Dec 02, 2011
Trade aspects of capital projectsBack
Construction|Engineering|Components|Consulting|Design|Industrial|PROJECT|Projects|Equipment|Large Equipment|Logistics|Manufacturing|Manufacturing Facilities|Service|Solutions
© Reuse this
By nature, large capital projects, such as the construction of any new or expanded mine or manufacturing facilities, present themselves with a near-infinite number of challenges. In the space where professionals like geologists and engineers operate, problems are identified and overcome, and new and innovative solutions are found. Project plans are developed and executed on time and within budget, or that, at least, is the aim.
Being within budget and on time can be achieved if there are no surprises. Considering the number of variables having an absolute and direct impact on success, it is, perhaps, not surprising that some of the less-mission-critical, but still costly, aspects of a large capital project are often overlooked.
A simple question about the preferred location of a proposed new facility can pose interesting questions. While the loca- tions of mines are mostly determined by Mother Nature, developers of manufacturing, processing and assembly facilities need to consider whether locating the planned facility in an industrial development zone (IDZ), for example, should be considered. The answers are not as obvious as often portrayed and often require a bit more attention at the bankable feasibility study stage.
Whenever a large capital project relies on imported components and materials, the cost implications of customs duties can be significant. The appropriate classification of the items to be imported is essential and, under certain circumstances, the South African Customs Act provides for very large equipment imports to be cleared duty free. To qualify for this benefit, however, one needs to apply to the South African Revenue Service for a ruling, and this ruling must be issued before the first shipment arrives.
Another interesting matter is the customs valuation of the items imported, particularly if sourced from a related party. Transfer pricing and customs valuation concerns are different (often opposing) sides of the same coin that require attention before equipment orders are placed and contract terms finalised.
Logistics service providers need to be chosen carefully and detailed clearing instructions need to be prepared to avert delays at customs, resulting in interest and penalties being levied on imported materials and components. Often, the financial loss on account of interest and customs penalties is insignificant, compared with the cost of project delays caused by delayed component deliveries. It has been proven time and time again that the time and cost invested at the outset, clarifying, agreeing and documenting clearing instructions with logistics service providers, prove to be insignificant, compared with the often expensive and time-consuming fix-ups once the project is being executed.
Once operational, a new manufacturing concern may require duty protection in order to establish itself, or even protection against unfairly priced imports. Under certain circumstances, these aspects require attention, even prior to construction – during the bankable feasibility study stage.
The possibility of accessing government support in the form of targeted grant programmes or preferential corporate tax allowances also warrants attention. Often, projects need to apply and obtain approval in terms of existing programmes well before construction begins or, in some instances, even before equipment is ordered or contracted for. As these stages are reached fairly quickly following completion of a bankable feasibility study and obtaining board approval for the project to go ahead, most of the groundwork related to accessing significant levels of government support needs to be done when the bankable feasi- bility study is nearing completion.
Based on our experience gained while consulting to large investors in capital projects, from both an international trade and a customs perspective, as well as a government incentive perspective, these matters are often overlooked
Little of the above affect the engineering and design of a project. These issues do, however, impact on timely completion and the extent of project cost overruns at the hand of unplanned customs and logistics costs or missed opportunities to access government support.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Other Pieter du Plessis & Donald Mackay News
Updated 16 minutes ago South Africa's State-run power utility Eskom said on Tuesday a pilot pricing project aimed at getting customers to cut their consumption on peak days was showing signs of success. Eskom, which supplies about 95% of the power to Africa's most advanced economy, is...
Updated 25 minutes ago South Africa is on power alert, Eskom said on Wednesday morning. "The power system remains vulnerable, meaning that any extra load or faults in the system may necessitate load shedding today," the electricity provider posted on its Twitter feed shortly after 6.15am.
Updated 33 minutes ago International Monetary Fund head Christine Lagarde has warned that African economies could be hurt by a slowdown in China's economy and an imminent hike in United States interest rates. Lagarde, speaking on Tuesday on a visit to Rwanda, said IMF's global economic...
Recent Research Reports
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
This Week's Magazine
Three-dimensional (3D) printers being sold in South Africa by electronics distributor Rectron currently print in two types of plastic, but have a clear upgrade path over the next five years to eventually print in wood, ceramics and metal-alloy materials, says Rectron...
The world’s two dominant commercial aircraft manufacturers, Airbus of Europe and Boeing of the US, both recently announced that they had made record aircraft deliveries in 2014. Boeing set a global record for the industry with 723 commercial aircraft delivered, while...
The Western Cape is shifting further into the renewable-energy space with the official opening of a factory specialising in solar inverters, a key component of solar photovoltaic (PV) plants. The investment in the manufacturing facility in Cape Town aims to boost the...
Business Leadership South Africa (BLSA) last month welcomed Cabinet’s establishment of a technical team war room to undertake various interventions to improve electricity supply security over the short- and medium-term, but added that the private sector also had a...
Despite a rapid rise in mobile connections and the economic and social benefits of such connectivity, more than half of the world ended 2014 unconnected. For this reason, industry commentators believe the biggest impact of mobile technology is still to come –...
Next ArticleInvestment options across SA’s borders