In December last year, Cabinet approved the ‘Manufacture and Build to Recover Programme’, which the government says is aimed at fostering economic recovery following a recession resulting from the Covid-19 and measures to curb it.
Manufacture and Build to Recover Programme will extend tax breaks and tax credits to businesses with an aim to reduce cost of investment for new manufacturers as well as those seeking to expand existing operations.
The programme is expected to lead to over $1 billion worth of investments as well as create over 27,000 jobs across the country which is expected to put the country on the path to recovery.
The New Times’ Collins Mwai spoke to Rwanda Development Board Deputy Chief Executive Zephanie Niyonkuru on the programme scope, investor eligibility among other aspects.
Excerpts:
What are the key objectives sought by the government in developing the programme?
The programme is aligned with economic recovery and support growth. Comparing where we are to 2019, the economy definitely contracted in 2020. For us to be able to get to the levels and growth trajectory, we need to roll out a number of interventions.
We have different economic interventions which include: Economic Recovery Fund as well as the Manufacture and Build to Recover Programme.
Zephanie Niyonkuru, Rwanda Development Board Deputy Chief Executive. / Photo: Courtesy
We looked at which sectors we could give a boost in terms of some specific fiscal measures which will come to complement finance-related measures under the economic recovery fund to deliver recovery.
What are the key areas targeted to benefit from the incentives?
The programme is across three major sectors. We have agro-processing, basically, anyone adding value to agriculture produce and light manufacturing. Light manufacturing has all the light consumer goods such as soaps, toiletries among others. Third, we also have construction materials. The reason we have construction is that it has been a driver of jobs and other sectors.
In addition to the three sectors, we also have packaging material as a cross-cutting sector as it is needed by producers across sectors.
The programme largely targets players in the manufacturing, agro-processing and construction sectors. Why only the three areas?
It is because the sectors have multiplier effects. We are looking at it from the perspective of catalyzing other sectors of the economy as well as stabilizing trade balance because there are so many products that we are importing that could be produced locally.
If you remove the need for traders to seek dollars for them to import products that could be produced locally, you are reducing the pressure and demand on the dollar and consequently curbing depreciation.
There are also new jobs to be created in manufacturing and other sectors that are closely tied to manufacturing. The aim is to catalyze demand and also ensure increased productivity and consequently increased output and trade balance.
What are the eligibility requirements for the incentives?
The first criteria are to be involved in these sectors. Everything that you are doing should be growth-oriented. We are targeting new investments and existing investments that might need to expand to increase output.
There will also be thresholds for consideration.
For construction either for affordable housing, high-end or commercial complex, we will require one to have a project valued at a minimum of $10 million, and if one is setting up a new manufacturing industry/plant, the threshold is to invest at least $1 million. If it’s agro-processing, the threshold is $100,000.
There is also a component of one who may need to expand an already existing and registered company. If you are an existing manufacturer and have plans of expanding operations, the programme has a threshold of at least 20 per cent of your total investment or at least $1 million.
What are the incentives and how do you figure they will reduce the cost of setting up industries?
The incentives include giving tax exemptions on construction materials, machines to be used in setting up the manufacturing plants. If the inputs are not locally available and are imported, you do not pay import duties, if it’s locally sourced, you are exempted from VAT.
If you are in construction and are sourcing materials locally, you will be exempted from VAT. This will give the investors an opportunity to save and reduce the overall cost of their investment.
If you reduce the cost of investment by 18 per cent (by removing VAT), you are making it easier to see the investment through and that there will be prioritization of local producers. Local producers will then consequently increase production to respond to demand and in the process increase job opportunities.
The programme also has tax credits, how will these be earned?
We also have another category that considers performance. While the company may not be investing in anything, they could be making some adjustments that will enable them to position themselves better.
That is where we consider the average for 3 years (2018, 2019 and 2020) and compare it with 2021. For any additional Rwf1 million increase in total revenue or export revenues you get a tax credit of Rwf 50,000.
The second component is on jobs. We will look at the jobs positions in those three years (average of 2018, 2019, 2020) and compare with 2021. For each additional job, you get reduced Pay As You Earn tax rates. For these taxes, the average is usually around 30 per cent and below. For each additional employee, it will be 10 per cent.
While some of these factors can be manipulated, we are attempting to stimulate increased output and consequently increased jobs and more impact on the economy.
What timelines will be given to complete projects?
The entire project is structured around three years and we have three timelines. The first is six months starting from December 2020 when it was approved by cabinet to June 2021.
This period is for receiving companies’ projects, reviewing eligibility and giving them approvals.
The second timeline is for companies that receive the incentive and are planning on importing materials, they should make sure that they have imported by December 2022. The third timeline is that the project presented should be completed by December 2023.
We are talking about recovery, we want the incentives to be about recovery. As a government, we hope that this will spur economic activity and for private sector members, it reduces their cost of investment. The timelines are aligned with the overall economic recovery.
If an investor comes in after December 2022, they would benefit but have a shorter timeline to complete their projects.
How much would you estimate that the government will forego in tax revenue when the tax breaks and credits are rolled out?
I would look at it from the viewpoint that we are not touching the existing base, we are not reducing the regular taxes. Everything that is coming in is incremental and cannot be counted as loss. Eligibility to these incentives is because one is starting new projects, expanding on projects that they have or increasing employees at the workplace.
While you can do numbers and attach monetary value to exemptions given, for instance targeting $1 billion, you can come up with a figure like $200m but it is technically not a loss to the government.
We expect to see the programme driving our investment attraction efforts as well as the overall economic recovery efforts.
What are the projected values of investment for 2021?
We may have about $1 billion in investments coming from this programme. In the overall global landscape, investment activity is still low but expected to be better than 2020. In 2020, we registered investments worth $1.3 billion, in 2021, we are projecting $1.5 billion or more. And this is one of the programmes that will drive the investments.
Three months into implementation, what has been the reception of the programme so far?
We already have nine projects that have benefitted from this worth about $320 million, the trend is likely to continue and we also want SMEs to benefit from this as they often provide raw materials to some of these manufacturers while farmers have contracts with agro-processing companies.
Our economy being dominated by SMEs like others across the world, we believe that if you impact SMEs, you impact lives.