Trade & Industry: Minister's Budget Speech

MINISTER OF TRADE AND INDUSTRY MR MANDISI MPAHLWA, BUDGET VOTE 2008/9 NATIONAL ASSEMBLY

Madam Speaker
Members of the National Assembly
MEC’s and Heads of Departments (HODs)
Officials of the Department Trade and Industry (dti) and Council of Trade and Industry Institutions (COTII)
Leaders of organised Business and Labour
Distinguished guests
Ladies and gentlemen

The economic landscape

A key principle in economic thought is the concept of choice. And often what you choose not to do; is as important as what you choose to do. At the inception of democracy, we set ourselves the objective as government of overcoming the apartheid legacy of stagnation and discrimination in the economy, massive inequality, unemployment and poverty and gave ourselves the equally massive task of simultaneously transforming the economy as a fundamental condition for achieving our objectives as stated in the RDP and re-asserted in the Asgisa initiatives.  We made strategic choices and embarked on a process to pursue these objectives and have achieved undisputed, substantial success on which we must continue to build, better to accomplish the objectives and tasks we have set for our democracy.

In this regard, our economy has been growing steadily since 1994 and underwent truly significant growth over the last decade. Most recently, the economy grew by 5, 4 % in 2006 and at 5.1% in 2007. Fixed investment has grown dramatically from 15% in 2004 to 21% in 2007. Real income per capita (average income per person) rose at around 4% per person annually since 2004. The rate of unemployment fell from 31, 2% in March 2003 to 23% in September 2007. This translates into an increase of approximately 1, 8 million employed people in South Africa, a significant development that shows  that the economy has turned the corner on unemployment.

Madam Speaker, all things point out that we have built a stronger economy than the one we inherited in 1994 and the achievement should not be downplayed or denied in the transient theater of politics or the fickle fashionability of much of present day commentary.  There are challenges and constraints some of which are as a result of our success and to that extent, do not present a cul-de-sac but rather point us to the things we must tackle.

For instance, in manufacturing, during 2007, the strong growth in the domestic economy resulted in many sectors operating near full capacity which has meant that they could not respond to the higher domestic demand and which has been met through rising imports. This has also meant that firms are investing in re-tooling and capital equipment. resulting in the  in the strong growth in imports of capital goods putting further pressure on the current account deficit. .

Policy Evolution

Madam Speaker, having observed these positive changes it is important to re-state  however, that for this government, economic growth has never been an end in itself in our  economic policies. The overall objectives have been and remain the reduction of inequality, addressing the challenge of poverty and providing more and more jobs. Equally, our success in achieving macro-economic stability is also not an end itself. It is a stepping stone and establishes the conducive conditions for us to undertake much more complex longer term initiatives and strategies focusing on the real economy.

It is in fact through Asgisa that we have made these strategic choices in how we leverage macro-economic success in support of stimulating the real economy and  how we become an effective  developmental state,  capable of  tackling the more palpable, more real challenge facing our people of creating jobs, adding value, creating wealth and ensuring greater inclusivity and equity, by focusing on the binding constraints and identifying the necessary responses and interventions. In this regard what we are challenged with as the department of trade and industry is elaborating a comprehensive industrial policy and action plan as a strategy for stimulating and transforming the real economy in order to make a stronger contribution in pursuing our objectives. However to realise this, on the back of our achievements in the macro-economic environment we are now at a critical juncture that requires strategic choices to be made. In further building our economy we must identify areas where there can be value –add and importantly, by making sure that we make full use of our natural resources and our people. In turn, it helps solidify an ability to withstand macro-economic concerns in relation to the current account and macro-economic balance. In this regard, we have, with the assistance of national and international experts, done a deep analysis of the economy, identifying gaps and constraints and which required of us to elaborate a comprehensive, well analysed national road map that was broadly canvassed in government and the private sector and most importantly, enjoys strong political consensus and commitment.

In going about elaborating the industrial policy we have had to focus on analysing and understanding the dynamics and trends in the economy to better identify opportunities and constraints and to design the necessary interventions, taking into consideration too, the challenge of marginalization. .We have done this and must now implement the actions and continue striving to do so in a purposeful, concerted and effectively coordinated manner, better to realise our objectives.  With the passage of time, these interventions will evolve , it is a dynamic process and involves self-discovery on the part of all the relevant stakeholders. In the process we are mobilizing and deploying resources and are committed to be firm in the choices we are making and following through.

So, in taking this industrial policy framework forward, in putting in into practice, we will be dealing with sectoral interventions, technology support, industrial upgrading, sharpening our industrial finance programmes and interventions, and leveraging the entirety of levers and instruments throughout government and society. One such example is the role we play in identifying and supporting the supply of appropriate skills for industry.

Madam Speaker, we have said so before and would like to re-iterate that having an industrial policy framework has enabled us to clarify for ourselves how the different areas of our mandate hang together in the actions we undertake and to sharpen the actions we have to undertake, which we have organized into the themes of : industrial development, international trade and investment, broadening participation, regulation  and administration and coordination. Additionally, the framework has also taught us how we relate to other departments and the necessity for interdepartmental and intra-departmental relationships within the framework of the economic cluster. In this regard, we have made good progress and will continue to address the challenges that do emerge from time to time in such broad coordination efforts we are undertaking.

Honourable Members, allow me to now share with you how we have gone about implementing in each in each of the areas I have mentioned, including some specific actions undertaken and some of the challenges we face.

Industrial Development

In the area of industrial development we are  fast -tracking implementation of four lead sectors that have been targeted on the basis of intensive research and interaction with stakeholders.  This however, does not constitute the entirety of our actions. We will continue in these and other areas to elaborate more detailed plans, through the self-discovery process and will act when necessary.

In the interim the Metal fabrication, Capital and Transport equipment, Automotives and components, Chemicals, plastic fabrication and pharmaceuticals and Forestry, pulp and paper, and furniture sectors are enjoying focussed attention.

In this regard, the manufacturing of metals products and capital and transport equipment has already been benefiting from public investment in electricity and transport, as well as the mining and mineral-processing commodity boom. Consequently, we have already seen significant growth in output and employment in these sectors since 2004. However, there is much more untapped potential that can be unlocked in these sectors. DTI is working closely with Department of Public Enterprises, Eskom and Transnet to help build competitive South African suppliers in order to leverage the benefits of the public capital expenditure programme .In this regard we are looking closely at the costs of intermediate inputs into manufacturing with a number of import tariffs having either been removed or currently under review. We are encouraged by the more active role of the competition authorities in responding to anti-competitive behaviour in relation to inputs into these sectors. Firms in these sectors will be able to benefit from the Enterprise Investment Programme to be launched in July of this year as well as other support measures that are currently being developed. The National Tooling Initiative was launched in March 2008 and the first phase of the National Foundry Technology Network will commence in July of this year as important components of an industrial upgrading programme to allow firms to take advantage of the significant new opportunities emerging from the massive infrastructure investment being undertaken.

The automotive sector remains at the centre of manufacturing policy. Since 2005 the sector has almost doubled in size with a ten-fold growth in exports. We believe – as does the industry – that it is possible to re-double this figure by 2020. Indeed we are alive to the need to bring certainty to the matter of the support that government can make available and we are working with the industry and this work is centering on the review of the MIDP. When we conclude this work, we will outline the new programme towards the vision 20/20. The quid pro quo that will be expected of industry for this support will be to accelerate their levels of productivity growth and to fundamentally deepen the component industry in South Africa. To support the deepening of component capabilities we have been rolling out the first component of a three-year supplier development programme through the Automotive Industry Development Centre. By August the revised architecture of the programme will be announced. We are also encouraged by recent investment commitments which indicate the industry’s confidence in South Africa as an investment destination and as a production platform integrated into global supply networks. Recent investment commitments indicate the industry’s confidence in South Africa as an investment destination.

The downstream components of our chemicals value chains remain under-developed relative to their potential and we remain concerned about input costs into the industry and in this regard a review of import duties on upstream chemical products is expected to be completed in June of this year.

With respect to the forestry sector we have secured an agreement with Department of Water Affairs and Forestry to fast-track the issuing of water licenses which will facilitate the afforestation in the Eastern Cape of 3,000 hectares in 2008, 8,000 hectares in 2009 and 10,000 hectares per year thereafter in the Eastern Cape.

In addition, we are engaging the clothing and textiles sector to address the challenges with a view to placing the sector on a sustainable footing. . The introduction of quota’s on certain clothing and textile products from China has helped to slow the flood of imports into South Africa. However, such measures alone cannot restructure the sector. Therefore we are finalising a package of measures which includes: A competitiveness-based incentive scheme to replace the Interim Textile and Clothing Development Programme, taking due consideration of progress with the review of the ITCDP that is currently under way in SACU. A dedicated inter-departmental Illegal Import Task Team will tackle the issue of smuggling and under-invoicing and a Systematic review of input costs along the value chain will be undertaken. Most of this work will be completed by the end of this year, particularly in relation to the replacement incentive scheme. In addition a medium-long term innovation and technology plan for the sector will also be developed.

We are making very good progress with respect to key ASGISA sectors.

The roll-out of the Business Process Outsourcing (BPO) incentive scheme is already showing substantial success with. 9 approved projects. These will  generate 9,132 jobs and R658, 927 investment. A major global BPO&O operator - TeleTech has been successfully recruited to set up shop in South Africa. This signals that South Africa is beginning to stake its place in this high-growth global sector.

In Tourism DTI will roll out a customised tourism incentive programme under the broader umbrella of the Enterprise Investment Programme. This programme aims to stimulate job creation and promote tourism investments outside of traditional destination clusters

Industrial financing

The Enterprise Investment Programme (EIP) will be launched in July 2008 and will support investment predominantly in the manufacturing sector as well as non-traditional tourism areas. In addition we are working with National Treasury to give effect to a package of R5bn in tax incentives. We expect this work to be completed by December 2008. In March a revised Film and Television incentive programme was launched with aims to deepen local production. In addition, we believe proper strategic oversight of the policies and operations of the IDC is now possible because we now have an industrial policy and are engaging them on their role as an industrial  development finance institution. 

Honourable Members, we are fully cognisant of the challenges and complexity regarding implementation of industrial policy and we know from our experience now that we must improve coordination but as government we must also ensure that the necessary resources are available. In turn these resources should be utilised with the necessary discipline, accountability and constant monitoring. With all these elements in place we will execute our industrial development mandate with vigour.

Regulation

Madam Chair, but as we make progress in these areas, as we are now doing, it is important that our markets function optimally to attract new entrants and to protect consumers. The modernization and transformation of the policy and regulatory framework has therefore been a key feature of dti policy.

In this respect, the development of a national credit policy framework and the subsequent passing of the National Credit Act of 2005 have fundamentally changed the micro-lending and general credit industry, by instilling responsible lending practices by industry and ensuring full disclosure by both the lender and borrower during credit transactions. (Sub-prime crisis in USA)

Our people are now also provided with greater protection than ever before as the drafting of the Consumer Protection Bill, has meant that consumer rights are now codified and institutions for the effective resolution of consumer complaints and enforcement of the law will be established.

Furthermore, a policy framework for a new regulatory dispensation for companies culminated in the development of a new Companies Bill that is expected to be passed into law this year. Concurrently, a review of the competition regulatory landscape was undertaken and the resultant amendment Bill is expected to be passed into law during the course of 2008.

These changes impact on every consumer and every business in the country. Most importantly, for the first time in South Africa our regulatory framework is as much concerned about the protection of each citizen and economic actor in business transactions as it is about ensuring that businesses are protected from unfair competition through collusive practices, amongst others.

Technical Infrastructure

Honourable Members, trading internationally is a competitive endeavour and we are determined that as we ramp up our manufacturing capabilities, the quality of our product should become a defining feature of trading success. It is therefore important that South Africa improve its technical infrastructure, to support our industrial and trade and investment policies in particular. We must reach internationally accepted levels of setting standards, testing against these standards and accrediting various suppliers as competent to perform technical measurements. I am therefore very pleased to report that we have made excellent progress and a key achievement has been the finalization of the Accreditation for Conformity Assessment Calibration and Good Laboratory Practice, and the National Measurement Standards and Measurement Units Acts in 2007. The Standards Bill and the National Regulator for Compulsory Specifications (NRCS) Bill will soon be finalised The massive project for the legislative reform of the South African technical infrastructure, to place us on par with the best in the world, will then have been completed.

Honourable Members, these deep structural changes to the economy are being achieved on the back of continued efforts to increase market access for South African goods and services. In particular, we seek to increase higher value added exports, and to promote trade and inward investment. We will therefore forge closer alignment between our global and regional trade and investment engagement and the priorities emerging from the industrial policy. This will be reflected in the markets that we are targeting and prioritising for strategic relationships and partnerships for the goods, services, investment and technology we prioritise for engagement. And it will be reflected more precisely in the negotiating positions we take including in terms of the new frontiers for trade policy development on such issues as services, competition, and investment. Market access has increased substantially since 2004, helping to boost our exports and we continue to pursue new markets. In this regard we have pursued negotiations and concluded a free trade agreement with the European Free Trade Association (EFTA) comprising Switzerland, Norway, Lichtenstein and Iceland, that offers full duty free access for South African industrial exports to those markets, providing new opportunities for our textiles and clothing industry. We have pursued negotiations with MERCOSUR, comprising Brazil, Argentina, Paraguay and Uruguay, and we are close to concluding these negotiations. The scope of the market opening is more limited but the Agreement will create a legal and institutional framework for managing our trade relations with these important countries of the South and offer further opportunities to improve our export growth. In September 2007, we initiated a similar negotiating process with India.

Honourable Members, taking advantage of this market expansion we have in the last year  mobilized domestic and international investment, generating a pipeline of 74 projects worth R206 bn with a job creation possibility of over 30,000 jobs. Domestic investment projects are worth R 153 bn and Foreign Investments are worth R 53 bn. R 171 bn in the pipeline is committed or in progress. Manufacturing accounts for R 19.7 bn, Resources 182.7 bn and Services    R 3.6 bn.  We have been able to achieve this by focusing on customer needs and responding by reducing red tape and providing a “one stop shop” service to investors.

Exports too have performed well and continue to show great promise. We launched a new strategy that is targeted and focused on high growth areas. We continue to leverage our market access opportunities in the EU, USA and now EFTA. Average export growth between 2003 and 2006 was 14%. Export growth in 2006 was 19, 6% and in 2007 it was 24, 6%. This contrasts with import growth in 2006 at 32, 3% and in 2007 at 21, 16%. The trend is that exports continue to grow faster than imports, which over time should have a positive impact on the country’s current account as I indicated earlier. Of significance too is that manufacturing exports grew from 18, 75% in 2006 to 25,1% in 2007.


Broadening Participation

Madam Deputy Speaker, strong economies and successful nations are developed over a long period through sustained investment in people, productive capabilities and ensuring the greatest degree of participation by people in all forms of economic activities. To break the stranglehold of underdevelopment and the legacy of the past in our nation is going to require bold interventions focusing on unlocking the potential and will of our people.

In particular we now know, as argued for in the integrated small business strategy, that improving access to business support information, access to business finance, particularly micro and small enterprise finance, market access and a coordinated service delivery access the public and private sector, are the critical intervention that will make to make a difference. So it is important that we foster greater numbers and diversity of entrepreneurs. In this regard, we have now established a comprehensive enterprise support infrastructure centered on SEDA for non-financial support and Khula and SAMAF for enterprise finance, including micro-enterprises and cooperatives. In this regard, since the establishment of SEDA in December 2004, 42 seda branch offices have so been established, establishing for the first time a national footprint of coordinated service delivery for small business. Another landmark has been the establishment of the South African Micro Apex Fund (SAMAF) which currently has 31 loan application access points across the country.  In addition Khula has repackaged its financial activities leading to strategic partnerships and joint venture initiatives, such as the start up fund and the factoring fund and the NEF has improved its performance immeasurably. Honorable members, Deputy Minister Thabethe will address these matters in more detail. I want to make the point though, that now we are much clearer on what is required to support the development of small enterprises, it is also quite clear that we will not make the desired impact without the substantial allocation of new resources. The bottom line is that we will have to become much bolder and calculatedly less risk averse in rectifying the quantum of support for enterprise development.

In regard,  to  the Broad-Based Black Economic Empowerment - and its accompanying Codes of Good Practice which were completed last year, these are important instruments to facilitate the massively increasing participation of black people and thereby ramping up the productive capacity of our economy.

BBBEE activity has shown a sharp rise with respect to the number and nature of transactions, involving new enterprises and new consumers.  Transactions concluded in 2007 involved R96 billion across a range of sectors including mining, financial services, construction, oil and gas, telecommunications and food and beverage. Increasingly, large companies are forging deals which reflect the key characteristics of broad-based black economic empowerment. In this regard, the National Empowerment Fund’s Asonge share scheme involving MTM shares and the Sasol Inzalo transaction, come to mind. Certainly, these headline grabbing initiatives are important but even more important is the intense activity taking place below the radar, so to speak and which suggests that this process has now become embedded in our economic growth plan and is no longer a question of whether it is a good or bad thing, but rather how best to manage it. Certainly, this process has not scared off investors, and of has almost become an automatic component of every business transaction for domestic and foreign investment.

Our efforts to support this process will therefore intensify in the coming year and we will soon be in a position to announce the establishment of an Advisory Council, accredit verification agencies and gazettte a number of sector charters in addition to the several that have already been gazetted. 

Enterprise Development

Honourable Members, as important as the process of broad based black economic empowerment is to the future of business in South Africa,

Madam Deputy Speaker, in all of these initiatives, in all that we do and must do as the dti, a strong organisation is imperative. It is a large organisation by necessity because of the inter-relatedness of the functions that comprise its whole. Within this conglomerate resides the key policy and implementation capacity -which acting in concert with the cluster of economic departments and indeed government as whole-that must propel growth in the real economy. In taking up this challenge, this administration inherited a department that had undergone a necessary process of restructuring and upon taking office we were convinced and remain so, that the restructuring had delivered the appropriate instrument for our mandate. But from time to time we have brought about refinements and will continue to do so, where appropriate. For instance, further refinements will involve organizational change to sharpen our focus on the hard core industrial policy work and small business development.

Overall however, we find that the overarching industrial policy framework has shown the extent to which the different parts of the system work together to release synergies and improve efficiencies. In this regard we are developing a more robust system for agency management and will be strengthening the senior management tier to strengthen operational capacity.

Finally, the personnel and top management of the DTI will do all in their power to realise our vision of a growing an equitable economy that leads to development for all. We will do so with boldness in approach, vigor and consistency in implementation.

My thanks therefore to the Parliamentary Committees, the Deputy Ministers Thabethe and Davies, the Director-General and the entire staff of the dti for their commitment, support and hard work. It is my privilege to be a Minister of such an exciting department.  



We commend this budget to the House.