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EASTERN CAPE PROVINCIAL GOVERNMENT

SPEECH BY PREMIER MAKHENKESI STOFILE

AT LOWER AUSTRIA

ON 15 SEPTEMBER 1999

Greetings,

Let me take the opportunity to thank you for offering us with the prospect of strengthening a relationship with Lower Austria and the 
Austrian people. For us, this is yet another milestone in our continued effort to ensure that our economy and people are integrated into 
the global family. This is a process that was launched in the heroic struggles that were fought to bring into being the democratic South 
Africa that we have today. We are well aware of the keen interest that Lower Austria has always demonstrated in the developments in South 
Africa. As we create and mould the new South Africa, the vast experience of Lower Austria in the economic field, trade, technology, 
training and education etc. would surely be a very useful resource. We also see this visit as another attempt to reinforce and give 
concrete substance to the earlier interactions of our province and Lower Austria. We therefore take a view that more than being a formal 
exchange, this visit is also a basis for programme planning. This for me, is how serious we take this visit.

We come from a part of South Africa that is called the Province of the Eastern Cape. A Province, with a total population of 6,7 million 
people and two major ports in the form of East London and Port Elizabeth, which both constitute the two largest industrial centres of the 
Province. Plans are well advanced to build a third major port at Coega, near Port Elizabeth.

This port will be sub-saharan major deepwater shipping harbour and the development of this port and related industries is expected to add 
economic benefits to the region and the Province and South Africa as a whole. The metropolitan economies of Port Elizabeth and East London 
are based primarily on manufacturing, the most important being automobile and textile. Other major industries include agriculture, tourism, 
wool, timber and transport.

Tourism is expected to be a major growth industry as the Province has over 800 kms of total unspoilt beautiful tropical beaches, lapped by 
warm waters of the Indian Ocean. We have abandoned big game fishing, mountain hikes, snow skiing, game reserves and numerous resort hotels 
all within three hours drives from major centres.

We are conscious that as a country, we still face major challenges in development. The policies of the past oppressive governments have 
left us with the legacy of unemployment and other serious economic challenges. The single most important challenge that democratic South 
Africa had to deal with has been to turn around an economy that has been historically inward looking into a competitive outward looking 
economy. This has been accompanied by a focused effort to make our industries more competitive through a number of government initiated 
collaborative efforts. These have successfully brought together business and labour into joint programmes. As the Eastern Cape, we have 
seen the key sectors of the economy benefitting from this, in particular, the Automobile sector and the Tourism sector.

Our mission is very clear namely that we nurture relationships and alliances with countries that have a wealth of experience in economic 
development and share our vision for a better life for all. Austrian history has shown that determination of a people and focused effort 
are the key factors in ensuring that countries and economies prosper. We therefore envisage that our mutual relationship will continue to 
bear concrete fruits in our respective economies.

This day marks yet another step towards creating a viable basis for this growing relationship between our province and the government of 
Lower Austria. We have included in our delegation business people because we believe that the private sector is the engine for economic 
growth.

Under the previous government regime in South Africa, there were a lot of restrictions on foreign investors. There were extremely rigid 
restrictions on local borrowing privileges. There was a special non-residents shareholders tax on dividends. There was a special non-
resident’s tax on interest. The new government in South Africa has changed all this and has indicated that foreign investment into South 
Africa should be encouraged, both to stimulate the economy and to reduce unemployment. Non-residents tax on interest and the special non-
resident’s shareholders tax have both been abolished, and restrictions on local borrowings have been eased drastically. Today, in South 
Africa, no governmental approval is required to invest, and there are almost no restrictions on the form or extent of foreign investment in 
South Africa. Foreign investors may transfer funds freely to and from South Africa, and there are no restrictions on repatriation of 
profits. The national government has also introduced some very generous supply side incentives, which are on offer to promote industrial 
investment. The normalisation of diplomatic relations between our two countries creates tremendous opportunities for mutual benefit.

Besides the supply side incentives which are explained in detail, in this little booklet (reference to Doing Business in the Eastern Cape), 
I would like to take this opportunity to highlight some macro conditions that exist in my country and the Eastern Cape, which could be of 
interest to industrialists in Lower Austria.

The first is the quota system applied for imports of textile products into the USA. This is not so in South Africa. On 25 February 1998, 
the House Committee on Ways and Means in the US Congress, approved an amended version of the African Growth and Opportunity Act, which in 
effect grants South African manufactured textile goods, quota free status for ten years, provided that there is a thirty-five percent added 
value content

The bill became effective on 1 July 1998, and terminates on 30 June 2008. Already we are seeing growth in our apparel industry, and we 
would welcome garment manufactures from this province, who wish to penetrate the markets of the USA, to set up production in the Eastern 
Cape.

The next major opportunity which presents itself, through investing in South Africa, lies in the current arrangement with European Union. 
Now the main difference here is that, unlike the USA rules where there had to be a thirty-five percent added value to qualify, the EU 
insists that there must be at least a two step conversion in the country of origin, namely South Africa. Very simply, what this means is 
that they have divided the textile and apparel industry up into three sectors – being – yarn manufacture – fabric manufacture – and garment 
manufacture. So, for garments to qualify under the EU rules of origin for a zero tariff, not only would the garment have to have been 
fabricated in South Africa, but also the fabric or the yarn from which he fabric was made. This is an opportunity that could be exploited.

Mr. Chairman, on my arrival in Lower Austria, I could not help but notice that every available piece of land is put to some sort of 
productive use. And often when we have visitors from elsewhere to our province they always remark on how much spare and unused land we have 
in the Eastern Cape. The potential therefore for agricultural related industries is thus enormous in the Eastern Cape.

The Eastern Cape Government has recently released details of ten new irrigation and crop growing schemes in the Eastern Cape, which our 
government is putting on offer to investors to enter onto a joint venture partnership with the local communities and the public sector. The 
total of the areas under irrigation amount to 12300 hectares, with an adjoining 5200 hectares of dryland farms, which can be added on. This 
land is suitable for various uses and includes beef ranching, dairy, fat lamb, pineapples, maize, sweetcorn, dry beans, tomatoes, onions, 
deciduous fruits, berries, wheat, malted barley, asparagus, carrots, pumpkins, beetroot and citrus. If there are any investors in the 
agricultural field who are interested in taking up my governments offer of going into a strategic partnership alliance, please talk to us, 
or contact us by fax or email.

Our interest in the agricultural industry sector is not confined to crops only. Our SMME Finance Agency, the Eastern Cape Development 
Corporation, owns a large complex of chicken farm buildings, comprising six broiler houses of 920m2 each, 1355m2 of staff accommodation, an 
abattoir complex, a vehicle workshop and laboratory. The whole complex is also ideally suited for angora rabbit or turkey farming, and we 
are looking for a suitable tenant with the appropriate expertise and technology, either to rent, buy or enter into a joint venture.

Talking about the Eastern Cape Development Corporation, they are the largest industrial factory landlords in the Eastern Cape, with over 
350 factory buildings. These can be leased or purchased at very reasonable rates by approved investors. We have agencies with the 
responsibility of providing the necessary support to investors.

Our central government has also realised the great potential on offer to investors in the Eastern Cape, and has officially declared two 
formalised Spatial Development Initiatives (SDI’s) in our Province. The one SDI is known as the Fish River SDI, and runs between East 
London and Port Elizabeth. The emphasis here is on industrial development and tourism development and includes the building of a new port 
at Coega and the development of the Westbank Industrial Development Zone in East London. I am certain that even in this area, possibilities 
are immense.

The other SDI is known as the Wild Coast SDI, and covers the area north of East London. This area has arguably the most beautiful and 
scenic coastline in South Africa, and the emphasis here is on tourism development and agricultural development. Investors to these areas 
are afforded special entry and are encouraged to enter into joint venture partnerships with local communities. It is possible also for the 
government and/or local government, to contribute land as equity or on very reasonable terms to approved investors.

There are many questions that investors coming into South Africa ask, but there is one question that comes up quite oftenly is about South 
Africa’s tax laws. South Africa, although not as high as some countries, is perceived as having a corporate tax rate that is too high to 
attract foreign direct investment. On the face of it, this statement is true, as our tax rate is 30 % on profits, and when dividends are 
declared, there is a secondary tax on companies, which raises the total tax rate to 37.78 %.

However, the Eastern Cape has a certain favoured spatial status when it comes to the policy of encouraging new investment, and we can offer 
approved, new industrial investors a tax free status in the Eastern Cape for a minimum of four years, and a maximum of ten years. In most 
cases it is for ten years. If the investor brings new machinery and plant into South Africa, the South African Government will assist in 
transporting the equipment by granting them up to US $ 250 000, in cash, tax free and non refundable.

We also have a policy of encouraging and attracting small business. And our definition of a small business is a business with operating 
assets of three million Rand or less. These companies can qualify to receive tax free, cash grant incentives, of 10.5% of their total 
investment, each year for their first three years of operation – in other words 31.5% of their investment gets paid back to them over three 
years. In addition, if they show a good profit by their third year, the payment of the 10.5% tax free cash incentive can be granted for an 
additional fourth year. Furthermore, if these companies are relocating from abroad to South Africa, and they are importing new machines, we 
will assist them with up to US $ 50 000 towards the relocation costs.

Let me conclude by saying that as a Province, we appreciate sincerely the prospects that we are opening up with this visit. I am sure that 
a lot will come out of it. We are keen to concretise our relationship with programmes that would have a direct impact in the conditions of 
our respective countries.

I thank you.



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