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South Africa Production Rebate Hits Troubled Waters

A growing rift is emerging between independent producers and the South African government, with frustrated entertainment business pros accusing the Dept. of Trade and Industry, the body tasked with disbursing state funds, of undermining a rebate that’s the lifeblood of the local industry.

Since early 2016, numerous stakeholders say they’ve watched with alarm as a rebate that once was administered like clockwork has been beset with delays and what they describe as false promises, imperiling dozens of local films.

For its part, the DTI claims that disbursements have been delayed by audits that, in some cases, discovered producers who have misrepresented their expenses.

“The DTI is experiencing serious challenges,” says Paul Raleigh of Hollard Film Guarantors, which has provided guarantees for 200 films in the past seven years. “The uncertainty is very worrying, and there’s not a single financial institution that’s willing to cash-flow the incentive.”

The Independent Producers Organization, which says it represents 80% of the country’s working producers, approached the DTI last year with what it describes as “increasingly urgent concerns” over the impact uncertainty about incentives was having on local productions. Among its complaints: protracted delays in paying out the rebate; payouts that were often smaller than promised; and abrupt changes to application guidelines.

“But the IPO has not had a straightforward answer to any of the issues addressed to the DTI,” the body told Variety.

The DTI has maintained that the process is business as usual. “From our point of view, nothing has changed from the past,” says Nelly Molokoane, the director of film and TV incentives at DTI. She insists there has been “engagement” with the industry as the department prepares to submit a draft proposal for a new rebate scheme.

Since its inception in 2004, the rebate has had a profound impact on the South African entertainment industry. Local production has spiked dramatically, while the rebate scheme has spurred a boom in foreign productions.

South Africa offers foreign productions a 20% rebate on all qualifying local spending, rising to 25% if some post-production is done in the country, with a R50 million (around $3.7 million) cap. For local productions, the rebate starts at 35% for the first R6 million (around $441,000) of qualifying spending, with 25% on qualifying spending over that amount.

For productions that meet the requirements for the emerging black filmmakers incentive, the rebate rises to 50%.

The rebate has remained a pillar for the local industry, and Molokoane notes that the DTI has consistently exceeded its targets. In the 2015-16 fiscal year, for example, it approved 115 applications for the rebate, disbursing about $34.4 million, exceeding its roughly $22 million budget for the year.

Molokoane says outside auditors began reviewing claims across all DTI incentives three years ago, a lengthy process that can slow disbursements. In some cases, she notes, they uncovered instances where producers misrepresented expenses, such as wrap parties that didn’t meet the guidelines for qualifying spending — a red flag that would trigger a series of examinations.

Because the rebate is pegged to initial estimates of qualifying spending, adds Molokoane, payouts can be smaller than anticipated if a production comes in under-budget. The Byzantine application process can stymie inexperienced filmmakers. “The devil is in the details,” says Rudi Van As of Film Afrika (BBC and Netflix’s “Troy: Fall of a City”; Starz’s “Black Sails” and “Outlander 3”).

Some speculate that the DTI is being overwhelmed by a dramatic increase in rebate applications, with more than one producer suggesting the industry is a victim of its own success. That’s little consolation for small companies that rely on regular payments throughout the production process. Some have waited more than a year to receive their final pay-out, according to Raleigh, which he calls “a potential death knell” for indie producers.

But for big-budget foreign productions, which typically arrive in South Africa fully financed, such delays are a minor concern. Veterans of the Cape Town production services industry say they’re still able to offer foreign producers assurances that the rebate check will arrive, adding that they’ve witnessed a marked improvement at the DTI in recent months. For the South African biz to continue making the strides of recent years, however, the government and the local industry need to be on the same page.

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