NEW INCENTIVES FUEL ADDITIONAL HOPES FOR ROBUST

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E.O. 12958: N/A
TAGS: ECON EIND ETRD SCUL PGOV SF
SUBJECT: NEW INCENTIVES FUEL ADDITIONAL HOPES FOR ROBUST
FILM INDUSTRY GROWTH IN SOUTH AFRICA

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Introduction & Summary
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1. The feature and commercial film industry in South Africa
continues to grow vigorously. An industry that in 1995
generated 4,000 jobs now employs an estimated 20,000
workers. Film production ranging from commercials and
shorts to full-length movies produced in South Africa has
grown substantially. The total value of the South African
entertainment industry is estimated to be about 7.7 billion
Rand (USD 1.25 billion). South Africa, especially Cape
Town, is capitalizing on a number of advantages that include
good weather, a diversity of locations, English-speaking and
experienced film crews and technicians, and good
infrastructure to market its filmmaking capacity. On July
1, the South African government finalized a rebate/incentive
scheme designed to bolster South Africa's claim to being a
"high-quality production site for international and local
film-making." The incentive plan will provide as much as
10 million Rand in rebates for film productions of more than
25 million Rand. The incentives will help to bring South
Africa into line with incentives schemes offered in
Australia, Canada and New Zealand. A recent upsurge in
quality productions and filming with named stars - Samuel L.
Jackson, Colin Farrell, Nicholas Cage, Selma Hayek, and Sean
Penn - as well as the start of development of a substantial
Hollywood-style film studio in Cape Town are providing
additional impetus to South Africa's film industry. Other
incentives and help for the film industry include support
from the Industrial Development Corporation, the National
Film & Video Foundation, municipal governments and regional
film Commissions. While the future appears rosy for feature
films, bumps in the road may appear. The high costs of the
Rand and loss of commercial advertisements place constraints
on the generally optimistic scenario for the future. End
introduction and Summary.

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Rebate Program
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2. The Film and Television Production Rebate, established by
the Department of Trade and Industry (DTI) on July 1,
targets the production of foreign and local large budget
films made in South Africa or under co-production
agreements. (A downloadable brochure on the rebate scheme
can be found on the DTI's web site at www.dti.org.za.)
Eligible companies must either be a South African resident
company or a non-South African company with a South African
business registration. Eligible applicants will qualify for
a 15 per cent rebate on production expenditures for foreign
productions (and up to 25 per cent on production expenses
for South African companies.) Film projects must have begun
after April 1, 2004 and must reach a threshold of 25 million
Rand in order to qualify for the rebates. Other
requirements include 50 per cent completion of the principal
photography in South Africa and a minimum of four weeks
photography time. Eligible productions include feature
movies, tele-movies, television series, and documentaries.
The maximum rebate for any project will be 10 million Rand
(USD 1.5 million). One attractive feature of the rebate
system is that it allows for a company to bundle more than
one production in order to achieve the 25 million Rand
threshold.


3. The DTI worked with the Department of Arts and Culture
(DAC) and the Department of Communication (DOC) in
formulating the strategy to develop the "content industries"
because all three Departments share competency in this
subject. Content constitutes cultural artifact (DAC),is a
tradable commodity (DTI),and relates to television
programs, cinema, animation, video, electronic games and any
other audio-visual mode of packaging (DOC). In establishing
this new incentive, the government recognizes the
contribution of film productions to South Africa's economic
development by providing valuable economic, employment and
skill development opportunities. The rebate is exempt from
income tax.


4. According to Martin Cuff of the Cape Film Commission,
there are other incentives available to filmmakers. One of
these is flexible agreements with co-production partners.
These allow for the modest use of foreign government
supports for projects partially realized in South Africa.
Currently South Africa has co-production agreements with
Canada, Italy, and soon with Germany. They allow monies
from these countries to be spent in South Africa. Section
24F of the Income Tax Act No. 58 of 1962 allows a tax
deferral of up to two years in order for film producers to
realize box office revenue and gives tax relief for
individual investors in film production. Overall, Cuff
believes the various incentives are an important
psychological carrot and more modest financial inducement
that are enhancing South Africa's ability to compete
internationally.

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Cape Town & Johannesburg
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5. The South African film industry is clustered primarily in
two locations, Cape Town and Johannesburg. There are
approximately 150 registered producers currently active in
South Africa. For reasons of consolidation and economies of
scale, 15 of these companies command over 90 per cent of
feature films and television production. South Africans
aggressively market themselves internationally and seek
projects that include filming not only in South Africa, but
also throughout Africa. Martin Cuff pointed to a recent
remake of the classic Flight of the Phoenix. A South
African company filming mainly in Namibia did much of the
location work. In 2002-2003, 35 feature films and
television series were shot in Cape Town.


6. Cape Town is ahead in the race to develop a major film
studio. South African film producer Anant Singh (I Capture
the Castle, Comrades),ironically a native of Durban, is
spearheading the project. Singh has pushed for the
construction of Dreamworld Film City, a Hollywood-standard,
big production studio complex in Cape Town. Land clearing
for the studio, situated along the N-2 between the Cape
International Airport and Somerset West, is already
underway. Construction is set to begin next year, with
completion of the first phase set for 2006. When completed,
Dreamworld Film City could generate employment for as many
as 8,000 individuals. The estimated cost of the studio is
400 million Rand with the studio slated to receive
approximately 60 million Rand from the Cape Town
municipality.


7. The advantage of Johannesburg resides in the fact that
more than two-thirds of the television production capacity
of South Africa is in Gauteng and the South African
Broadcasting Corporation has been reluctant to farm out work
to Cape Town and elsewhere. Other investments in post-
production such as a film lab in Cape Town and Johannesburg-
based sound studios have substantially augmented film
production capabilities.

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Recent Successes
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8. Recent South African feature film credits includes a
number of potentially attention-grabbing productions.
"Country of My Skull," a $15 million dollar production
staring Samuel L. Jackson and Juliette Binoche, was filmed
substantially in Cape Town and looks at the end of the
apartheid regime. The official release of the movie is
scheduled for Cape Town later this year. Two feature films
with international stars are currently underway in Cape
Town. Colin Farrell, Selma Hayek, and Donald Sutherland
star in "Ask the Dust" set in 1930's Los Angeles. "Ask the
Dust" is considered a labor of love with the salaries paid
to the cast being comparatively low and overall budgeting
for Cape Town set at about USD 7 million. The project
involves the construction of elaborate period sets. "The
Lord of War", an action movie about an international arms
dealer, features Nicholas Cage and Ethan Hawke.
Conversations with production crew indicate that Cape Town
and the Western Cape were chosen less for reasons of cost
and more because the Western Cape offered "a microcosm of
diverse locations". For "The Lord of War," a total of 39
locations have been selected to simulate locales as diverse
as Afghanistan, Cuba, and Sierra Leone, yet all within a
short drive of Cape Town. Sean Penn is set to appear in
"Last Face," a movie about two humanitarian doctors in war-
torn Africa nation. Finally, also on the radar screen is a
remake of the 1970's "Poseidon Adventure," with Film Afrika
to take the lead in Cape Town. According to Martin Cuff of
the Cape Film Commission, one of the reasons for the
selection of Cape Town was the ability of the producer to
draw from the yacht construction industry to build the
Poseidon set. The Cape Town film industry hopes these
projects will encourage others to follow suit in 2005 and
beyond.

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Other Incentives and Supports
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9. --- The government's Industrial Development Corporation
(IDC) considers the film industry one of its critical
sectors. The Media & Motion Pictures division serves as a
financing vehicle and will provide as much of 50 per cent of
production costs. Minimum equity loans are one million
Rand. "Stander," a full length movie centering around
policeman turned robber released only in South Africa is
viewed as one of the more successful products that has
returned money to the IDC. Overall, the IDC reportedly has
250 million Rand to finance film projects.

--- National Film & Video Foundation (NFVF) in Johannesburg
was created to in order to increase local content quotas for
television. According to DTI, the IDC and the NFVF invested
in 16 of the 24 films produced in South Africa in 2003. Its
capital stock for feature films is reportedly 35 million
Rand. NFVF plays an important role in funding, training,
developing, and promoting the South African film industry.

--- City of Cape Town has adopted as part of its mission
statement the creation of a "film-friendly environment."
The city has worked actively with the Cape Film Commission
to hold down prices for filming permits, provided traffic
control and off-duty police services, and other supports for
the film industry throughout the extensive metropolitan
area. Cape Town has also committed to underwrite part of
the costs of the Dreamworld Studio complex.

--- Regional Film Commissions - There are formal film
commissions for Cape Town, Johannesburg, KZN (Durban) and
the Eastern Cape (Port Elizabeth). The Cape Film Commission
claims pride of place, seeking to serve as a one-stop
information shop for local and international filmmakers. It
seeks to pare down costs for filming, especially charges for
locations on private properties, and provide public
relations support for the film industry. It clearly seeks
to increase participation by Africans and advance Black
Economic Empowerment, mainly through learning opportunities
in the film industry. Budgets and staff support, however,
are small. Cape Town has an advisory council and
approximately 10 permanent staff, most responsible for
processing filming permits.

--- DTI indicated that the launch of the new rebate scheme
was just the first of a set of support measures to develop
the film industry in South Africa. Eventually, the full
package will cover production cost, training and an
internship program, and export marketing support.

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Conclusion
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10. Overall, the South African film industry appears to be
on the rise, particularly in the feature film arena. Even
with the strong Rand, South Africans believe they can
compete internationally. New incentives and successful film
projects may lure additional work to South Africa. Another
critical factor are relative low costs for skilled labor.
Cuff and others are upbeat about feature film production
with long lead times and negotiated pay structures that help
soften the impact of exchange rate fluctuations. Cuff
maintains that even with a strong Rand overall film
production costs are still 50 percent less than for a
comparable product in the U.S. Cuff was less upbeat about
advertising and television commercial production. He felt
Cape Town was increasingly pricey and in recent years
overexposed. Some in the industry worry the South African
film might be poised to slip from the present boom cycle.
Trying to catch up with an Australia or a Canada, the South
African industry must also look over its shoulder at new
rivals such as Argentina and Chile, who are making gains,
especially for commercials and television spots.

HUME