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South Africa is considering rolling out tax cuts to revive its struggling industrial hubs, in line with a World Bank recommendation to help reverse a long-term manufacturing slump and unlock billions in idle corporate cash.
The major policy push to extend the 15% corporate tax rate — nearly half the standard rate — across all special economic zones is the latest measure officials in Africa’s biggest economy are weighing to recapture its position as the continent’s manufacturing powerhouse.
The move is driven by the trade and industry department, which needs buy-in from the finance ministry because any tax changes have implications on state revenue. If implemented, South Africa — which in May lost its top ranking on the African Development Bank’s Industrialisation Index to Morocco — will put foreign investors such as mining major Rio Tinto and Irish glass maker Ardagh Group inside the tax incentive bracket.
“There’s a case for extending and amending the current SEZ incentive regime so that it is competitive globally,” wrote Maoto Molefane, senior official at the trade and industry department in an op-ed in South Africa’s Business Day newspaper. His comments follow a World Bank’s assessment urging Pretoria to scrap ministerial approval requirements that have throttled the competitiveness of industrial parks within South Africa’s SEZs. Currently, SEZ’s tax perks require the finance ministry’s sign-off, and seven of the 13 zones do not have access to the lower rate.
Trade and Industry Minister Parks Tau said his department would “need to thoroughly analyze and consider implementing” the recommendations of the study, which include a five-year turnaround plan for underperforming zones, dedicated infrastructure funding, and a shift toward privately managed sites.
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Manufacturing share of GDP has fallen from a quarter in the 1980s to about 12%, eroding South Africa’s position as Africa’s most industrialized economy.
The trade and industry department said a standardized 15% rate could unlock investment: Corporate balance sheets hold roughly 1.8 trillion rand ($109 billion) in cash that firms have withheld amid policy uncertainty.
“The idea is to derisk industrial projects at early stages of development, thus paving the way for meaningful private sector investment,” Molefane said, adding that the deeper strategic play is aimed at adding value to South Africa’s $40 trillion mineral reserves.
The potential tax changes come weeks after Pretoria approved an estimated $2.3 billion discounted electricity tariff package for its largest ferrochrome producers, including a Glencore joint venture. In return for the 50% cheaper power, Glencore will bring idle smelters back online and preserve jobs.
Notable
- Morocco ended South Africa’s 15-year reign as Africa’s most industrialized economy this year, an ascent driven by two decades of an industrial policy that combined zero-rated VAT, duty-free equipment imports, and subsidized land utilities.