LOGIC? WHAT LOGIC?
DTIC blamed as rocky times hit South African film industry
South Africa’s film industry is a success story, attracting foreign capital while creating jobs. But inexplicable decisions by the Department of Trade, Industry and Competition threaten to stifle growth.
Desperate times call for desperate measures. And this is exactly how the co-founders of multiaward-winning film and television production house Yellowbone Entertainment felt when they dragged the Department of Trade, Industry and Competition (DTIC) to court after millions of rands guaranteed through South Africa’s film rebate scheme were unexpectedly withdrawn.
This delayed the post-production of Blood Psalms, the ambitious MultiChoice and Canal+ co-production. The court forced the DTIC back to the boardroom table and last week the department agreed that the monies would be paid over, but it leaves everyone, including Yellowbone co-founders Jahmil XT Qubeka and Layla Swart with a bad taste in their mouths.
“The rebate scheme is everything; you can’t do business without it. If you are building a business case for funding and you can show that you have a rebate that will cover 35% to 50% of your costs, it becomes so much easier to find the rest of the money. It’s everything. We depend on it,” says Qubeka.
Yellowbone is not the only local film studio to suffer the consequences of what many in the industry believe is inexplicable behaviour on the part of the DTIC. “At least 30 local productions have received recent letters of repudiation from the DTIC, and at least R650-million is outstanding,” says one industry insider who preferred to remain nameless. “This is having a catastrophic impact on the industry. Three months ago the film studios had more work than they could handle, and this was a chance to create opportunities for new entrants. But now projects have been delayed or are moving to other countries that also have incentives and studios are fighting for every piece of work they can get.”
Taking a step back, the incentive scheme was established in 2004 when the then DTI recognised that foreign film spend could provide a rapid injection of capital into the economy. Slowly word got out that SA was a fantastic destination, and the likes of producer Ridley Scott arrived, producing features like Raised by Wolves in SA. But as the studios involved in this foreign work grew, those producing for the local market did not. “We lobbied the DTIC for a local scheme,” says Mayenzeke Baza, head of distribution and financing at AAA Entertainment. “Financing a movie in South Africa is almost impossible and although local platforms like DStv and M-Net do commission work, there is a problem with who owns the intellectual property. It is not the local producer. This incentive is vital to the local industry.”
By all accounts, these schemes have been instrumental in catalysing the growth of the SA industry. An economic impact report by the National Film and Video Foundation noted that in 2019/20 the industry contributed R7.2-billion to the economy and sustained 31,444 jobs. This fell in 2020/21 to R2.9-billion, with just 12,775 jobs sustained. While Covid-19 is the obvious culprit, the report noted that between 2017 and 2019 growth in SA’s film industry remained flat and, at worst, declined since the previous study in 2017. This was mainly because of funding constraints, an unreliable DITC, and challenges faced by the likes of the SABC, the report said.
The DTIC’s actions are even more bewildering, given that the foreign rebate incentive is self-funding as it contributes to the fiscus. The case can be made by analysing audited production expenditure accounts sent to the DTIC at the end of a project, as required by the incentive. According to one set of accounts, every R1.00 of the foreign film incentive attracted R6.31 in foreign investment into SA, earning R1.22 in direct taxes, providing a 122% return on each R1 incentive before taking into account R2.34 indirect & induced taxes, making it a total of R3.55 taxes earned by Treasury from each R1.00 incentive.
The timing could not be worse. The past decade has seen explosive growth of on-demand streamers such as Netflix, Amazon, HBOMax and Disney+, which has led to a race to create new and original content to attract subscribers.
“This created an unprecedented opportunity for South Africa to participate in the insatiable demand for content worldwide,” says Trish Downing, executive director of the Independent Producers Organisation (IPO). “International production spend ballooned from $177-billion in early 2020 to over $220-billion by mid-2021. The depletion of series and film stock during lockdown has led to an even greater spike in demand for new original content with over R4.5-billion of direct foreign investment in TV series and films earmarked for SA over the next 18 months.”
However, Downing was not prepared to comment further on the possible reasons for the DTIC’s behaviour, nor the possible consequences. “We have had several productive engagements with Minister Patel and his team and we are working on resolving the problems.” She was not alone in her reluctance to speak to DM168. Very few players, specifically the big studios, would talk on this subject for fear of annoying the DTIC. For its part, the DTIC, the minister, and his director-general, did not respond to calls for comment.
At its heart, the issue relates to black economic empowerment and transformation within the industry. At one level the industry is relatively transformed, with over half of companies in the industry at Level 1 (including the two biggest studios Moonlighting and Film Afrika which are black-owned), with another 24% of the industry at Level 2. But on another level, transformation is slow. For many years the film industry has been exempt from BEE legislation and has not had to comply with the generic scorecard. This is being addressed with the development of the Live Events and Technical Production Services Draft B-BBEE Scorecard under way between the DTIC and the Department of Sports, Arts and Culture.
“Transformation is happening, but at a pace that does not drive inclusive economic growth across all levels of the value chain and does not acknowledge the potential and aspirations of black-owned businesses,” says Quinton Fredericks, an award-winning documentary film-maker and co-chair of the IPO. “Foreign investment is important and keeping the big studios busy is absolutely critical, but how do we leverage and retain this massive opportunity for investment and growth in a manner that supports some of the key issues around transformation and meets both the industry and government’s objectives in driving inclusive growth and create much-needed stability?”
Baza adds: “Yes, the industry is being ‘blackified’. But the sense I have with the big studios is that this is happening at the top. We are not seeing legitimate and real transformation in any meaningful way.”
Some industry insiders that DM168 spoke to agreed that this may be legitimate criticism and that more work needed to be done. Others dismissed it entirely. “The problem is maladministration within the DTIC. It’s even worse than corruption,” says Qubeka. “And the fact that there is no process to question DTIC’s decision or hold them accountable makes it worse.
“We were accused of fronting … My company is 100% black-owned and my ego is way too big to front for anyone.”
That said, there are companies that may be fronting, and if they are, they must be tackled.
“The DTIC is repudiating claims that it has pre-approved. This process requires reams of documentation. If the DTIC approves a company, they must do the due diligence upfront, not after they have made the funding commitment,” he argues.
As a direct result of the DTIC’s actions, SA’s market share of worldwide production spend has fallen from 2% to less than 0.25%. “The DTIC is not honouring its financial commitments and this is threatening to derail the sector completely, and placing the jobs and livelihoods at risk,” says an insider.
However, Fredericks is optimistic. “We want a partnership with the DTIC, rather than an antagonistic relationship. And we are working together to resolve these issues. If we do, we will build this industry into something great.” DM168
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.