The GBS incentive: A shot in the arm for growing youth employment in South Africa

The Global Business Services (GBS) incentive is credited by the industry for incentivising 80% of the employment growth in the GBS sector. Notwithstanding the significant job losses in the South African economy in 2020, according to the industry body BPESA, the GBS sector managed to create 17 354 new jobs servicing the international market largely in retail; utilities and energy; and telecoms industry verticals. 87% of these new jobs were for youth (aged 18-34 years)¹. The country has built an international reputation as a high quality, cost-effective location for outsourced business services, ranked the 2021 top location for outsourced services, having captured the second-place position for three consecutive years². Key to the cost-effective value proposition, is the role of the GBS incentive in reducing the operating costs for new jobs in this sector.

An attractive cash grant for creation of new offshore jobs in South Africa

The GBS incentive targets investors that are looking to locate their shared services centres, customer service centres or centres of excellence in South Africa to service offshore markets. The incentive applies for both captive and outsourced operations. With as little as a commitment to create 30 new jobs³ targeted at youth, within three years and a three-year fixed-term contract for offshore activities, a project could qualify for the GBS cash grant.

Benefits

The GBS incentive consists primarily of a base incentive for three different categories of jobs created, defined by the fully loaded operating cost of each job.

• Tier 1: non-complex jobs, corresponding to a fully loaded operating cost per annum below 300 000 South African Rands (~ USD 21 000 or ~ £15 000⁴).
• Tier 2: complex jobs, with a fully loaded operating cost per annum between 300 001 and 600 000 (~ USD 43 000 or ~ £30 000).
• Tier 3: highly complex jobs, with a fully loaded operating cost is over 600 000 South African Rands.

The total grant per job offered by the GBS incentive over a five-year benefit period can be summarised as follows:

Figure 1: Total grant per job over a five-year (60 months) benefit period (period 2021/22 - 2025/26)⁵

A once-off bonus incentive can be available in the fifth year if the number of jobs created exceed certain thresholds: 

• a 20% bonus grant for projects creating more than 100 highly complex jobs; 200 complex jobs; or 500 non-complex jobs.a 30% bonus grant for projects creating more than 200 highly complex jobs;
• 400 complex jobs or 1000 non-complex jobs. The bonus incentive is a once-off grant payable at the end of the fifth year.

To put things in perspective, taking into consideration an average GBS grantamount per new offshore job created of R206,333⁶, and assuming all criteria are met, a company can obtain a GBS grant of approximately R10 million (i.e., 0.7 million USD or 0.5 million GBP) if it creates 50 new offshore jobs, and R200 million (i.e., 15 million USD or 10 million GBP) if it creates 1000 new offshore jobs.

South African Rands

• Average GBS grant amount per job : R206,333
• New offshore jobs created : 
  • 50  : R10,316,667
  • 100 : R20,633,333
  • 500 : R103,166,667
  • 1000 : R206,333,333

USD 

• Average GBS grant amount per job : $14,650
• New offshore jobs created :
  •  50  : $732,483
  • 100 : $1,464,967
  • 500 : $7,324,833
  • 1000 : $14,649,667

GBP 

• Average GBS grant amount per job : £10,523
• New offshore jobs created : 
  • 50  : £526,150
  • 100 : £1,052,300
  • 500 : £1,052,300
  • 1000 : £1,052,300

Figure 2: High level estimation of potential GBS incentive for 50, 100, 500 and 1000 new offshore jobs created, assuming all conditions are met

It is notable that the GBS incentive is available for remote working employees, assuming that all conditions are met. This flexibility, and responsiveness, has enabled the incentive to continue responding to the demand for South African- based business services despite constraints to business activity created by the COVID-19 pandemic.

The incentive is an efficiently administered, performance-based incentive, creating the certainty and a financial sweetener to contribute to an enabling environment for a sector poised for continued growth.

¹ BPESA, December 2020: GBS Sector Job Creation Report

² Ryan Strategic Advisory: Front Office Omnibus Survey

³ Projects creating mostly complex or highly complex jobs must meet minimum 30 jobs of which 60% youth jobs and non-complex jobs minimum job creation of 50 jobs, 80% youth

⁴ All exchange rates in this document are based on https://www.xe.com/ as at May 24, 2021

⁵ The base incentive amounts are decreasing slightly for the periods 2022/23-2026/27 and 2023/24-2027/28, to encourage rapid employment creation

⁶ Average GBS grant amount per job between non-complex (R134,000), complex (R205,000) and highly complex (R280,000). In practice the grant amount is to be determined on a job per job basis.