This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 PRETORIA 003175 
 
SIPDIS 
 
DEPT FOR AF/S TCRAIG; AF/EPS DKRZYWDA 
USDOC FOR 4510/ITA/IEP/ANESA/OA/J DIEMOND 
COMMERCE ALSO FOR HVINEYARD 
TREASURY FOR BRESNICK AND AJEWEL 
DEPT PASS USTR FOR PCOLEMAN AND WJACKSON 
 
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 
 
-------------------------- 
Introduction & Summary 
-------------------------- 
 
¶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. 
 
-------------- 
Rebate Program 
-------------- 
 
¶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. 
 
------------------------ 
Cape Town & Johannesburg 
------------------------ 
 
¶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. 
 
----------------- 
Recent Successes 
----------------- 
 
¶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. 
 
------------------------------ 
Other Incentives and Supports 
------------------------------ 
 
¶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. 
 
------------------ 
Conclusion 
------------------ 
 
¶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