Manuel hints at tax breaks for manufacturers

Ed Richardson FINANCE MINISTER Trevor Manuel seems to be reconsidering his stance on providing tax incentives to investors. Delivering his medium term budget policy statement in parliament last week, Manuel said "with a view to deepening and broadening productive capital formation and extending research and development for technology advancement in South African industry, consideration is currently being given to the possible role of tax measures to support investment in other sectors." South Africa has lost a number of major investments to neighbouring countries recently because of their more favourable tax breaks. The change of heart in the department of finance - which has strongly resisted attempts to provide these incentives - may also be influenced by the success of exporters in a tough global market-place. Export boost Manuel says exports have been boosted by a combination of a weaker rand and increased competitiveness. "For the first time since 1994 we expect a modest surplus on the current account, partly because our trade performance responded favourably to the depreciation of the rand last year," he told Parliament. Net inflows from abroad of R30 billion were recorded for the first half of 2002, compared with a net outflow of R11 billion in 2001. These inflows include net foreign direct investment of over R8 billion and the repatriation of offshore investments by South African companies. The depreciation of the currency towards the end of 2001 raised profit margins of exporting firms, while also encouraging domestic production in response to higher import prices, according to Manuel. This was supported by steady growth in consumption expenditure of over 3% a year in the first half of 2002. Manuel is bullish about prospects for the country - with growth being built on an increase in exports of both manufactured goods and raw materials. "Despite the poor international outlook, the South African economy is expected to grow by 2,6% this year and an average of 3% a year over the next three years," says Manuel.