Significant Changes to Manufacturing Competitiveness Programme Guidelines

The Department of Trade and Industry (“DTI”) released Version 4 of the Manufacturing Competitiveness Enhancement Programme (“MCEP”) guidelines dated April 2014. Two sets of guidelines have been issued, for Production Incentive Grants and Cluster Competitiveness initiatives respectively. The new guidelines include some significant changes which are likely to affect current and future applications to be submitted by manufacturers going forward.

Some of the most significant change has briefly been outlined below:

  • There is a risk that the DTI may implement the changes retrospectively to the applications submitted but not yet approved. It has not been confirmed that this will be the case but in terms of this new guidelines, they may potentially be applied to applications submitted to the DTI prior to 1 April 2014 in cases where these applications have not yet been adjudicated. Also, claims submitted and/or future claims to be submitted for existing MCEP approved applications may be affected by the latest changes.
  • The requirement surrounding Broad-Based Black Economic Empowerment (“B-BBEE”) contributor status. Version 3 of the guidelines dated December 2012 allowed entities to submit a plan showing how it will achieve a level four status within a four year period whereas the new guidelines only allows for a plan to be submitted if this can be achieved within two years. From June 2015, no more application will be allowed should entities not be a level four contributor regardless of having plans in place. The new guidelines also do not allow for the Adjudication Committee to exercise discretion should an entity not be able to reach a level four status.
  • The reference to base year employment levels have been replaced by average employment over a 12 month period prior to submitting the application. This means that entities need to maintain its employment levels based on the average numbers throughout the incentive period going forward.
  • Grant caps per components have been reduced from R50 million to R30 million for Capital Investment initiatives and from R50 million to R20 million for Green Technology and Resource Efficiency Improvement initiatives depending on the historical size of the entity. Enterprise-Level Competitiveness Improvement activities previously had no cap. Support under these types of activities is now capped to a maximum benefit of R10 million, depending on the historical size of the entity.
  • The maximum benefit available for feasibility studies have increased from R7.5 million to R 8 million.
  • Clusters have been awarded a cost sharing grant of 80% of the costs of the cluster activities up to a maximum grant of R50 million.
  • Additional clarity has also been provided in areas which have created problems in the past including the number of applications that may be submitted over a two year period and the types of skills development activities which will be supported.

Overall, a lot of manufacturers will find it difficult to comply with the amended requirements of the Manufacturing Competitiveness Enhancement Programme especially the more stringent B-BEE requirements. The DTI did also not release the guidelines for public comment prior to the release of the latest Manufacturing Competitiveness Enhancement Programme guidelines effective April 2014. Questions will arise as to whether these changes will lend the support to the much needed manufacturing sector as initially intended.