment into the CCT that affords job creation and economic growth opportunities in the city

boundaries (City of Cape Town, 2012: 19). The EDD then in 2013 developed the IIP not only to

satisfy its mandate but also to respond to a perceived gap that exists between the expectation of work

that subsists mainly among the youth of the city, and the low probability of finding work that prevails

in Cape Town (City of Cape Town, 2013: 4) (See Annexure 1).

Conceptually, investment incentives are considered measurable advantages afforded to specific

businesses or categories of businesses by government (United Nations Conference on Trade and

Investment, 2013: 84). The CCT designed incentive packages offering non-financial and financial

incentives to new investors and existing businesses that wish to expand their facilities in Cape Town.

These investors are only eligible to access these incentives when they meet the criteria set by the

CCT (City of Cape Town, 2013: 17).

According to the Investment Incentive Policy document (July 2013:14), the CCT offers the following

incentives to the target beneficiaries when they start a new business or expand with a facility of an

existing business:

Non-financial incentives

Single-point investment facilitation

Development application fast-tracking

Regularly updated spatial economic information

Skills development facilitation

The CCT Implementation framework (2013b, 3-4) (See Annexure 2) also states that if prospective

investors or existing businesses meet the requirements to follow, they are eligible for financial

incentives. These requirements include:

1. Starting or expanding their businesses in designated spatial areas identified by the CCT

2. The main economic activities of the businesses involves manufacturing or are in the priority

sectors identified by the CCT,

3. The business providing 30 to 50 new permanent full time jobs within two years of

establishment with 75% of the jobs being occupied by South African citizens.

4. Being tax complaint with SARS.

5. The premises from which the business operates possess an occupation certificate in terms of

the National Building Regulation issued by the City

If business owners satisfy the above mentioned requirements they are eligible to receive the

following financial incentives:

Development application fee exemption

Development contribution deferral / debt write off (capped to a maximum of R1m per

investment)

Electricity tariff reduction

Broadband connection fee waiver

It should be noted that at this stage, the CCT has not identified the pre-determined, qualifying

spatial locations that qualifies businesses to receive financial incentives. As a result businesses only

qualify for non-financial incentives and not for financial incentive.

The CCT piloted an investment incentive scheme in the Atlantis industrial area in 2013. The

qualifying criteria for the pilot investment incentives scheme differs from the City-wide intervention.

Here the proposed investors only had to establish a business in the Atlantis Industrial area. No

restrictions to economic activity or location exists. All investors considering to open or expand a

business in Atlantis industrial area qualified for the following non-financial and financial incentives:

Non-financial measures

Dedicated investment facilitation support

Development application fast-tracking

Biodiversity offsets

Financial measures

Development application fee exemption

Electricity tariff subsidy

Development contribution deferral / debt write off (capped to a maximum of R1m per

investment) which is conditional to businesses that are able to create at least 50 new

permanent full time jobs within two years of qualifying for the DC debt deferral/write

off. Should the business not create at least 50 jobs within two years the business is

liable for the Development Contribution.

4. Methodology

This design evaluation was informed by 14 evaluation questions suggested by the National

Department of Monitoring and Evaluation (DPME) as guidelines to undertake and manage design

evaluation in 2014. The questions that guided the design evaluation covered the historical context, the

conceptualisation and design of the policy.

Empirical research of a qualitative nature was conducted to undertake this evaluation. This involved

reviewing documents relevant to the IIP and collecting primary qualitative data through basic

individual interviews. The interviews were conducted with the policy developers, determined through

the purposive sampling method. Clarity and confirmation on matters not clearly stated in policy

documents were solicited from policy developers. All of which was done to develop an understanding

of the intervention’s logic and theory of change. An attempt was also made to assess the relevance

and appropriateness of the IIP, its policy design, as well as its internal and external coherence.

5. Purpose of design evaluations

Design evaluations usually function to ensure that the design of an intervention is robust before it is

implemented. However since this policy has already been implemented, this design evaluation

functioned to establish the strengths and weaknesses of the design and to identify the components that

might hinder the policy’s chances of success. This was done by assessing the theory of change, inner

logic and consistency of the policy. This evaluation exercise also assessed whether the key indicators

are clear, relevant, economical, adequate and monitorable. Furthermore, this design evaluation

exercise attempted to assess whether sources of evidence are available for subsequent monitoring and

evaluation activities, and that the monitoring and evaluation system is adequate to provide the data

needed to assess the policy results and impacts. The information attained from this study will then be

communicated to the policy developers as input to the review of the policy.

6. Scope of evaluation

The evaluation covers the design of the IPP and scheme that covers the Atlantis and the entire CCT

region and the implementation/operational framework, from inception in 2013 and addresses the

following evaluation components of the policy design:

I. Diagnostic analysis of status qua

II. Consideration of options

III. Theory of change

IV. Target group

V. Logframe

VI. Implementation planning

The questions that will be asked to help assess the design of the policy are informed by the

Department of Monitoring and Evaluation’s Guideline on Design Evaluation (2014).

6.1 Diagnostic analysis of status quo

6.1.1 Is the need or problem the intervention addresses clearly defined and the nature and scale

of the problem clear and substantiated by good evidence?

The need for economic growth that absorbs the jobless in the Metropolis through attracting businesses

to Cape Town by means of offering incentives is clearly stated in the policy documents as the

rationale of the policy. The policy also clearly states that the perceived gap between the expectation of

work and the low probability of finding work is the problem that it aims to address. The policy

document however uses national and provincial level unemployment statistics to substantiate a local

level problem. This might be due to the lack of up to date municipal level unemployment statistics

being available, except for the old 2011 Census datasets. The lack of municipal level statistics also

impeded on the policy’s ability to accurately explain the scale of the challenges.

6.1.2 Is there a convincing analysis of the root causes of the problem substantiated with strong

evidence e.g. from research or diagnostic evaluation?

The policy documents refer to market failures as the reason for high unemployment. Furthermore, the

racial segregation of the Apartheid era was also cited as a reason for the disproportionate employment

opportunities in the city. There is however no evidence of root-cause analysis, a diagnostic evaluation

or investigative reports that provide the reasons for the high unemployment rate in Cape Town

presented in the policy documents. It can be argued that the reasons for this might be that it is a well-

known fact that South Africa and all its provinces and cities are victims to structural unemployment.

Moreover, the IIP was borne as part of the CCT five year Integrated Development Plan (IDP) and the

Economic Growth Strategy (EGS, p.12) for the CCT so the development of the policy was

predetermined and directive, hence not necessarily subject to evidence.

6.1.3 Is there a strong rationale why this is a government priority - is this part of the National

Development Plan/Outcomes or departmental strategic plan?

The rationale for the Investment Incentive Policy derives from the CCT’s Integrated Development

Plan (IDP) which houses the five year strategic plan for the CCT (2013:3). The five year plan is built

into 5 strategic areas which include making the CCT an opportunity city, a safe city, the caring city,

the inclusive city and the well-run city. The IIP in principle speaks to making the city an

(employment) opportunity city (City of Cape Town, 2012: 9). This in turn speaks to the Economic

Growth Strategy approved by the CCT in 2013 that mandates the Economic Development Department

to aid in making the CCT a city globally competitive city alongside mandating it to create an

environment in Cape Town that enables economic growth and job creation by attracting the

investment that generates such opportunities. Hence the rationale of strategizing this as policy priority

format is valid.

6.2 Consideration of options

6.2.1 Are the different options for addressing the root causes made clear and is there evidence

presented that these options are appropriate?

The policy fails to site proof of considering and testing alternative solutions to the unemployment

crisis in Cape Town. This is however due to it being a mandated directive from the IDP and EGS.

During an interview with one of the policy developers it was confirmed that this policy was explicitly

requested from the top structure of the bureaucracy (City leadership) as the implementation process of

the EGS and IDP. (Mr Tim Hadingham 2015, pers.comm., 28 May).

6.2.2 Are the cost/benefits of the different options made clear and the justification for selection

of the preferred implementation option convincing?

As no policy alternatives were identified and considered, no comparative cost-benefit analyses were

needed to be conducted during the development for this policy. The costs and benefits for the

incentives policy was not modelled during the policy development phase of this intervention. This

created a situation where it could not be determined whether the direct and indirect benefits this

policy proposes to bring would outweigh the financial and administrative costs to the CCT before the

policy was implemented. It also deprived the CCT of reconsidering the proposed policy and

considering another policy intervention that could have been more cost effective and/or have a bigger

impact.

One of the policy developers communicate that economic modelling was nevertheless done for the

policy at a later (Mr Tim Hadingham 2015, pers.comm., 28 May). The economic model assessed the

impact of the implementation of the financial component of the City-wide investment incentive. This

economic evaluation, that was done close to a year after the policy was designed and implemented,

assessed how much land would be occupied by businesses if it took up incentives, how much the CCT

could accrue in revenue from these businesses and it determined the minimum employment

opportunities that could be created if businesses took up the incentives. The economic model also

determined how much it would cost to provide one job per sector for the CCT and how long it will

take the CCT to earn the money back it spent on incentives. The modelling further compared how

much the CCT is spending per job in comparison with other existing job creation initiatives if

incentives were taken up. (See Annexure 4)

This exercise, done in retrospect attempts to inform stakeholders what it would cost the CCT if the

incentives were taken up and how much it would cost the CCT to create one job if incentives were

provided to a certain number of businesses owners. The model also provides some guidance on the

feasibility and the sustainability of the policy intervention. Again, if this exercised was done

prospectively and policy alternative were identified and economically assessed, the CCT could have

perhaps identified more cost-efficient ways of attracting investment and creating jobs, at a more

sustainable and financially feasible rate.

6.3 Theory of change

6.3.1 Is there a clear Theory of Change explaining the causal mechanism for achieving the

desired outcomes and impacts?

A 'theory of change' is exactly what the term state: it is a theory (thus not proven) that states how a

particular intervention, with particular resources and processes, will bring about a desired change

through its processes and outputs.

To prove whether the theory of change is true, we adopt a series of indicators that 'measure change

over time'. The indicators help us to assess whether the theory of change is working as intended.

This is often captured as a Logical Framework (logframe), where the logframe systematically presents

the underlying 'theory of change’ with its indicators.

The review of the policy documents did not avail the inclusion of the necessary inputs (resources such

as people, information, finance, support) required to plan, coordinated and implement, the set of

activities and processes necessary to deliver certain outputs that would assist in attaining the desired

policy outcomes and eventual impact of the policy program. The policy documents thus did not

manage to illustrate how the policy and its implementation plans propose to effect change. This leads

to the impression that the necessary preconditions that need to be in place to achieve the outcomes and

impact of the policy was not identified nor duly considered. Furthermore, there is no evidence that

and the causal links (relation between an event (the cause) and a second event (the effect), between

the resources needed and activities/ tasks to be completed to achieve the outcomes and effect the

impact was done was identified. This makes it difficult to assess and forecast whether the policy will

have the desired outcomes.

This fact, according to TH (perr.com 28 May 2015) can be attributed to the CCT is guideline to policy

writing (See Annexure 5) does not prescribe that policy developers need to conduct a theory of

change exercise when developing a policy. The before mention policy encourages identifying and

asserting the different parts of theory of change – the inputs, activities, and outcomes- however the

policy does not prescribe the before mentioned in a cause-effect relationship.

6.4 Target group

Is the target group clear and are there clear measures to see who is in/out, and progress?

The policy explicitly states that new investors looking to start a business and existing businesses

who are looking to expand facilities in the Cape Town municipality parameters are the target group.

The policy further then states that these specific groups must also prescribe to specific criteria to be

able to access the proposed incentives which further delimit the target group.

6.5 Log frame/outcomes mapping

6.5.1 Is there a log frame/outcomes mapping?

The policy documents do not include a systematic, visual illustration of how it approached the

designing, executing and assessment of the policy processes. The policy documents also do not

illustrate to readers the relationships between available resources, planned activities, and desired

changes or results. Furthermore, no hierarchy of objectives or the development pathway of the policy

intervention from which one can best understand how the intervention will affect the desired change

in behaviour of investors was demonstrated. Again, this is not required from policy developers in the

CCT according to its “Guidelines to policy writing” hence it is not a necessity for CCT policies to

include in policy documents.

6.6 Planning implementation

A thorough implementation plan usually includes a work plan as well as the resources, expertise,

capacity and budget needed to implement the work plan. It affectively also identifies stakeholders,

includes a comprehensive risk assessment and risk matrix, outline quality control measures, it outlines

the methods that will be used to track performance and contains a communication plan as a basic

minimum (Stellenbosch University, 2015: 55).

The CCT produced an “Operational framework for the administration of investment incentives” in

October 2013 (See Annexure 2) which constitute as its implementation framework for the Investment

Incentive policy.

The framework includes an introduction to the Investment Incentive Policy, an outline of the incentive

packages, the qualifying and counter-performance criteria and an outline of the administrative

process/list of activities which the officials of the Administration will carry out in introducing

stakeholders to the investment incentive and providing the incentives to the interested stakeholders.

The administrative process also outlines who will undertake certain activities and who will record the

range of different incentives taken up by the investors and existing businesses. This implementation

plan also infers that existing staff will be used to do the administrative tasks outlined in the

implementation framework.

The framework also communicates that a pilot study is being introduced in the Atlantis industrial

area. During the review of the policy documents it is also availed that the pilot project offers slightly

different incentives to investors in Atlantis against different criteria to that of the city-wide Investment

incentive policy. These variations in incentive package offers, does not only open the door to various

discrepancies and conflict between investors, but does not give a true reflection of what results the

intervention can produce if implemented.

6.6.1 Is there an appropriate activity schedule for the activities?

The list of the activities to be executed to effectively implement the intervention is outlined in the

framework provided. The list however only outlines what needs to be done once the CCT is

approached by the target group for the intervention. A review of the policy documents and

implementation plan does not contain a communication plan and planned activities to communicate

the policy information to the target group. The lack of a communication strategy leaves a substantial

gap in the activity schedule and gives the impression that the crucial activity has not been executed.

Thus, the knowledge about the incentives is left to chance and the outcomes of the policy is

compromised.

Although, the desktop review of the policy documents stated that the policy and its content was

published in weekly and weekend newspaper once upon adaptation of the policy for public

participation, the probability of the target group having access to those specific publications at the

time it was published, is low.

Furthermore, the activity list alludes to the collection of data and keeping record of it which can be

accepted for the monitoring of data, but it fails to mention any activities relating to evaluations and

the development of a Monitoring and Evaluation system for the policy intervention.

6.6.2 Is the human resource required to implement the intervention clear, realistic and

available?

The activity schedule suggests that the existing officials in the different departments will be identified

to fulfil the necessary tasks needed to implement the investment incentive policy. The fact that these

identified human resources are realistic and available is uncertain. The uncertainty is embedded in the

lack of a theory of change and a logframe which usually summarises the human resources needed to

effectively and efficiently complete all the tasks that result in the different outputs that will lead to the

outcomes. However, because the theory of change and the logframe/outcomes mapping exercise was

not done, one is unsure of how much staff is needed to complete the tasks of the policy intervention

efficiently to produce the stated outputs effectively in order to attain the desired outcomes.

Furthermore, if the existing staff are expected to take on additional tasks related to the implementation

plan, to their existing the implementation plan, it leads, either to staff being overloaded with work to

keep up with policy implementation tasks and their initial work duties, or the policy implementation

tasks will not take priority and might not be implemented efficiently and effectively.

One of the policy developers did however communicate that, new employees will be recruited to the

programme once the programme is performing at a positive rate and if there is reasonable uptake by

companies (TH, 2015, pers.comm. 28 May).

6.6.3 Are there appropriate management arrangements within the department for running

the intervention?

The implementation plan as well as the policy developer (TH, 2015, pers.comm, 28 May) states that

an official has been appointed to manage the intervention as a whole.

6.6.4 Are there roles that have to be played by other role players in or outside government

and are all of the roles envisaged funded mandates?

Three directorates within the CCT are identified as essential role players in the delivery of the

investment incentives intervention. There is however no visible evidence of any service level

agreements between the Economic Development Department and the Transport for Cape Town, the

Utilities Department and the Finance directorate outlining the scope, quality, responsibilities,

turnaround times or delivery times of the services being delivered by these role players in the policy

documents. This insinuates that because the performance management, customer duties and even the

definitions of service was not agreed upon or clearly outlined in a service level agreement it cannot be

enforced.

6.6.5 Is there an M&E capacity established including a budget for evaluations and have these

been programmed?

The framework suggests that the Economic Development Department will conduct the monitoring

and evaluation of the policy however no indicators, targets, planned resources, milestones and outputs

are easily observable in the policy documents, thus it is uncertain what is going to be monitored and

evaluated.

Furthermore, it appears that the there is no budget for the IIP. This means, that even with monitoring

mechanisms in place, there will not be any warning signs as to when saturation point is reached, when

there is overspending or when they have incentivised too little as there is no budget to measure

against.

The lack of budget also means no funds were ring-fenced for this process.

6.6.6 Is there a risk management plan? Does this take into consideration the assumptions?

The desktop review of the policy documents indicates that the risks that might deviate the CCT’s

endeavours to reach the desired outcomes of attracting investment that brings job opportunities to the

unemployed of the city was not identified, assessed, prioritised, hence it cannot be minimized,

monitored or controlled. One of the policy developers did confirm that no formal risk management

exercises were followed during the policy development phase.

The absence of the risk management exercise creates the impression that the policy intervention is

operating in financial market uncertainty, threats from project failure, legal liabilities, credit risks and

unpredictable root-causes among other things. The lack of risk management exercise also deprives the

policy of operating with contingency plans should any of the risks arise. Furthermore, the failure to

conduct a risk assessment restricts the CCT’s ability to capitalise on different opportunities that the

risk assessment process brings to the table. Moreover, the lack of risk management planning means no

assumptions are taken into consideration (Kusek and Rist, 2004:20).

7. Conclusion

The purpose of this evaluation was to determine the strengths and weaknesses of the design process of

the Investment Incentive policy and its implementation plan, to identify the components that might

hinder the success of the intervention, to assess whether the key indicators are clear, relevant,

economical, adequate and monitorable and to assess whether sources of evidence are available for

subsequent monitoring and evaluation activities. This report also functioned to assess whether the

sources of data is adequate to provide the data needed to assess the policy results and impacts. It also

strived to assess the theory of change, inner logic and consistency of the policy design.

The following strengths were identified:

The target beneficiaries are clearly identified as new businesses and existing businesses that

intend on expanding their facilities in the CCT region and not merely relocating businesses.

The policy also clearly states the criteria the target group has to prescribe to in order to access

the incentives.

The policy documents also clearly conceptualises investment incentives.

There is adequate alignment of the policy to the regulatory and legislative framework of the

CCT, the Western Cape and South Africa in terms of attempting to create employment

opportunities.

Considerable attention was given to the international practices of investment incentives.

The following weaknesses were identifies:

No evidence of a root cause analysis that demonstrates the “cause” of the social problem is

effecting the population.

Absence of evidence that alternative options to address the current challenges were

considered.

The policy document does not adequately demonstrate what resources will be invested in

what activities to deliver the range of products to the recipients that will ensure the

beneficiaries’ current social status is changed.

The absence of a logical framework/outcome mapping for the intervention prevents one from

comprehending the inner logic for the intervention.

The activity list seems incomplete as it does not provide information on how policy

information is going to be communicated to the target group and also does not list how the

information is going to be monitored and evaluated.

The lack of communication strategy and plan for the policy implementation probes

accessibility problems for the intended recipients and beneficiaries.

The lack of budget not only raises questions about the sustainability of the intervention but

also limits the cost efficiency analytical abilities of those wanting to assess and evaluate that

aspect of the intervention.

The policy documents communicates the Economic Development Department will conduct

monitoring and evaluation however no budget seems to accompany this proposal.

The policy document seems to lack a Monitoring and Evaluation framework and system, thus

the policy staff will not be able to advise whether the intervention is performing satisfactory,

reaching objectives, underperforming and achieving the intended outcomes. It needs to be

comprehended that merely taking up of incentives does not necessarily mean success.

The fact that no new officials were appointed to implement the policy enables one to make

the assumption that the work load of the implementation of this policy will bring will just be

added to the current officials’ workload and the policy implementation will not accord high

priority

The policy documents indicate that a risk management exercise was not conducted during the

designing of this policy. This deprives the policy implementers to recognise the risk when

they appear and furthermore restrict their capacity to take action against the risk if it

approaches them. Additionally, policy implementers are also restricted in their capacity to

capitalise on opportunities positive risks brings. The lack of risk management also means no

contingency plans exist for when the time arises to operate according to it.

The above mentioned weaknesses also constitute components that might hinder the success of the

policy intervention. Due to the lack of the theory of change, logic model and economic evaluation

conducted, one can also not establish whether the policy intervention can be implemented efficiently,

and effectively. The lack of the above mentioned information also creates reservation about the

likelihood that the intervention will produce the desired outcome. The absence of a root cause

analysis, makes one question whether we are addressing the root cause of unemployment and

opportunity gap problem. Furthermore the fact that no alternatives were considered to justify the

policy choice.

Moreover, the financial viability of this intervention has not been determined, thus the sustainability

of the intervention itself is not determinable. Furthermore, due to the lack logical sequential cause-

effect steps in the form of a theory of change or log frame the probability of success of the

intervention cannot be forecasted. Additionally, because the risks to the intervention was not

identified, assessed and can therefore not be managed, the prospects of the intervention is

unidentifiable.

The lack of dedicated human resources, budget and capacity to the intervention also renders the

possibility of success questionable. If officials are expected to add the workload of policy intervention

to their existing workload the chances of the intervention activities receiving the full amount of

energy and enthusiasm it needs is low.

The likelihood of great uptake of the incentives by investors or existing business is also small as there

is no plan to communicate the policy information to the investors. There needs to be a communication

strategy in place within the implementation plan which mandates designated staff to ensure the target

group is aware of the incentives the CCT offers.

Thus due to the lack of theory of change, logframe, and incomplete implementation arrangements the

likelihood of the intervention working is unconvincing. This lack also repudiated the exercise of

determining the quality of the indicators and restricted the assessment of the assumptions to determine

whether an intervention is designed to make it possible to effectively and efficiently meet its stated

objectives. This all demonstrates that the design of the policy can affect how the policy objectives are

attained effectively and efficiently.

8. Recommendations

It is recommended that, the policy developers, during the policy review consider developing a

theory of change/outcomes map for the policy. The theory of change/outcomes map will

assist policy developer to demonstrate a linear path of cause and effect. It will also position

the policy programme within a wider analysis of how change will be effected and assist the

Department in articulating its understanding of how it intends for change to occur.

Furthermore, the theory of change/outcomes map will challenges the developers to explore

the intervention further by considering the wider systems in which the policy exist and the

environment and actors that influence it (James, 2011: 4).

The development of a theory of change/outcomes map will further strengthen the precision,

efficacy and motivation of policy intervention, provide a basis for monitoring, evaluation and

learning throughout a policy cycle and help to communicate work clearly to others and utilise

the theory as a reporting framework.

Policy developers should in undertaking the exercise to think openly about change and how it

happens, looking at the context for change, at organisational and not only project level. James

(2011:3) also recommended that the policy consider the following when developing the

theory of change:

Who the CCT’s IIP target group is and why.

Who and what influences the target groups’ lives.

The long term changes that needs to realise in the target groups lives.

What the CCT’s contribution will be to this change.

What the ultimate visualisation for change is.

What environmental changes need to affect to achieve these changes.

What groups need to be influences to help affect the change.

What changes need to be affected in them.

What aspects, associations, methods and paths will induce change at each level.

What the three to five key aspects to which associations can contribute that will be

vital in bringing about change.

What the rationale or thinking behind the thoughts that change will transpire that

way.

What the external and internal risks that might preclude change from taking place.

How might the approach need to be tailored to specific groups.

How the City will measure if change has happened.

How the lessons learnt be applied back into the City.

It is also recommended that following the theory of change/outcomes mapping exercise

policy developers develop a logical framework (logframe) for the policy intervention which

will basically involve identifying the strategic elements -inputs, outputs, outcomes, impact-

and their pivotal and underlying relationships amongst the before mentioned and stakeholders

and developing indicators that will enable one to measure the strategic elements and its

delivery. It is also advised that policy developer consider the assumptions or risks that may

influence success and failure of the policy programme when developing the logframe. This

exercise will enable further strategic planning of the intervention, help plan the execution and

facilitate the evaluation of the intervention (Kusek and Rist, 2004: 227).

It is advisable that the policy developers undertake economic evaluations for the interventions

to establish the financial viability of the policy programme to inform a budget and contribute

to sustainability of intervention. Conducting this type of evaluation will enable the policy

developers to determine whether the policy costs outweigh its benefits, assess whether the

policy is providing value for money, and determine the net social benefit resulting from a

policy (The Presidency, 2014:3).

Furthermore, it is prudent that the policy developers assess the factors that might affect the

intervention’s successful implementation by conducting a risk assessment and compile a risk

matrix. This will enable the policy implementers to manage the risks, capitalise on it when

possible and put contingency plans in place (Kusek and Rist, 2004: 223).

Compile a communications strategy that will address who the recipients of information will

be, in which format the recipients will receive the information, by when, and who will prepare

and disseminate the information (Kusek and Rist, 2004:130).

Draw up service level agreements to bind service department and also ensure accountability.

The human resources element for both the policy implementation and monitoring and

evaluation need to be reconsidered. Policy managers need to consider whether adding the

policy implementation activities to exiting staffs existing work load will give the before

mentioned the desired priority. The policy developers should also consider the capacity and/or

expertise of those identified to conduct the monitoring and evaluation exercises for the policy.

Compile a monitoring framework for the interventions.

Developing a monitoring and evaluation system for the intervention.

Policy developers also need to consider a budget for evaluation.

Greater attention should be given to research before policy development as researching root

causes of problems, gap analyses and economic evaluation of policy alternative can only

ensure that the policy adopted and implemented is the most cost efficient and effective policy

alternative that is actually addressing the problem at hand.

9. References

City of Cape Town. 2013. Investment Incentive Policy: Request to review and rescind council

resolution C99/07/13 of July 2013 report. Available online at:

https://www.capetown.gov.za/en/Treasury/Documents/InvestmentPolicy_Feb_2013.pdf. [20

January 2015].

City of Cape Town. 2012. Integrated Development Plan (IDP) 2012/13 Review. Available

online at: http://www.capetown.gov.za/en/IDP/Documents/IDP12_final_May12.pdf. [27

April 2015].

City of Cape Town. 2013. Operational framework for the administration of investment

incentive report. Available at: City of Cape Town. [20 January 2015].

James, C. 2011. Theory of change review: A report Commissioned by Comic Relief.

Available online at: http://www.theoryofchange.org/pdf/James_ToC.pdf [12 March 2015].

Kusek. J and Rist. C. 2004. Ten Steps to a Results- Based Monitoring and Evaluation System.

The World Bank, Washington, DC.

Stellenbosch University. 2015. Public sector monitoring and evaluation: 5 day training Course

Reader. 21 May, University of Stellenbosch.

Taras, M. 2005. Assessment – summative and formative- some theoretical reflections. British

Journal of Educational Studies, ISSN p. 466–478. Available online at:

http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8527.2005.00307.x/abstract [3 March

2015].

The Department of Trade and Industry. 2014. A Guide to Incentive Schemes 2014/

2015. Available at:

http://www.thedti.gov.za/financial_assistance/financial_assistance.jsp [Accessed 07

June 2015].

The Department of Trade and Industry. 2015. Co-operative Development Financial

Assistance (Incentives). Available at:

https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=11&subth

emeid=3 . [Accessed 07 June 2015].

The Presidency. The republic of South Africa. Guideline on Design Evaluation. Available

online at: http://www.thepresidency-

dpme.gov.za/keyfocusareas/evaluationsSite/Pages/Guidelines.aspx#. [24 April 2015].

The Presidency. The republic of South Africa. Guideline on Economic Evaluation. Available

online at: http://www.thepresidency-

dpme.gov.za/keyfocusareas/evaluationsSite/Pages/Guidelines.aspx#. [24 April 2015].

United Nations Conference on Trade and Investment. 2013. World Investment Report 2013:

Global Value Chains: Investment and Trade for Development. Available online at:

http://unctad.org/en/PublicationChapters/wir2013ch3_en.pdf. [27 April 2015].

10. Annexures 1. Investment Incentive Policy

2. Operational framework for the administration of investment incentives

3. Transcribed interview

4. Modelling the impact of the implementation of the financial component of the City-wide

investment incentives

5. Guideline to policy writing

6. Interview guide

DRAFT – FOR DISCUSSION ONLY

CITY OF CAPE TOWN

INVESTMENT INCENTIVES (POLICY NUMBER 12506)

APPROVED BY COUNCIL : 28 AUGUST 2013 C29/08/13

Annexure 1

0

CITY OF CAPE TOWN INVESTMENT INCENTIVE POLICY A. Document Control Director Thembinkosi Siganda Executive Director Japie Hugo Version 2 Document Status Final Next Review date June 2015 Reference Codes Contact Details 021 – 417 4019

CONTENTS

DEFINITIONS AND ABBREVIATIONS ...................................................................................................... 23

1. PROBLEM STATEMENT ..................................................................................................................... 25

2. STRATEGIC FOCUS AREAS ................................................................................................................ 25

3. Background ...................................................................................................................................... 26

4 DESIRED OUTCOME ........................................................................................................................... 29

5 ALIGNMENT WITH IDP PRINCIPLES AND OBJECTIVES ....................................................................... 29

6 PURPOSE OF POLICY DOCUMENT ..................................................................................................... 30

7 SCOPE OF APPLICATION .................................................................................................................... 30

8 REGULATORY CONTEXT ..................................................................................................................... 30

9 EXISTING INVESTMENT ENABLING ENVIRONMENT .......................................................................... 31

10 POLICY DIRECTIVE DETAILS ............................................................................................................. 33

12 IMPLEMENTATION, EVALUATION AND REVIEW ............................................................................. 37

13 REFERENCES .................................................................................................................................... 37

ANNEXURES .......................................................................................................................................... 38

DEFINITIONS AND ABBREVIATIONS

For the purposes of this policy, except where clearly indicated otherwise, the words and expressions

set out below have the following meanings:-

“Approved budget” means an annual budget which is (a) approved by a municipal council and includes such an annual budget as revised by an adjustments budget in terms of section 28;

“By-Law” Means legislation passed by the council of a municipality binding in the municipality on persons to whom it applies

“City” means the City of Cape Town, a Metropolitan Municipality Constituted in terms of the Local Government: Municipal Structures Act, 1998, read with the Province of the Western Cape: Provincial Notice 479/2000 dated 22 September 2000

“Council”

means the Council of the City of Cape Town, established by Provincial Notice 479 of 2000 issued in terms of section 12 of the Municipal Structures Act, 1998;

“Delegation” In relation to a duty, includes an instruction to perform the duty,

and “delegate” has a corresponding meaning.

“Executive Director” Means a person appointed by the Council to head a Directorate in the City and shall include any person acting in that position or to whom authority is delegated.

“Executive Mayor” Means the person elected in terms of section 55 of the Municipal Structures Act to be the Executive Mayor of the City and shall include any person acting in that position or to whom authority is delegated.

“Mayoral Committee”

Means the committee appointed by the Executive Mayor to assist the Executive Mayor in terms of Section 60 of the Municipal Structures act

“Sub-council”

Means a Council - an area in the metropolitan municipality- which is established in terms of the Municipal Structures Act

Abbreviations

AoD

City (CCT)

CHEC

DC

DTI

Acknowledgement of Debt

City of Cape Town Municipality

Cape Higher Education Consortium

Development Contribution

Department of Trade and Industry

EESP Economic, Environment and Spatial Planning

EGS

ICT

Draft Economic Growth Strategy

Information and Communications Technology

IDP

IPAP

PBDM

Integrated Development Plan

Industrial Policy Action Plan

Planning and Building Development Management

PGWC Provincial Government of the Western Cape

SEZ

SMME

Special Economic Zone

Small, Medium, Micro Enterprises

SCM Supply Chain Management

SDF

SIC

SSO

TRS

UNCTAD

WTO

Spatial Development Framework

Standard Industrial Classification

Sector Support Organisation

Transport, Roads and Storm water

United Nations Conference On Trade And Development

World Trade Organisation

1. PROBLEM STATEMENT

The Quarterly Labour Force Survey (QLFS, 2013) for the 1st quarter of 2013 reflects an official

unemployment rate of 25.2% for the country and an unemployment rate of 23.3% for the Western

Cape. These aggregate statistics mask a problem which is even more pronounced among the

country’s youth. Although the country shed large numbers of jobs during the global recession in

2009, employment, according the QLFS, has grown by 199,000 in the past year. Employment

growth, however, has simply not matched labour force growth to accommodate the (typically

young) individuals who enter the labour market with the expectation of finding decent work. This

gap between the expectation of work and the low probability of finding work, is potentially

destabilising for South Africa and the Western Cape, and is a contributing factor to a range of social

ills afflicting the City of Cape Town. In recognising these challenges the City has prioritised the

creation of sustainable and decent work opportunities.

Unemployment is not only concentrated among the youth but is also concentrated in certain spatial

areas within the City. Census 2011 data shows vast disparities in unemployment rates for different

regions within the City of Cape Town. These disparities are largely formed along arbitrary dividing

lines designated during the Apartheid era. Job creation is critical to uplifting these areas. While job

creation is central to the City’s developmental mandate, it is important to recognise that the City

cannot be the sole or even the main provider of employment opportunities. The Cape Town IDP

(2012:15) reflects that “only business can create the sustainable jobs that this city and our country

so desperately need”. In this respect, private sector investment is crucial. The IDP (2012:9) further

states that the City of Cape Town aims to “create an enabling environment to attract investment

that generates economic growth and job creation”. This policy document focuses on the use of

incentives to increase private sector job-creating investment, particularly in high unemployment

regions within the metro.

Mid-sized cities, like Cape Town, in developing countries are playing an increasingly central role as

drivers of growth in the global economy. Inter-city competition to attract investment and business

talent is expected to intensify alongside the rapid expansion of urban economic activity, a trend that

demands that Cape Town develops a consolidated position on the use of investment incentives.

With foreign direct investment1 in South Africa declining by more than 5% in 2012, while other

African countries such as Nigeria grew foreign direct investment by 20%, it is imperative that the City

has a well-informed strategy to promote confidence in the local economy (FDI Intelligence, 2013:12).

An investment incentives policy is an important component of a broader strategy to attract

investment in the City.

2. STRATEGIC FOCUS AREAS

1 Measured in number of new projects

This policy document aims to inform and guide the provision of incentives for job creating

investment within the city of Cape Town.

For any city administration, the question of how to design a comprehensive incentives strategy must

be located within both a global and local context. For the City of Cape Town, the local context

demands that the administration performs a careful balancing act: While incentives packages can

play a role in encouraging investment that is critical for driving economic growth and job creation,

the City must also be cognisant of the revenue implications of these programmes and how this

impacts on the administration’s capacity to address its other strategic policy priorities and service

delivery.

While research tends to indicate that incentives are rarely the most important factor in location

decisions by business, they do influence decision making and can play a “tipping point” role. Non-

financial incentives, particularly with respect to transparent and consistent administrative

procedures are often considered by investors to be more important than incentives with a direct

financial benefit. It is the role of the City to identify the best mix of both non-financial and financial

incentives.

Although there are a wide range of incentives offered by other spheres of government, most notably

the Department of Trade and Industry (DTI), the City of Cape Town desires to see these national

incentives complemented by a set of incentives that relate to the mandate of local government. The

context-specific investment incentive package detailed in this policy document is designed to

respond to investment-limiting challenges on the ground at a local level in the city. Utilising

investment incentives to create a more conducive environment for private sector investment will

position the city of Cape Town as a preferred investment destination both in South Africa and

globally.

3. BACKGROUND

3.1 Defining an Investment ‘Incentive’

An incentive is broadly understood to be a special intervention designed to change the behaviour of

economic actors or to influence their decisions in order to achieve specific outcomes. Defining an

‘investment incentive’ as compared to incentives more generally is complex and there is no standard

definition. The UNCTAD, however, define an investment incentive as “any measurable advantage

accorded to specific enterprises or categories of enterprises by or at the direction of government”

(Barbour, 2005:2). According to this definition, an across the board reduction in taxes or an

improvement in other investment related conditions for all investors, is not considered an incentive.

This is because incentives must be ‘specific’, namely they must be restricted to investors who meet

given criteria such as locating in a specific area or operating in a specific economic sector.

Investment incentives are often defined according to their typology or the nature of the outcome

they are trying to achieve. The following types of investment incentive are recognised: (Barbour,

2005:2)

• Direct financial incentives: Including grants; loans at low interest

• Indirect fiscal incentives: including tax rebates and tax holidays

• Other non-fiscal incentives: including regulatory and administrative concessions; and

subsidised or reduced service costs

3.2 Rationale for Incentives

Investment incentives are used as a tool by governments to boost investment and to stimulate

economic growth and employment creation within a particular region. Incentives are most

commonly and appropriately used to achieve pre-defined strategic objectives contained in strategy

or policy documents (such as an IDP). These objectives are specific and aim to induce investors to

“shift an investment decision towards a particular region, sector or project” (SAIIA, 2012:13). This

notion is elaborated by the economist Paul Barbour (2005:3) who describes incentives as biasing

“investors’ decision-making positively in favour of investments in certain sectors or regions”.

Local Governments use incentives to achieve an outcome which the market may not achieve on its

own. Market failure is regarded as the primary justification for the use of investment incentives by

local government. Barbour (2005) identifies examples of market failure which may be addressed by

incentives. These are listed below:

• Positive externalities: This refers to business’ inability to account for the broader social

impact of their investment, leading them to undervalue the return on their investment and

under-invest as a result. Positive Externalities are often observed with regard to Research

and Development spending where the social return is significantly higher than the private

return. Incentives would look to optimise the level of R&D spending by narrowing the gap

between the private return and social return.

• Infant Industry2: Barriers to entry and anticipated risk for new businesses may result in

under-investment in a sector or geographical locality. “Markets often fail to correct for the

gains that can accrue over time from declining unit costs and learning by doing” (Barbour,

2005:4). Incentives can be used to address this market failure by supporting businesses in

overcoming barriers to entry in the start-up phase. The assumption underpinning this

thinking is that once these barriers to entry are dealt with the market will self-correct.

• Information Asymmetries and Uncertainty: A lack of information regarding a particular

under-developed geographic area or emergent economic sector may result in under-

investment by raising the level of uncertainty and the expected risk of new investment for

businesses. Even though the net return on investment may be positive, in the face of poor

information, investors are risk-averse. In particular, companies may face ‘first-mover

disadvantage’ whereby the first company to invest takes on all the risk of investment in the

new area, while other companies benefit from improved information as a result of the first

business’ initial investment. Incentives may be used to overcome this first-mover

disadvantage and enable the subsequent creation of ‘agglomeration effects’ as other

companies take advantage of improved information availability.

Other reasons for investment incentives:

2 Any incentive aimed at support infant industries must be in accordance with the WTO’s stipulations

• Equity considerations: Investment incentives may not only be used to correct market

failure but also to address the inequitable distribution of the market and to reverse

historically engineered inequalities. Economically depressed areas get caught in a trap of

low existing private investment levels hindering future private investment. Incentives may

be used to break this circular pattern of underinvestment. Caution must apply to the use

of incentives in this way, as research has regularly shown that incentives in a weak

investment climate tend to be ineffective.

• International Competition: In an increasingly globalised world economy, wherein capital

can be shifted around relatively freely, local governments compete on a global scale for

private-sector investment. They may do this by providing competitive tax rates and service

charges. This has the potential danger, however, of resulting in a ‘race to the bottom’, as

local governments undercut one another to the extent that the marginal benefit is smaller

than the associated revenue loss.

• Signalling intent: Investment incentives may, in some instances, be more symbolic than

substantive and act as a signal to investors that an economy or local area is open for

business.

• Regulatory barriers to entry: Regulatory failure as much as market failure can be an

impediment to new investment. Some of the onerous application and registration

processes for new developments can act as barriers to entry for new investment in an area

or sector. Regulatory failure is often exacerbated in under-developed areas as the

administrative infrastructure can be similarly under-developed. While a Citywide reduction

in red-tape may be desirable in the long-run, regulatory fast-tracking or compliance

concessions that can be phased-in within specific priority geographic areas or sectors can

be effective incentives to attract investment in these areas.

The above reasons for providing investment incentives resonate with the City of Cape Town to

varying degrees. Generally, as outlined in the problem statement to this policy document, the City

desires to improve competitiveness in a bid to attract international investment. The City must be

mindful however, that incentives alone do not create competitiveness, and should be directed rather

at the removal (or counterbalancing) of blockages to investment and the harnessing of existing

investment potential. Certain marginalised areas within the metropolitan area have substantial

economic potential but are hindered by entrenched perceptions of risk; uncertainty; barriers to

entry; and ‘first mover disadvantage’. Investment incentives will be used by the City as a tool to

overcoming disincentives to otherwise viable investment. The proliferation of these disincentives in

previously disadvantaged areas implies that an investment incentives policy will help enable the City

to reduce income inequality. It will also send a strong signal to business that the City is serious

about fostering private sector investment and creating a healthy business climate in these areas.

3.3 A functional definition of Investment Incentives for the City of Cape Town

In order to transparently guide this investment incentives policy, it is imperative to provide a

functional definition of an investment incentive for the City of Cape Town.

Henceforth in this document an investment incentive will refer to:

A time-limited measurable advantage, aimed at the rectification of market or regulatory

failure, afforded to a business by the municipality either through administrative/regulatory;

financial or fiscal means for job-creating investment within a targeted geographic area and/or

industry.

There are two crucial elements of the above definition, namely, addressing market failure, and

targeting. Research by the World Bank (2010) has shown that incentives cannot compensate for a

poor investment environment. As such investment incentives should only be used to address

instances where market or regulatory failure discourages investors from investments which could

yield significant private and social returns. By addressing actual barriers to entry or disincentives to

investment, this would avoid the ‘free-rider’ problem associated with incentives when investors who

had already planned to invest in an area take advantage of the incentives on offer. Similarly,

effective targeting, by focusing on areas or sectors in which disincentives exist, will also ensure that

the municipality does not unnecessarily lose revenue as a result of free riding. Targeting is also

essential in tying investment incentives to the City’s broader spatial and sector development goals.

4 DESIRED OUTCOME

The Investment Incentives Policy aims to attract investment to Cape Town with a specific focus on

making it a preferred business destination. In particular, the City of Cape Town desires investment

that addresses the objectives and development challenges articulated in key documents such as the

Integrated Development Plan, the Spatial Development Framework and the draft Economic Growth

Strategy. At the forefront of these objectives, and in alignment with the National Development Plan

and New Growth Path for the country, is the creation of sustainable employment opportunities.

The Investment Incentives Policy will assist and guide the City in managing incentive related

activities in an efficient and effective manner so that the desired outcomes can be achieved. The

purpose of the investment incentives policy is not to develop a package of subsidies to support

unsustainable business models but rather to encourage investment that meets the City’s vision and

objectives. Furthermore, the investment incentives policy will assist in the targeting of desirable

investment in particular spatial locations that require intervention.

5 ALIGNMENT WITH IDP PRINCIPLES AND OBJECTIVES

The strategic focus areas of the City are enshrined in the City’s Integrated Development Plan (IDP)

and are categorised into five pillars: These five pillars are namely the Opportunity City, the Well-run

city, the Safe City, the Caring City and the Inclusive City.

Although incentives can have an impact on all five pillars, this policy focussed mostly on the

Opportunity City and the Inclusive City.

The underlying principle of the Opportunity City in relation to investment incentives is the attraction

of business investment that creates sustainable employment, contributes to the development of key

sectors and catalyses development in important spatial nodes. In the long term the right kind of

investment will create the platform for a sustainable growth path for the City of Cape Town.

The underlying principle of the Inclusive City is to ensure accessibility for Cape Town’s residents to

employment and business opportunities. This includes direct employment created by firms investing

in the City but also in terms of indirect employment within local firms supplying goods and services

to new investment.

6 PURPOSE OF POLICY DOCUMENT

The purpose of this Investment Incentives Policy document is to:

• Define the range of non-financial incentives available

• Define the range of financial incentives available

• Establish criteria concerning the spatial and sectoral targeting of the incentives so as to

ensure the City’s broader goals are achieved.

• Provide a schedule of incentives available to eligible investors describing the scope of the financial and non-financial incentives offered by the City of Cape Town, as well as the processes to be followed when applying for the incentives.

7 SCOPE OF APPLICATION

The City’s Investment Incentives Policy applies to incentives aimed at job creating investment,

offered by the City of Cape Town within the remit of its constitutional mandate and within the City’s

jurisdictional area.

8 REGULATORY CONTEXT

The policy is developed and guided by the following legislation and regulations:

• The Constitution of the Republic of South Africa :Act 108, 1995, section 156 (1) (a), read with

Part B of Schedule 4

• Municipal Finance Management Act (MFMA) Act No 56 of 2003 and related regulations

• Municipal Property Rates Act (MPRA) Act No 6 of 2004

• City of Cape Town System of Delegations

• City of Cape Town Integrated Development Plan

• City of Cape Town draft Economic Growth Strategy

• City of Cape Spatial Development Plan

• Provincial and National Built Environment Legislation

• Draft National Policy Framework for Municipal Development Charges

9 EXISTING INVESTMENT ENABLING ENVIRONMENT

Attracting job-creating investment to the City of Cape Town necessitates the development of a

comprehensive and multi-faceted investment attraction and promotion strategy. Investment

incentives are only one component of such a strategy. Crucial to the success of any investment

incentives policy, is the need to foster a conducive environment for investment. Incentives are

never a suitable substitute for physical infrastructure provision, access to consumer or labour

markets, or good governance. However a strong investment/business environment incorporating

these factors is a critical enabling factor for a successful package of incentives. The creation of an

enabling environment for investment is a key focus of the City of Cape Town.

The City of Cape Town as an investment destination benefits from excellent infrastructure, including:

South Africa’s second largest container Port; an international airport; a comprehensive road and rail

network and rapidly expanding broad band infrastructure. These factors among others (i.e. the

strength of the business community; skilled labour etc.) are determinants of the locational

attractiveness of the City for investors. In addition to these locational factors, investors in the City

can benefit from a number of existing national and City of Cape Town incentives which aim to

further enhance the attractiveness of the City and, in some instances, to correct for market or

regulatory failure. These existing investment enabling factors are identified below:

9.1 National Investment Enabling Factors

The Department of Trade and Industry offer a number of investment incentives in a range of sectors.

The relevant incentives for investment attraction or expansion, offered by the DTI are listed below:

• AIS (Automotive Incentive Scheme)

• BBSDP (Black Business Supplier Development Programme)

• BPS (Business Process Services Incentive Programme

• CTCIP (Clothing and Textile Competitiveness Improvement Programme)

• Co-operative Incentive Scheme

• EIP (Enterprise Investment Programme)

• FIG (Foreign Investment Grant)

• Film and Television Incentive

• Foreign Film and Television Production and Post-Production Incentive

• MCEP (Manufacturing Competitiveness Enhancement Programme)

• MIP (Manufacturing Incentive Programme)

• PI (Production Incentive)

• CPFP (Capital Project Feasibility Programme)

• ISP (incubation Support Programme)

• SPII (Support Programme for Industrial Innovation)

• Tax Allowance Incentive for Greenfield and Brownfield Investments

National Treasury

• Urban Development Zones (UDZs)

Special Economic Zones Bill

The draft SEZ policy defines an SEZ as “a geographically designated area/s of a country, set aside for

specifically targeted economic activities which are supported through special arrangements which

may include laws and often support systems that are different to those applied in the rest of the

country.” (DTI, 2011) An SEZ Bill was recently introduced to the National Assembly by the Minister

of Trade and Industry. This Bill essentially seeks to regulate the designation, development,

promotion, operation and management of Special Economic Zones (DTI, 2013). The Bill includes

provision for regulatory measures and tax and business incentives to attract investment.

Atlantis has been proposed by the City of Cape Town in conjunction with Western Cape Provincial

Government as the location of a Green Technology Park SEZ. The outcome of this proposal is

dependent on the findings of a pre-feasibility study to be conducted by the DTI. While the material

extent of incentives offered by SEZs has yet to be finalised by the DTI, the establishment of Atlantis

as an SEZ would expand the scope of incentives that could be offered to businesses and have

profound implications for the attraction of investors to the area.

9.2 Municipal Investment Enabling Factors

The City utilises a number of area-based management tools aimed at improving the business

environment of specific areas. These include:

• City Improvement Districts (CIDs): Usually takes the form of the provision of

supplementary and complementary services provided by a non-profit organisation

operating within a defined geographic area. CIDs are created by local business owners to

provide “top-up” cleaning and security services.

• Mayoral Urban Renewal Programme (MURPS) – this programme aims to uplift areas

that have been identified as neglected and dysfunctional through the maintenance of

public infrastructure and facilities in order to stabilise areas and provide a platform for

more effective public and private investment.

• Area Co-ordinating Teams (ACTs) – are a mechanism to enhance consultation

between the CCT and its citizens. ACTs are a platform for politicians, officials and

communities to debate and reach consensus on issues relating to planning, housing,

healthcare and infrastructure.

• Urban Development Zones (UDZs) – The UDZ is a tax incentive administered by

National Treasury that aims to address urban decay in South Africa's inner cities by

promoting private sector-led investment in commercial and residential developments.

• Provincial Strategic Objective 1: Creating opportunities for growth and jobs –

Although this a provincial objective, the CCT strongly subscribes to the “red tape to a red

carpet” approach to enhancing the business environment that it advocates.

• Sector Support Organisations – the CCT provides grant funding support to a number

of sector support organisations including Wesgro. These organisations undertake a number

of support and advocacy activities aimed at the development of a particular sector.

10 POLICY DIRECTIVE DETAILS

In order to promote effective management of incentives in the City of Cape Town

Municipality the following policy directive details will apply.

10.1 General Principles

The following principles have been applied to the development of the incentive packages described

in Annexure 2.

Principle 1: Employment Creation

The investment incentives must be tied to the attainment of the City’s developmental goals of which

job creation is foremost. The goal of incentive provision is not to simply enhance business profit

margins with little or no broader socio-economic impact. Rather, investment incentives must be

used to support and enhance job-creating private sector investment. In this respect a business’

eligibility for incentives should be conditional upon the creation of a prescribed number of jobs.

Principle 2: Affordability

The incentives package must not place undue pressure on the City’s Finances such that the City is

not able to meet its service delivery targets. In this respect, the City should not sell services below

cost to business. Where possible, high impact but low cost ‘soft incentives’ such as expedited

approval times; and increased administrative efficiency in the dealing with applications, should be

targeted. Financial incentives should be prudent and aim at removing a barrier to entry or counter-

balancing a locational disincentive as opposed to simply subsidising businesses. The impact of

financial incentives should be carefully modelled and limits on financial incentives should be

implemented where deemed necessary.

Principle 3: Transparency and Uniformity

The incentives should be non-discriminatory in terms of WTO regulations, and should be applied

with uniformity and transparency. As such the granting of investment incentives should be done

according to a set of predetermined criteria. This set of criteria will be consistently and, without

prejudice, applied to all businesses applying for incentives. Information on the nature of the granted

incentives should be public knowledge.

Principle 4: Sectorally Targeted

The investment incentives policy should support the development of the City’s prioritised,

comparative advantage sectors. International research on investment incentives has shown that

incentive packages work best when they are strategically targeted to enhance competitiveness

through agglomeration and clustering. Effective industry agglomeration can greatly enhance the

attractiveness of a location for investors. As a result, the City’s investment incentives policy should

be supportive of industries in which Sector Support

Organisations (SSOs) operate and those prioritised in the City’s Integrated Development Plan (IDP);

the Global Competitiveness Study and the draft Economic Growth Strategy (EGS). While these

sectors may receive prioritisation, (as provided for in transparent incentives criteria) investment in

other industries/sectors may also be considered according to the criteria detailed below.

Guiding criteria for incentives provision: The investment must enhance the City’s value-added

productive capacity – this is to say that the eligible investments should be in the manufacturing

sector.

Research (SAIIA, 2012:12) on investment incentives has found that incentives are most effective

when targeted at efficiency-seeking (manufacturing) investment as opposed to market-seeking

(retail) or resource-seeking (mining; agricultural) investment. The focus, in the main, on the

manufacturing sector is in alignment with the goal of the Industrial Policy Action Plan 2013-2016 of

“preventing industrial decline and supporting the growth and diversification of South Africa’s

manufacturing sector”. It is also consistent with the focus of the Special Economic Zones

Programme on the manufacturing sector.

Principle 5: Spatially Targeted

International best practice has found that investment incentives are most effective when they are

spatially targeted. This is for the following reasons:

• Spatial targeting ensures that incentive provision, by having defined parameters is

affordable for the City (refer to Principle 1)

• Spatial targeting reduces the occurrence of ‘free-riding’ by excluding areas with strong

existing investment flows and with minimal impediments to new investment

• Spatial targeting can assist in removing area-specific blockages to investment or systemic

market or regulatory failure

• Spatial targeting enables the City to achieve its development objectives in specific areas

thereby addressing issues of spatial inequality

Guiding criteria: Investment incentives should be provided in areas where there is significant

potential for job-creating investment but where impediments to investment currently exist.

Areas will be selected based on a process currently being undertaken in which over 70 business and

industrial nodes across the city are tracked by systematically assessing their current performance

and long-term growth potential.

Principle 6: Simplicity

Ascertaining whether a business is eligible for an incentive and subsequently obtaining an incentive

should not be an onerous task for investors. The criteria for incentive provision should be easy to

understand. Deadweight loss as a result of administrative complexity needs to be minimised. The

structure and administration of the investment incentives should not require excessive

administration, thereby minimizing staff and financial impacts. This will also ensure quick turnaround

times for applications (urgency and speed is essential to attract and retain investment).

Principle 7: Legality

The incentives that are provided must be subject to the relevant legislation and planning

parameters. Incentives cannot be in conflict with national legislation nor should they be provided to

companies which are not in compliance with the law. The investment incentives policy must also be

in line with national and provincial planning guidelines.

Principle 8: Complementarity and alignment

Both national and provincial government currently provide various programmes and packages that

incentivise investment and job creation. Incentives offered by the City should align with these in

order to enhance their impact. Furthermore, the City’s incentive should directly reflect is mandate

as a separate and independent sphere of government i.e. it should relate to incentives that the City

can uniquely provide.

Principle 9: Continuous Review

In order to stay competitive in a global economy that is constantly changing, this policy should be

reviewed regularly. There are two pertinent reasons which underpin the need for continuous

review. The first reason for continuous review is that the needs of investors are dynamic and

respond to changes in the global economy. A shift in production techniques may result in a particular

incentive no longer being an effective factor in influencing the decision of where to locate. To stay

responsive to the dynamic nature of investment, it is essential that the investment incentives policy

be regularly reviewed. The second reason for continuous review is that the true impact of the

incentives on investment decisions will only be apparent when the investment incentives policy is

implemented. As such it may be necessary to make adjustments to the original policy specification

in light of lens learnt post implementation.

Any additional investment incentives that the City will offer investors outside those proposed in this

policy will be required to conform to the above principles.

10.2 Incentives Design

The previous section outlined the general principles guiding the formulation of incentives. While

these general principles speak to the scope of incentives; administration of incentives; and the type

of criteria which should be applied to the incentives, they are not specific to the design of the

incentives.

Best Practice Design Elements

Drawing on international best practice, there are a number of design elements which are considered

to characterise efficient and effective investment incentives3:

• Provides a degree of predictability and certainty: While continuous review is necessary,

incremental rather than wholesale adjustments should be made to the incentives schedule.

A degree of continuity is important for investor confidence.

• Should be upfront and target start-up impediments to investment

• Includes limits on expenditure or taxes foregone to the fiscus

• “Incorporates sunset clauses for both the scheme itself and for the duration of benefits to

any one firm” (Barbour, 2005:9)

• Incorporates claw-back causes if pre-established targets are not met

• Must be ‘on-budget’: the fiscal impact of the incentives must be modelled, and

accommodated for in the City’s budget

10.3 The Incentives Package

Details of the incentives offered by the City of Cape Town to investors can be found in Annexure 2.

For the purposes of brevity, the type of instruments and not the specifics of each instrument are

described below. The incentives have been categorised according to whether there is a financial

implication for the City or not.

Non-Financial

• One stop investment shop

• Fast tracking of development applications

• Investment facilitation officers

• Targeted marketing and promotion

• Facilitation with DTI to obtain relevant incentives

• Provision of spatial economic information

• Skills development assistance

• Access to sector support organisations

3 Modified from Barbour, 2005, An Assessment of South Africa’s Investment Incentive Regime with a Focus on

the Manufacturing Sector

Financial

• Reduced building plan application costs

• Reduced land use management application cost

• Rebates on Development Contribution

• Rebates on property tax

• Reduction in service charges

It should be noted that the financial incentives contained in Annexure 2 are indicative and are

subject to further engagement with Corporate Finance and other affected Directorates. In

particular, the provision of financial incentives will be conditional on the outcomes of a revenue

impact modelling exercise.

11 IMPLEMENTATION, EVALUATION AND REVIEW

This policy framework provides the administrative procedure for the management of investment

incentives offered by the City of Cape Town. To this end the following shall apply:

• The Investment Incentives Policy shall be implemented once approved by Council

• The individual incentive will be implemented by the appropriate line department as indicated in

Annexure 2 and will be co-ordinated by the Economic Development Department’s Economic

Development Facilitation unit in consultation with the Investment Facilitator located in the

Mayor’s office.

• Incentives will not be automatically applied to new development, but will be the result of an

application process. Prospective investors will be advised by the Economic Development

Facilitation unit with respect to the application procedure.

• Monitoring and evaluation will be performed by the Economic Development Department’s

Economic Information and Research unit.

• Directorates are to advise the Economic Development Department: Economic

Information and Research Unit of challenges with respect to implementation of the policy

• An implementation procedure will be developed for approval by the City Manager that will

address inter alia:

• The application process and system (including forms)

• Roles and responsibilities of decision makers

• The recording system

• The progress tracking the auditing system Monitoring and evaluation. • Any amendments to this policy must be re-submitted to Council for review and approval after

the necessary public participation process.

• This policy should be reviewed and updated within two years of being approved by council.

12 REFERENCES

• Barbour. P, 2005, An Assessment of South Africa’s Investment Incentive Regime with a

Focus on the Manufacturing Sector in ESAU Working Paper 14

• City of Cape Town, 2012, 5 Year Integrated Development Plan (IDP): 2012-2017

• FDI Intelligence, 2013, The FDI Report 2013: Global Greenfield Investments

• James. S, 2010, Providing Incentives for Investment: Advice for policymakers in developing

countries in Investment Climate in Practice No.7, January 2010

• Minister of Trade and Industry, 2013, Special Economic Zones Bill in in Government Gazette

No. 36203 of 1 March 2013

• National Treasury: Intergovernmental Relations, 2013, Policy Framework for Municipal

Development Charges: Final Draft, Version 7

• The Department of Trade and Industry, 2013, Industrial Action Plan 2013/14 -2015/16

• Wentworth. L, 2012, South Africa’s Investment Landscape: Mapping Economic

Incentives in SAIIA Occasional Paper No.105

ANNEXURES

Annexure 1 – Qualifying Criteria for Investors

Annexure 2 – Schedule of Investment Incentives

MICHELLE JOJA - 17373042 39

ANNEXURE 1 - QUALIFYING CRITERIA FOR INVESTORS

There are four qualifying criteria determining the investor’s eligibility for incentives that are progressively applied. These criteria are detailed in the table below.

Qualifying Criteria

1. General Criteria

The investment must constitute a new ‘external’4 investment or the expansion of an existing investment in the area, and

cannot simply be a relocation of businesses already based in the City.

2. Spatially targeted Investment incentives will only be available to businesses investing in pre-determined qualifying spatial localities.

The targeting of specific areas is essential to reduce the occurrence of ‘free-riding’ which might undermine the affordability of

the incentives scheme, as well as to ensure that the City’s development objectives are met.

Areas will be selected based on a process currently being undertaken in which over 70 business and industrial nodes across the city are tracked by systematically assessing their current performance and long-term growth potential. The number of incentive applicants allowable or the extent of the time period for which applications will be accepted will vary

according to the specific spatial characteristics of the identified business or industrial nodes. Location specific limits on the

number of businesses which can obtain the investment incentives will ensure that the City can manage the fiscal cost of

incentive provision while responding to the different development objectives the City has for different areas.

4 I.e. Constitutes a new investment in the City

MICHELLE JOJA - 17373042 40

3. Sectorally Targeted The investment must be in a sector which enhances the value-added production5 capacity of the city of Cape Town. The

proposed investment (except where otherwise stated in the priority sector list) should be located in the manufacturing sector. All investments in the manufacturing sector, subject to meeting the relevant criteria, are eligible for incentives. However a

number of sectors are prioritised by the City in alignment with the City’s strategic economic development objectives. These

priority sectors are derived from the City’s IDP and draft Economic Growth Strategy (EGS) and are in alignment with the

Industrial Policy Action Plan 2013-2016. The incentives will be structured accordingly around this prioritisation.

The following sectors will be eligible for investment incentives

Broad Manufacturing Sector (SIC 3)

Priority Sectors: Oil and Gas Processing (SIC 412; 2212; 332) Boat Building (SIC 384) Business Process Outsourcing ICT (SIC 752; 86) Creative industries (SIC 326; 961) Agro-processing (SIC 30) Green technology (SIC 36; 395; 411) Medical technology and pharmaceuticals (SIC 374; 3353) Finance and Insurance (SIC 81; 82; 83)

4.

Employment Creation The investment must create new and sustainable full time employment in the pre-identified areas to be eligible for the incentives package. In order to most effectively achieve the City’s development objectives, the employment criteria are lower for investments in the specific priority sectors. This is elaborated on below

5 Value-added production: the processing of raw or transformed input materials such that the value of that input is enhanced – typically manufacturing

MICHELLE JOJA - 17373042 41

Group A Sector/Industry: Broad manufacturing sector (other than those identified as priority sectors) Employment Criteria: Large investments resulting in more

than 50 people being permanently employed after 24

months.

Group B Sector/Industry: Priority productive sectors

• Oil and Gas Processing • Boat Building • Business Process Outsourcing • ICT • Creative industries • Agro-processing • Green technology • Medical technology and pharmaceuticals • Finance and Insurance

Employment criteria: Large investments resulting in more than 50 people being permanently employed after 24 months.

75% of the jobs created in each of the categories must be occupied by South African citizens. The onus is on the

Investor to provide auditable and verifiable evidence as may be specified by the City Manager from time to time.

MICHELLE JOJA - 17373042 42

ANNEXURE 2 - SCHEDULE OF INVESTMENT INCENTIVES

Category Description Actions and responsibilities

EXISTING INVESTMENT INCENTIVES

MICHELLE JOJA - 17373042 43

National Investment Incentives (not

subject to foregoing qualifying criteria) The Department of Trade and Industry offer a range of incentives for new investors and businesses looking to expand.

• AIS (Automotive Incentive Scheme) • BBSDP (Black Business Supplier Development

Programme) • BPS (Business Process Services Incentive Programme • CTCIP (Clothing and Textile Competitiveness

Improvement Programme) • Co-operative Incentive Scheme • EIP (Enterprise Investment Programme) • FIG (Foreign Investment Grant) • Film and Television Incentive • Foreign Film and Television Production and Post-

Production Incentive • MCEP (Manufacturing Competitiveness Enhancement

Programme) • MIP (Manufacturing Incentive Programme) • PI (Production Incentive) • CPFP (Capital Project Feasibility Programme) • ISP (incubation Support Programme) • SPII (Support Programme for Industrial Innovation) • Tax Allowance Incentive for Greenfield and

Brownfield Investments

• The proposed designation of Atlantis as a Special

Economic Zone (in terms of the SEZ Bill produced by

the DTI), would greatly enhance

• Agency service to facilitate the access to relevant

national incentives for eligible investments (Economic Development

Facilitation Unit) • Develop a comprehensive investment incentives

guidebook for the City of Cape Town (Economic

Information and Research Unit) • Lobby national (DTI) and provincial government to

establish a Special Economic Zone in Atlantis (Wesgro/Economic Development Facilitation Unit)

MICHELLE JOJA - 17373042 44

The ability of the City to attract investors to the area. National Treasury also offer the Urban Development Zones

(UDZ) incentive

Sector-Targeted Financial Grants The City funds Sector Support Organisations that provide support in the following areas: • Trade and investment • Marketing and promotion • Business process outsourcing • Information technology • Craft and design • Clothing and textiles • Fashion design • Oil and gas • Furniture

Align SSO functions with new investment incentives policy (Economic Development Facilitation Unit) Facilitate access for new investors to programmes run by the SSOs (Economic Development Facilitation Unit)

PROPOSED INCENTIVE SCHEME (The following incentives are only offered to eligible businesses in terms of the foregoing eligibility criteria)

Non-financial measures

Single-point investment facilitation Applies automatically

• Facilitation with DTI to obtain relevant incentive

packages • Investment One Stop Shop for development

applications. This will take the form of a vertically integrated office consolidating national and local application and registration processes.

• Access to a dedicated investment facilitation officer

to walk the investor through the various

administrative processes

Provide single point of entry to potential investors (Investment Facilitator in the Mayor’s Office) Facilitate the access to relevant national incentives for eligible investments (Economic Development

Facilitation Unit) Facilitation of access to the various incentives offered

by the CCT (Economic Development Facilitation

Unit)

MICHELLE JOJA - 17373042 45

Development Application Fast-

tracking Applies to all land use and building applications by eligible companies in pre-identified areas (only for complete submissions) Timeframe commitment as follows:

Review and adjustment of relevant processes to reflect timeframe commitments (PBDM )

• Land use application - 3 months • Building plan decisions- 2-5 days

Regularly updated spatial economic

information Applies automatically

• Eligible investors will receive regular reports on the

socio-economic and business environment in which they have located

• Eligible investors within priority sectors will be

provided with regularly updated market intelligence

reports

Annual fact sheets outlining socio-economic

conditions and state of the business environment in

pre-determined qualifying spatial localities

(Economic Information and Research Unit)

Bio-diversity offsets Applicable where environmental impact authorisation for

new development in pre-identified area requires biodiversity

conservation. The City of Cape Town is holding land for

nature reserve purposes which may offset these impacts. To

be evaluated on a case by case approach within different

localities.

Development of a set procedure by which developer

can ‘apply’ to benefit from off-set land. Develop a recoding mechanism. (ERM)

Skills development Applies automatically • The City will use its partnerships with tertiary

institutions (CHEC) to assist in matching business’

demand for relevant labour force skills with the

supply of skills (through the provision of relevant

courses and qualifications at tertiary institutions). • Through the SSOs the City will fund industry specific

training and skills development courses

Facilitate the access to relevant skills bodies and

support organisations for eligible investments

(Economic Development Facilitation Unit)

MICHELLE JOJA - 17373042 46

Financial Incentives

Application Fees Automatic full exemption for both land use and building plan

application fees, only in areas designated by Council. Report to council to approve revised (exempted) tariffs

(PBDM)

Development Contribution Upon application, only in areas designated by Council.

Applies in respect of both civil and electrical DCs where

enhanced development rights granted

100% DC debt write off up to a limit of R1 million conditional upon job target being achieved after 24 months. The DC debt will still be calculated and Acknowledgment of Debt (AoD) signed as per normal; AoD only becomes payable 24 months after payment would normally have been required (i.e. instead of normal immediate payment), unless job creation target achievement proved by beneficiary company, in which case 100% debt write-off up to R1 million. This effectively amounts to either deferred debt payment (at worst), or it may translate into full debt write-off against budgetary provision (at best). Incentive only valid for 24 months from date of application

approval.

The incentive will only be available for a specified number of

applicants on a ‘first come first serve’ and a ‘use it or lose’ it

basis.

DC exemptions subject to National Treasury guidelines as outlined in the Policy Framework for Municipal Development Charges 2013

Estimate incentive take-up (Utilities/TRS) Separate

report to Council to amend current DC policy to

accommodate Atlantis pilot (Utilities/TRS) Model

revenue impact & make budgetary provision (Utilities/TRS)

Create budgetary mechanism for realisation of revenue foregone (i.e. debt write-off) (Finance)

Establish application procedure, recording system & audit mechanism (Economic Development Facilitation Unit/Economic Information and Research Unit/Finance)

MICHELLE JOJA - 17373042 47

Property tax rebate Upon application, only in areas designated by Council.

Create procedure and necessary budgetary mechanism

for rates rebate (Finance)

Rebates apply to developed property only, as follows:

Year 1 = 100%

Year 2 = 66%

Year 3 = 33%

Year 4 = no rebate

Rebate repayable at the end of Year 2 and the end of Year 3,

unless achievement of the job creation target is proved by the

beneficiary company (thus amounting to either rebate at best

or deferred payment at worst)

Electricity tariff subsidy

Upon application, only in areas designated by Council.

Time of Use tariff to be increased at a discounted rate, subject

to NERSA approval and annual inclusion into Council’s Tariff

book, from year of application for a period of two years.

To be reviewed annually

Obtain NERSA approval (Utilities)

MICHELLE JOJA - 17373042 48

Counter performance criteria and

proviso’s • No development within 12 months, or incompletion of

the development within 24 months will result in the

incentives becoming obsolete. • The stipulated job targets should be reached not later

than the second year of operation, failure of which will result in all incentives becoming obsolete and deferred payments becoming payable

• The investment must be consistent with the provisions of the District Spatial Development Framework as

approved by Council • The applicant and all business associated with it, must

be in good standing with the Council and SARS, and will be required to produce a tax clearance certificate in order to apply for incentives

• The premises out of which the business will be (is)

operating must be in compliance with the National Building Regulations and Standards Act

• The investment must comply with the applicable

environmental, labour and heritage legislation. All financial incentives are subject to the council budgeting processes as prescribed by National Treasury.

49

CITY OF CAPE TOWN

OPERATIONAL FRAMEWORK FOR THE

ADMINISTRATION OF INVESTMENT INCENTIVES

OCTOBER 2013

Annexure 2

50

Contents

Abbreviations 50

1. Introduction 51

2. The incentives packages 51

3. Qualifying and counter-performance criteria 52

4. Taking up the incentives 53

5. Administrative process 53

Annexure A – Atlantis investment incentives 57

Annexure B – City wide investment incentives 59

Annexure C – Atlantis investment incentives area of application 61

Annexure D – Incentive information form 62

Annexure E – Standard acknowledgement of debt and suretyship agreements Error! Bookmark

not defined.

Abbreviations

AoD Acknowledgement of Debt

CCT City of Cape Town

DC Development contribution / charge

ED Economic Development Department

EESP Economic, Environmental & Spatial Planning Directorate

ERM Environmental Resource Management Department

ICT Information & communication technology

NBR National Building Regulations

PBDM Planning & Building Development Management Department

SARS South African Revenue Services

SIC Standard industry code

TCT Transport for Cape Town

51

Introduction

The City of Cape Town at an Economic Growth and Infrastructure cluster meeting held on the 14th

March 2013 resolved to develop a set of investment incentives for the City. These incentives would

consist of a city-wide policy targeting the entire metropolitan area, as well as a first pilot area

targeting Atlantis industrial area as a start. A report containing a package of incentives for the

Atlantis pilot scheme served before Council on the 29th May 2013 and was approved. Council further

approved the general Investment Incentive policy for the City as a whole on the 28th of August 2013.

This document provides an operational framework for the implementation of these two sets of

investment incentives. It gives an overview of the respective incentives available and their eligibility

criteria, highlights the administrative process and identifies further arrangements that need to be

put in place to ensure implementation of the incentives scheme takes place in a coordinated fashion.

The incentives packages

In the Atlantis industrial area (see Annexure C), the following incentives are offered:

Non-financial measures

Dedicated investment facilitation support

Development application fast-tracking

Biodiversity offsets

Financial measures

Development application fee exemption

Development contribution deferral / debt write off (capped to a maximum of R1m per investment)

Electricity tariff subsidy

A more detailed description as well as an outline of each of the qualifying criteria can be found in

Annexure A.

In the rest of the city, the following incentives are offered in the broad manufacturing and specified

priority sectors:

Non-financial measures

Single-point investment facilitation

Development application fast-tracking

Regularly updated spatial economic information

Skills development facilitation

Financial measures (only in designated spatial areas)

Development application fee exemption

52

Development contribution deferral / debt write off (capped to a maximum of R1m per investment)

Electricity tariff reduction

Broadband connection fee waiver

A more detailed description of each of these incentives as well as an outline of the qualifying criteria

can be found in Annexure B.

Qualifying and counter-performance criteria

In the Atlantis industrial area (see Annexure C), the following criteria need to be met in order to

qualify for the incentives:

Proposed investment must be located within the Atlantis Industrial area

Proposed investment must create at least 50 new permanent full time jobs within two years to qualify for the DC debt deferral/write off

In the rest of the City, the following criteria need to be met in order to qualify for the incentives:

Proposed investment must be in one of the following sectors:

Broad manufacturing sector (sic 3) OR

Priority sectors: Oil and gas processing (sic 412, 2212, 332) Boat building (sic 384) Business process outsourcing ICT (sic 752, 86) Creative industries (sic 326, 961) Agro-processing (sic 30) Green technology (sic 36, 395, 411) Medical technology and pharmaceuticals (sic 374, 3353)

Finance and insurance (sic 81, 82, 83)

Proposed investment to be located in designated spatial areas (to be determined by Council) qualifies for both financial and non-financial incentives

Proposed investments outside such designated spatial areas qualifies only for non-financial incentives

Proposed investments in the broad manufacturing sector need to create a minimum of 50 new permanent full time jobs within two years, or 30 jobs in any of the other priority sectors, as the case may be

In addition to the above, the following criteria also apply, irrespective of where it is located:

The proposed investment must be a new external investment or expansion of existing facilities

At least 75% of the jobs created must be occupied by South African citizens

The premises from which the business is operated must be in possession of an occupation certificate in terms of the NBR issued by the City

53

The owner (investor) must be in good standing with SARS and Council (in respect of its rates and services accounts)

Taking up the incentives

Written confirmation of taking up the incentive is only required in respect of the development

contribution (DC) debt deferral incentive. The other incentives are available automatically upon

qualification. For the DC debt deferral incentive the information form attached as Annexure D must

be completed. Assisting with on-going monitoring and support, this form will provide basic

information about the investor and the intended investment, including:

Investor (developer)’s contact details

An overview of the proposed investment (development)

Location of proposed activities

Description of the proposed activities

Scale of the proposed activities

Number of jobs that will be created

Timeframes for the rollout of the proposed investment (development)

Notwithstanding completion of this form and recording / tracking by the ED department, the existing

record systems of TCT and the Utility and Finance departments will continue insofar as DC and

revenue / debt administration in concerned.

Administrative process

The administrative process for and roles and responsibilities in administering the incentive schemes

are as follows (also see the process illustrated diagrammatically overleaf):

Initial screening meeting

To start off proceedings, an initial meeting will be held between the potential investor / interested

parties and an ED Department official (and the Atlantis programme manager in the case of the

Atlantis pilot area) where the following will be explained:

incentives available,

qualifying and counter-performance criteria,

what information is required,

where the DC debt deferral incentive is contemplated, the nature and contents of the acknowledgement of debt and suretyship agreement that the investor will be required to sign upon taking up the incentive, and

the administrative process and timeframes going forward.

The purpose of this meeting is to clarify the scheme and its details in order to ensure realistic

expectations. Once it has been established an investment would qualify for incentives and the

specific incentives qualified for, the investor will be advised accordingly. In the case of DC

54

incentives, the investor (developer) will complete an information form with the assistance of the ED

Department official, who will keep record thereof. In addition to TCT / Utilities directorate and

Finance department, DC incentives taken up are also recorded and tracked by the ED Department

who keeps a register for this purpose.

Acknowledgement of debt (AoD)

Where the DC incentive is accessed, the debt obligation will be calculated by the TCT / Utility

directorate officials as part of the normal development application process and an AoD signed by the

investor prior to decision on the related application as per normal practice. The varied standard AoD

and suretyship template attached as Annexure E to this document will be used for such purpose. In

addition to keeping own records (for budgeting purposes), the relevant TCT / Utility official will upon

signature forward a copy of the signed AoD to the corporate Finance directorate (i.e. Nobomi Kibido,

Head: Debtors Contact Centre, Revenue department) for debt record purposes. The relevant TCT /

Utility official will further also ensure the infrastructure funding shortfall as a result of the revenue

foregone enters the budget process and is provided for at the next annual or adjustment review.

Depending on the nature of the development (investment) and how conditions of approval were

structured, complied with and cleared, DC debt could become payable either as a once of

occurrence (e.g. after a single phase development upon rezoning) or in larger more complex cases

(e.g. phased development upon subdivision), at multiple stages throughout the project. Whichever

the case and whether phased or not, the deferral period is considered 24 months from the date of

payment of the non-deferred portion (or first part thereof) of the DC debt. Accordingly, the

relevant TCT / Utility official must advise the Revenue department (i.e. Nobomi Kibido, Head:

Debtors Contact Centre) when such first payment of the non-deferred DC debt occurs. Upon receipt

of such notice, the Revenue department would record the R1m (or lesser amount as may be the

case) as deferred debt in the accounting system with an activation (or call-up) date of 24 months

hence. As is the normal practice with outstanding DCs payable, a block will be put on the system by

Finance to prevent transfer without settlement of such deferred debt.

Debt collection or write-off

Sixty days prior to expiration of the 24 month deferral period, the Revenue department will write to

the investor (developer) and demand either payment of the deferred debt by end of the 24 month

deferral period or submission of original certification (in the format of the preformed template

attached to the AoD) by an independent chartered accountant that the employment targets have

been reached and the relevant performance criteria complied with. Where such certification is

accepted, the deferred debt is then written off by the Revenue department and the business

partners’ account reflected accordingly. Where not accepted or no certification is submitted, the

deferred debt is handed over by the Revenue Department for collection according to normal

practice and Council policy.

Asset ownership change prior to incentive realisation date

55

Should an investor (developer) having taken up the DC debt incentive and signed the applicable AoD

wish to sell on a development to another investor or end-user prior to expiration of the 24 month

deferral period, such investor will be required to either settle the deferred debt immediately, or

alternatively a fresh AoD with the new would-be owner need to be signed and in place before

transfer clearance can be granted.

Other parties responsible for implementation of certain aspects

Other departments responsible for implementation of specific policy aspects related to individual

incentives include:

ED Department – Facilitation of investment incentives through City structures, facilitation of skills development, economic information etc.

PBDM Department – Development application fee waiver and application fast tracking

ERM Department – Managing biodiversity offsets

TCT Directorate – Calculating development charges and budgeting for revenue loss

Utilities Services Directorate – Calculating development charges, electricity tariff discount and budgeting for revenue loss

56

24 months later

YES

NO

Initial screening

meeting with

investor (developer)

Meets

criteria?

Complete

information form

Developer (investor)

signs AoD

ED dept & investor

ED dept & investor

Developer (investor),

TCT, Utilities dept

ED / Finance dept

END

Record AoD /

deferred debt

particulars

Advise Finance dept

when first non-

deferred DC payment

received

YES

NO

Affect debt write-off Finance dept

60 day warning letter

to investor calling for

debt payment or

compliance cert

Hand over for

debt collection

Finance dept

TCT / Utilities dept

Compliance

cert received

/ accepted?

ADMINISTRATIVE PROCESS IN RESPECT OF DC DEBT INCENTIVE

Responsible party

Funding deficit enters

budget process

57

ANNEXURE A – ATLANTIS INVESTMENT INCENTIVES

Description Eligibility criteria

Non-financial measures

Atlantis Programme Manager with support of Investment Facilitation Unit

Services include:

One-stop-shop investment function

Management of MURP/SRA

Targeted marketing and promotion

Agency function to facilitate access to other government incentives

Available to all new investments in the Atlantis Industrial Area

Development application fast tracking

Applies to all land use and building plan applications in industrial area (but only complete submissions) Also EIAs (Subject to DEADP agreement) Time frame commitment as follows:

EA decision (Province) – 2 months

Land use planning application – 3 months

Building plan approval – 5 days

Applies to all new investments in the Atlantis Industrial Area that require:

EIAs

Land use planning applications

Building plan approval In order to respect timeframes, applications need to be complete submissions. EA subject to agreement by DEADP

Biodiversity offsets Apply where environmental impact authorisation for new development in industrial areas requires biodiversity conservation – City holding sufficient land for nature reserve purposes

Applies where RoD is conditional on biodiversity offset

Financial measures

Application fee exemption

Applies to land use and building plan application fees

Applies to all new investments in the Atlantis Industrial Area that require:

Land use planning applications

Building plan approval

Development contribution deferral/debt write off

Applies in respect of both civil and electrical DCs where enhanced development rights granted. The DC debt will still be calculated and Acknowledgment of Debt (AoD) signed; The AoD will become due after 24 months The debt will be written off on verification that employment targets are met. Where employment targets are not met the full value of the debt becomes due. The incentive will only be available for a specified number of applicants on a ‘first come first serve’ and a ‘use it or lose’ it basis. Subject to National Treasury guidelines as

Applies to all new investment or expansions of existing facilities that attract DCs

58

outlined in the Policy Framework for Municipal Development Charges 2013

Electricity tariff subsidy

“Time of Use” tariff for Atlantis pegged at 2012/2013 level (thus no increase for the 2013/2014 financial year ) To be reviewed annually

Applies to all new investments or expansion of existing facilities that attract the Time of Use Tariff

59

ANNEXURE B – CITY WIDE INVESTMENT INCENTIVES

Description Eligibility criteria

Non-financial measures

Single-point investment facilitation

Services include:

Facilitation of access to DTI to incentive

“One Stop” Shop that will co-ordinate the various City processes and act as the interface between the investor and the City.

Dedicated investment facilitation officer to walk the investor through the various administrative processes

Pre-indications of likelihood of approval of proposed investment and advise on the requirements of the application process

Provide guidance and advice to investors considering investing in the city.

Available to all applicants meeting the qualifying criteria

Development application fast tracking

Time frame commitment as follows:

Land use planning application – 3 months

Building plan approval – 5 days

Applies to all new investments that require:

Land use planning applications

Building plan approval In order to respect timeframes, applications need to be complete submissions.

Regularly updated spatial economic information

Regular reports on the socio-economic and business environment in the City’s economic and industrial nodes Regularly updated market intelligence reports

Available to all applicants meeting the qualifying criteria

Skills development Facilitated access to the skills development programmes run by City funded sector support organisations.

Available to all applicants meeting the qualifying criteria

Financial measures

Application fee exemption

Applies to land use and building plan application fees

Available to all applicants meeting the qualifying criteria Applies to all new investments that require:

Land use planning applications

Building plan approval

Development contribution deferral/debt write off

Applies in respect of both civil and electrical DCs where enhanced development rights granted

The DC debt will still be calculated and Acknowledgment of Debt (AoD) signed and payable as per normal;

A maximum of R1 million of the DC owed by the applicant will be deferred for 24 months and written off on verification that employment targets are met.

Available to all applicants meeting the qualifying criteria Applies to all new investment or expansions of existing facilities that attract DCs

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Incentive only valid for 24 months from date of approval of application for investment incentives.

The incentive will only be available for a specified number of applicants on a ‘first come first serve’ and a ‘use it or lose’ it basis.

Subject to National Treasury guidelines as outlined in the Policy Framework for Municipal Development Charges 2013

Electricity tariff subsidy

“A reduction of 10% in monthly electricity tariffs, subject to NERSA approval, from date of application for investment incentive for a period of two years.

To be reviewed annually

Available to all applicants meeting the qualifying criteria

Broadband connection fee waiver

The City will provide free connection to its broadband fibre network for any qualifying investment within 300m of the existing metro-area fibre optic network infrastructure.

Failure to meet the specified employment target within 24 months will result in the investor being liable for the full connection fee.

Available to all applicants meeting the qualifying criteria

AND Located within 300m of the City’s broadband network at the time of application.

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ANNEXURE C – ATLANTIS INVESTMENT INCENTIVES AREA OF APPLICATION (Updated map, dated 29 October 2013)

62

ANNEXURE D – INCENTIVE INFORMATION FORM

COMPANY INFORMATION

Company name:

Name of representative (AoD signatory):

Phone: Email: Cell:

Company entity type:

Company registration number:

Economic sector of activity:

SIC classification: VAT/Tax number:

Tax clearance certificate number:

DETAILS OF PLANNED INVESTMENT

Physical street address:

Suburb:

New

investment: YES NO Expansion of existing facilities: YES NO

No of new jobs to be created:

Estimated capital value of the investment:

TYPE OF INCENTIVE REQUIRED

DC debt deferral / write-off:

Other (specify details):

SIGNATURE

Signature of representative: Date:

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Modelling the impact of the implementation of the financial

component of the City-wide investment incentives

Introduction In May 2013 the CCT introduced an investment incentives policy. The incentives contemplated in

this policy took two forms – non-financial incentives that any firm seeking to invest in the City could

qualify for; and financial incentives which were limited to specific areas in the city. The

implementation of the financial incentives was subject to the identification of spatially targeted

areas. Potential areas for the targeting of incentives have been identified and a request has been

made to undertake an assessment of the likely impact of implementing these incentives.

The impact has been looked at from two perspectives:

The cost of providing the incentive (in terms of income foregone) in the light of

the additional revenue that can be expected from the resulting investment;

and

The impact of the incentive in terms of direct and indirect job creation.

As these incentives are yet to be implemented this assessment has to be based on a number of basic

assumptions which are spelt out in the relevant section below.

Income Impact In order to assess the direct impact of the implementation of financial component of the investment

incentives, the revenue that could be expected to accrue is compared to the cost to the CCT of

providing the incentive.

According to the Investment Incentives policy, firms qualifying for financial incentives are required

to create at least 30 jobs if they are classified as one of the City priority sectors, and a minimum of

50 jobs if they are involved in general manufacturing.

Assuming that industrial uses have an employment density of 35m2 gross leasable areas per job6

than the minimum floor space or expansion required for firms in priority sectors is 1050m2 and

1750m2 for general manufacturing firms.

6 Based on a report prepared for the Cape Town Central City Improvement District in 2012 entitled “Central

City Employment Density Survey”

Annexure 3

64

Table 1 below shows the average value per m2 in the five areas identified for the targeting of the

financial component of the investment incentives.

65

Table 1: Industrial property value in the five targeted areas

Industrial property

value density

R/m2

Philippi East R 247.00

Philippi North R 872.00

Athlone Industrial R 1 201.00

Elsies River Industrial R 1 445.00

Triangle Farm/Stikland Industrial R 1 261.00

Source: ECAMP data sheets – December 2014

Table 2 indicates that the shows the additional property value generated by the take up of the

financial component of the investment incentives ranges from R259 350 (1 firm taking up the

incentive in Philippi East) to R43 977 500 (5 firms taking up the incentive in each of the five areas).

Table 2: Additional property value generated by firms taking up the financial component of the investment incentives

Priority sector

1 firm 2 firms 3 firms 4 firms 5 firms

Philippi East R 259 350.00 R 518 700.00 R 778 050.00 R 1 037 400.00 R 1 296 750.00

Philippi North R 915 600.00 R 1 831 200.00 R 2 746 800.00 R 3 662 400.00 R 4 578 000.00

Athlone Industrial R 1 261 050.00 R 2 522 100.00 R 3 783 150.00 R 5 044 200.00 R 6 305 250.00

Elsies River Industrial R 1 517 250.00 R 3 034 500.00 R 4 551 750.00 R 6 069 000.00 R 7 586 250.00

Triangle Farm/Stikland

Industrial R 1 324 050.00 R 2 648 100.00 R 3 972 150.00 R 5 296 200.00 R 6 620 250.00

R 5 277 300.00 R 10 554 600.00 R 15 831 900.00 R 21 109 200.00 R 26 386 500.00

General manufacturing

1 firm 2 firms 3 firms 4 firms 5 firms

Philippi East R 432 250.00 R 864 500.00 R 1 296 750.00 R 1 729 000.00 R 2 161 250.00

Philippi North R 1 526 000.00 R 3 052 000.00 R 4 578 000.00 R 6 104 000.00 R 7 630 000.00

Athlone Industrial R 2 101 750.00 R 4 203 500.00 R 6 305 250.00 R 8 407 000.00 R 10 508 750.00

Elsies River Industrial R 2 528 750.00 R 5 057 500.00 R 7 586 250.00 R 10 115 000.00 R 12 643 750.00

Triangle Farm/Stikland

Industrial R 2 206 750.00 R 4 413 500.00 R 6 620 250.00 R 8 827 000.00 R 11 033 750.00

66

R 8 795 500.00 R 17 591 000.00 R 26 386 500.00 R 35 182 000.00 R 43 977 500.00

Table 3 applies the 2014/2015 industrial rates levy (0.012508 cent-in-the-rand) to the additional

property value to calculate the increase in revenue that can be expected from the increase in

property value.

Table 3: Potential additional rates revenue

Priority sector

1 firm 2 firms 3 firms 4 firms 5 firms

Philippi East R 3 243.95 R 6 487.90 R 9 731.85 R 12 975.80 R 16 219.75

Philippi North R 11 452.32 R 22 904.65 R 34 356.97 R 45 809.30 R 57 261.62

Athlone Industrial R 15 773.21 R 31 546.43 R 47 319.64 R 63 092.85 R 78 866.07

Elsies River Industrial R 18 977.76 R 37 955.53 R 56 933.29 R 75 911.05 R 94 888.82

Triangle Farm/Stikland Industrial R 16 561.22 R 33 122.43 R 49 683.65 R 66 244.87 R 82 806.09

R 66 008.47 R 132 016.94 R 198 025.41 R 264 033.87 R 330 042.34

General manufacturing

1 firm 2 firms 3 firms 4 firms 5 firms

Philippi East R 5 406.58 R 10 813.17 R 16 219.75 R 21 626.33 R 27 032.92

Philippi North R 19 087.21 R 38 174.42 R 57 261.62 R 76 348.83 R 95 436.04

Athlone Industrial R 26 288.69 R 52 577.38 R 78 866.07 R 105 154.76 R 131 443.45

Elsies River Industrial R 31 629.61 R 63 259.21 R 94 888.82 R 126 518.42 R 158 148.03

Triangle Farm/Stikland Industrial R 27 602.03 R 55 204.06 R 82 806.09 R 110 408.12 R 138 010.15

R 110 014.11 R 220 028.23 R 330 042.34 R 440 056.46 R 550 070.57

Table 4 provides a summary of cost to the CCT of an individual incentive package...

Table 4: Cost of providing financial incentives

Development application fees Average of application fees waived in Atlantis R3 250.00

Development charges Full value of DC discount R1 000 000.00

Electricity tariff discount7

Broadband connect fee waiver Applicant located within 300m of the fibre network R15 000.00

R1 018 250

7 Although an electricity tariff discount is included in the policy, further discussions with the Electricity

Department after the approval of the policy determined that in its current form this was not implementable and this component will be reviewed along with the investment incentives policy in July 2015. Consequently it is not included in the

67

For the purposes of determining the cost to the CCT, it has been assumed that the DC incentive will

only apply in Philippi East and Philippi North as these are the only two areas with significant vacant

land. It has also been assumed that this incentive will only be required in two of the five incentives

packages offered in each area. Below provides a summary of the expected cost to the CCT.

Table 5: Cost of providing incentive to the five spatially targetted areas

Development

application fees Development Charge Broadband connection Total

Philippi East R 16 250.00 R 2 000 000.00 R 75 000.00 R 2 091 250.00

Philippi North R 16 250.00 R 2 000 000.00 R 75 000.00 R 2 091 250.00

Athlone Industrial R 16 250.00 R 75 000.00 R 91 250.00

Elsies River Industrial R 16 250.00 R 75 000.00 R 91 250.00

Triangle Farm/Stikland Industrial R 16 250.00 R 75 000.00 R 91 250.00

R 81 250.00 R 4 000 000.00 R 375 000.00 R 4 456 250.00

The claw back period in a scenario where the 25 incentive packages are taken up entirely by firms in

priority sectors is 13.5 years while the claw back period if the 25 incentive packages were taken up

by general manufacturing is 8.1 years.

Job creation impacts The impact on job creation is largely dependent on the take up of the incentive by prospective

investors. Table 6 below provides an overview of the job creation potential of the investment

incentives packages under different implementation scenarios.

Table 6: Potential job creation resulting from the takeup of the investment incentives

Scenario

Direct

jobs

Indirect jobs

(multiplier)

Total (direct and

indirect)

(multiplier)

1.5 2 1.5 2

1 in each area in priority sectors 150 225 300 375 450

1 in each area in general

manufacturing 250 375 500 625 750

5 in each area in priority sector 750 1125 1500 1875 2250

5 in each area in general

manufacturing 1250 1875 2500 3125 3750

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The number of potential jobs created ranges from 375 in a low take up scenario to 3750 in a full take

up scenario. As it is not known at this stage which specific industries the firms applying for the

incentives will be in, the multiplier for the indirect jobs created is a generic on based on work done

by North-western University (Weisbrod et al, 1997). It was also decided to use the bottom and top of

the multiplier range in order to paint a clearer picture of the possibilities for job creation.

In a scenario where the incentive is only taken up by firms in priority sectors, the CCT of creating a

single job under the incentive scheme is R5941.67. In a scenario where the incentive package is

taken up by general manufacturing firms, the cost is even lower – R3 565.99.

Discussion Assuming a full take up of incentive packages, the CCT will only reach a break-even point between

8.1 and 13.5 years. While this is a fairly long period of time, the CCT will also benefit from the

creation of at least 750 to 3 750 jobs, and the knock-on effects of the equivalent number of

household being able to pay for the services that they consume. Depending on the scenario, the

cost to the City of creating these jobs will vary between R3 566 and R5 942 per job. This cost

compares favourably with other government job creation programmes as the table below illustrates.

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Programme Cost/Job Source

Community Works

Programme

R 1 332.07 Public Works Department quarterly report (provincial)

(2014)

Youth wage Subsidy R 28 000 Southern Africa Labour and Development Research Unit

(2014)

Jobs Fund R 31 461 The jobs fund - overview and progress (2013)

Expanded Public Works

Programme

R 67 833.45 EPWP quarterly report - CCT (EPWP department) (2014)

R 7 175.89 Public Works Department quarterly report (provincial)

(2014)

IDZ – East London R 700 869 ELIDZ - Annual report (Dti) (2014)

IDZ - Saldanha R488 000 - R537 000 Saldanha Bay feasibility study (2011)

Automotive Subsidies R 2 185 133 AIS -quarterly report (2014)

Bibliography Wiesbrod, G., and Weisbrod, B., 1997: Measuring Economic Impacts of Projects and Programs;

Economic Development Research Group, North-western University.

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Investment Incentive Policy

Interview conducted on 28 May 2015 at City of Cape Town between 11:00 and 11:30 am

Transcribed interview with one of the policy developers of the Investment Incentive Policy

Q1: 1 Diagnostic analysis of status quo

1.1 Was there research done to establish the root causes of the problem to substantiate the choice

of the Investment Incentive policy?

The policy was a political imperative. It was a request from the Major to swiftly respond to intensive

job creation in the City. Desktop research was done to establish what other cities and countries are

doing in terms of Investment Incentive.

After the policy was drafted and accepted, it was decided that another subsequent report would be

submitted to establish which spatial areas would be targeted for financial incentives. The Spatial

Planning and Urban Design department of the City of Cape Town developed am Economic Area

management Programme (ECAMP) which tracks and routinely assesse the market performance and

long-term growth potential of business precinct, and this informed the spatial targeting areas. Thus

business precincts identified by ECAMP as low/underperforming in terms of property markets were

identified as qualifying for spatially targeted investment incentives. This can referred to as phase

two of the designing of the Investment Incentive Policy if it may.

2. Consideration of options

2.1. Were other options for addressing the root causes considered in the conceptualisation of the

problem?

Like I said it was an instruction from the Mayor to specifically develop and implement an Investment

Incentive Policy as soon as possible. Thus no other opportunity was given to consider other options.

However one has to remember, that the Investment Incentive Policy is forms part of a range of other

initiative by the City to create an enabling environment for businesses. The Economic Development

Department has a whole range of other programmes that try to address the unemployment crisis in

the city. This policy thus works along other programme to create a business friendly environment.

2.3 Was cost/benefits analysis conducted for the Investment Incentive policy?

In what can be referred to as “phase two of planning”, a model was developed to assess the impact

of the implementation of the financial components of the City-wide investment incentive. This

model identified the revenue that could be expected to be accrued versus the cost incurred to the

City when providing investment incentives, the possible employment density, the claw back times

Annexure 4

71

the City of Cape Town to start earning profit from the money it spent on investment incentives, and

it tried to calculate the job creation impact of the Investment Incentive Policy.

3. Theory of change

3.1 Did you do a theory of change exercise?

No this exercise was not done. The “Guideline for policy writing” which is the City of Cape Town’s

bible when drafting policies does not instruct one to do a theory of change exercise; hence we did

not see reason for that when drafting the policy.

4. Target group

4.1 Who is considered the target group for this policy? Intended and unintended?

All the efforts are made to benefit the unemployed.

6. Planning implementation

6.1 The policy document states that no extra staff was employed for the intervention why is this?

It was decided to first look at the appetite for the Investment Incentive Policy then appoint new

staff as it is needed. It is pointless to appoint new staff if one is unsure whether the target group

will take the incentives offered.

6.2 What are the management arrangements within the department for running the intervention?

Christopher Hewitt is appointed as the manager of the Investment Incentive Policy

implementation.

6.3 Is there a M&E capacity established including a budget for evaluations and have these been

programmed?

It was initially decided that the Economic Development Department will conduct the Monitoring

and Evaluation for the Investment Incentive Policy.

6.4 Was a risk management plan developed in the process of developing the policy?

Not in the initial policy design process.

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Guideline for Policy Writing

Strategic Policy Unit

Office of the Executive Mayor

City of Cape Town

August 2014

Annexure 5

73

Contents

1. Introduction……………………………………………………………………………….…3

2. Strategic Focus Areas...……………………………………………………………………3

3. Policy Writing Essentials……………………………………………………………………4

4. Policy Writing Template….…………………………………………………………….....5

5. Appendix 1: Diagram- Full Policy Process through Council.………………………8

6. Appendix 2: Explanatory Notes for Process Diagram...……………………………..9

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1. Introduction

This document is intended to serve as a broad guideline and basic template for future policy writing

in the City of Cape Town for those policies that are adopted by Council. Until now, the exercise of

policy writing has not been uniform or standardised between directorates, with each directorate and

the departments within them largely developing their own way of setting out policy documents

according to particular needs. This is largely understandable. The different directorates and line

departments of the City administration perform many different functions and the policies that

emerge must necessarily account for, and reflect, each department’s unique requirements.

However, the significant variations in both the structure and quality of policy writing across City

departments creates a number of strategic challenges for the successful roll-out of transversal

programmes such as the Integrated Development Plan (IDP) and, more broadly speaking, the

government’s programme of action.

To achieve the goal of building an inclusive and enabling environment that increases opportunities

for all the citizens of Cape Town, it is necessary that the whole organisation has a standardised

approach to policy formulation. Such standardisation is a hallmark of being a well-run city. An

important step towards achieving this involves moving towards greater clarity, cohesion and

consistency in policy writing by departments.

2. Strategic Focus Areas

An important outcome of greater consistency in policy writing will be improved alignment with the

government’s programme of action and the IDP in particular, the City administration’s framework

strategy that will shape how the municipal government determines its policy programme and budget

priorities. The IDP is the essential reference point for policy-making in the City going forward, and

policymakers would do well to familiarise themselves with its five strategic focus areas (or ‘pillars’)

as these will inform all policy considerations in the City going forward.

A brief explanation of each of the five SFAs follows below:

• The Opportunity City: The core focus of the opportunity city is to create the economically

enabling environment in which investment can grow and jobs can be created.

• The Safe City: Citizens need to be safe in their city. If they feel threatened by violence or

crime, they can never truly access the opportunities that the city and fellow citizens offer

them.

• The Caring City: In order to be a world-class city, Cape Town must be welcoming to all

people. It must make residents feel at home and allow them to feel that their government is

doing everything it can to provide for them, so that they can truly access opportunities.

• The Inclusive City: An inclusive city is one where everyone has a stake in the future and

enjoys a sense of belonging. It is strongly reliant on the proper functioning of the

programmes in the other focus areas in order to give meaning to this concept.

75

• The Well-run City: A well-run city is essential for the success of all other government

programmes. Citizens need to know that their government works for them that is

accountable to them and answers to them at all times.

3. Policy Writing Essentials

Policy-making is the process by which governments translate their political vision and mandate into

strategies, programmes and actions designed to deliver specific outcomes, that is, desired change in

the real world. As the policies implemented by governments have implications for potentially

millions of citizens and often have large budget implications, it follows then that policy writing – the

act of putting these intentions down on paper – needs to be easily understandable, and as accurate

and succinct as possible.

There are five essential parameters that underlie this guideline document. They seek to promote

greater strategic coherence across departments so that synergies are maximised and potential

coordination failures are identified and corrected while also encouraging greater clarity and

usability. The five parameters are:

• An evidence-based approach to policy-making: Writers of policy should draw on

the best available evidence when formulating particular policy positions. Experts and key

stakeholders should be consulted from an early stage in the policy development process,

and due consideration should be given to different options.

• Openness to new ideas, and awareness of best practice: Policy writing should

encourage new and creative ways of looking at problems while drawing on lessons learned

from past experience. Writers should be aware of best practice trends in other parts of the

world, and seek to transfer these into the context of the City.

• An understanding of the transversal implications of policy: Policy writers need to

be aware of the transversal implications of particular policy directives, that is, their

implications for other departments or spheres of activity. This requires a thorough

understanding of the existing regulatory and legislative context.

• Appreciation of the need for regular evaluation and review: At the outset, policy

writers need to be aware of the need for regular evaluation and review so that City policies

maintain optimal effectiveness while responding to a complex and changing environment.

Policies need to include a dedicated evaluation and review section.

• A conscious effort to ensure usability and legibility: Policies serve a number of

important functions, from the roll-out of government programmes to providing a reference

point for citizens. To maximise their utility, it is important that policy documents use logical

layouts and numbering, and simple, jargon-free language.

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In the section that follows, a simple policy template is outlined that can be used by City departments

as a reference when drafting new policies. The template is by no means exhaustive – many

departments have special requirements that may necessitate additional sections or sub-sections –

but nevertheless it should be utilised as a point of departure outlining the minimum requirements

for new policy development.

4. Policy Template Outline

The policy template that follows below sets out a basic structure that can be used by City

departments when reviewing policies or developing new policies.

Policy title

This is the name given to the particular policy, programme or strategy document.

Reference codes These are the identification numbers used by the relevant department, the wider City administration

and the City’s leadership to locate the policy in the system. The reference code will be allocated by

Executive Support on submission of the policy.

Document control Details pertaining to the status of the document and the relevant line department are recorded

here. These include:

• The director or manager responsible

• The version number (e.g. ‘Draft 2’)

• The status of the document (e.g. ‘Approved’)

• The next review date and dates of previous reviews

• Contact details of the relevant line department

Definitions and abbreviations Explanations of technical terms and abbreviations used in the text are included here.

Problem statement The problem statement provides an analysis of the specific problem or issue to be addressed by the

policy. It utilises accurate and up-to-date evidence to explain the nature and extent of the problem

and justifies why it is necessary to have a new or revised policy to address it.

Desired outcomes This section outlines what the writers would like the policy to achieve. It is a forward-looking

statement that provides a counterpoint to the problem and challenges outlined in the previous

section. Desired outcomes should be specific and linked to measurable targets.

Strategic intent This is where details of the strategic significance and alignment of the policy is provided. In the City

of Cape Town, the key reference point is the IDP and its five SFAs (see section 2 in this document).

77

Where it is relevant, strategic alignment with other national, provincial and City strategies should be

highlighted. Other examples of these include:

• The New Growth Path ( e.g. National)

• The OneCape 2040 Agenda ( e.g. Provincial/City)

• The Cape Town Spatial Development Framework (e.g. City)

Policy parameters This section should provide an overview of the scope of the policy, that is, the extent of its impact.

This may pertain to a designated geographical area, a targeted population group, a specific

government function or set of functions or a delimited scenario. It should also explain any potential

transversal consequences of the policy and how these will be managed.

Role players and stakeholders The details of all the relevant role players and their respective powers, duties and responsibilities,

are provided here. Where appropriate, stakeholders and other affected parties are also identified.

Regulatory context Existing legislation and regulations that affect the subject of the policy are listed here. A brief

summary highlighting relevant sections and clauses should also be provided. The types of regulations

that might be included, but are not limited to:

• National legislation

• Provincial legislation

• City by-laws

• Framework strategies

• Existing City policies

Policy directive details The policy directives provide the nuts and bolts of what must be done to achieve the desired

outcomes mentioned above. The section should provide a highly structured set of desired outcomes

that are directly linked to a course or courses of action. Individual policy directives should not

amount to a ‘to do’ list, but should rather follow a cumulative pattern whereby individual directives

complement each other to achieve larger goals.

Essential elements of the policy directives section include:

• A clear and logical numbering system, with sub-headings to divide distinct sections

• A brief explanation of how each set of policy directives addresses a particular aspect of the

policy problem

• A specific desired outcome for each policy directive

• A set of specific actions to be undertaken in order to enact the directive

• A reference number linking each sector to an IDP objective

Implementation programme This section explains how the relevant line departments will implement the policy in practice. It does

this by:

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• Stating the tasks to be undertaken by each of the role players

• Sets out an implementation timeline detailing when these tasks need to be completed

featuring specific milestones necessary to gauge success

• Identifies the powers and tools available to implementing parties

• Examines potential risks that impede the implementation process.

Monitoring, evaluation and review There are two key aspects to this section: (i) monitoring and evaluation and (ii) review. The former

should identify the criteria to be measured, the role players involved and the process and means of

evaluation. The latter provides details on how the policy will be updated in light of the evaluation

process and contextual changes. It should also outline the policy review cycle and explain the

feedback mechanisms available to affected parties.

8

APPENDIX 2

Notes for Process Diagram8

1.) Explanation:

Full step-b-step description of new policy, by-law and strategy process through

Council9

2.) Applying to:

New policies; policies being reviewed; new strategies; strategies being reviewed; and new by-laws;

by-laws being reviewed10

Policy Origin Point:

Before policy starts, idea for development or review comes from the government’s policy/legislative

programme OR a line department OR any other official OR a member of the public/public body. The

point is that good ideas must be considered from wherever they originate. Of course, any idea must

be accepted by the leadership of the city before starting the policy process.11

Once accepted, idea is fed into system whereupon the process starts12.

Step 1:

Policy idea goes to the relevant Mayco member’s office for whoever’s portfolio the policy would fall

under.

Mayco member consults with SPU for strategic intent and policy note.13

8 This description and accompanying process flows are read in conjunction with the Executive Mayor’s Internal

Memorandum and diagram showing roles and responsibilities of political office-bearers in the policy, by-law

and strategy process. 9 This is a process flow from start to finish for policies affecting the administration and service delivery that

must go to Council. Line departments must make sure that they follow their own internal requirements, needs

etc. 10

There may be certain exceptional cases where policies of Council cannot fit into this process.

Consultation with the SPU is recommended in such instances. 11

Policies according to delegations etc. can be initiated by portfolio committees etc. All policies, however,

must have a common starting point according to the process flow. 12

This process flow has no set time period. Each stage may take a different amount of time per line

department’s differing needs. Line departments bear responsibility for managing the process flow.

Line departments work on draft documents/frameworks.7 14

Line departments must ensure transversal collaboration through EMT and by soliciting comment from other line departments. 9

Step 2:

Line departments consult with Public Participation Unit for consideration of public engagement

options, where necessary.

Public Participation Unit advises on public information required and communication and

communicators are agreed to.

Step 3:

Draft documents considered by Mayco member and SPU before submission to the

Legislative Unit.

Step 4:

Consult with the Legislative Unit and legal services regarding the draft document prior to the

submission to PCs10

Step 5:

Documentation submitted to ECS for inclusion on PC agendas.

PCs develop and formulate policies/by-laws/strategies referred to them with officials and through

workshops etc.

If draft policy is going out for public participation, the line department should contact the Language

Unit to translate the executive summary into the three official languages.

If draft by-law is going out for public participation, the line department should contact the Language

Unit to translate the full document into three official languages.

13

Policy Notes may not always be necessary. Mayco members and SPU will consult and decide. 7 Line

departments bear responsibility for their draft documents and where they are in the system from initiation

to completion. 14

Policy consultation per line department needs means that line departments will often find themselves in one

step of the process for an extended period as they go through iterative drafts before moving on to the next

stage.

Step 6:

Draft policy/by-law/strategy submitted for public participation with sub-councils in accordance with

the Public Participation Guidelines.

Step 7:

Line departments incorporate relevant public submissions

Line departments submit the updated draft based on the public comment to the Legislative Unit and

SPU.

9 Line departments must engage with all policy stakeholders, including internal and external consultants, as they see fit

and according to line department’s policy needs and requirements. 10

Line departments continue to seek legal advice, compliance etc. from Legal Services throughout entire policy process. The document should be vetted by the Legislative

Unit every time it is submitted to a committee or council for further recommendations or approval.

Line departments submits the updated policy/bylaw/strategy with comment on the public

participation process and inputs to PCs

If PCs make any significant changes, it needs to be resubmitted to Legislative Unit

PCs recommend the policy/by-law/strategy to the Executive Mayor Step 8:

SPU consults with Executive Mayor and Mayco member.

Report and draft documents are included on Mayco agenda. (via ECS)

Step 9:

OR

If after the processes Executive Mayor and Mayco member not satisfied with draft, can be submitted

back to start process anew

OR

An additional recommendation can be made by the Executive Mayor to be tabled with the draft at

the Mayco meeting for discussion.

Step 10:

Once at Mayco, Mayco discusses with Executive Mayor and Executive Mayor makes decision to

recommend to Council.

Step 11:

Council considers draft policy/by-law/strategy.

Step 12:

If adopted by Council, the policy is amended where necessary in accordance with Council’s

resolution, there is policy enactment and feedback to the public with Public Participation Unit and

through engagement processes.

The document is allocated a reference code by ECS

The document is uploaded on to the website.

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Interview Guide used to conduct individual Interview with one of the Investment Incentive Policy

developers at City of Cape Town on 28 May 2015.

1 Diagnostic analysis of status quo

1.1 Was there research done to establish the root causes of the problem to substantiate the choice

of the Investment Incentive policy?

2. Consideration of options

2.1. Were other options for addressing the root causes considered in the conceptualisation of the

problem?

2.2 Were cost/benefits of the different options considered?

2.3 Was cost/benefits analysis conducted for the Investment Incentive policy?

3. Theory of change

3.1 Did you do a theory of change exercise?

4. Target group

4.1 Who is considered the target group for this policy? Intended and unintended?

5. Logframe

5.1 Is there a logframe?

6. Planning implementation

6.5 The policy document states that no extra staff was employed for the intervention why is this?

6.6 What are the management arrangements within the department for running the intervention?

6.7 Is there a M&E capacity established including a budget for evaluations and have these been

programmed?

6.8 Was a risk management plan developed in the process of developing the policy?

Annexure 6

Annexure 7