Economic Cluster Briefing for Cabinet Lekgotla

Q          A Journalist referred to the National Industrial Participation Programme (NIPP) due to be announced in the week, on which the volumes threshold was still being canvassed. He asked what the final makeup would be as to the balance between generic and targeted incentives. He also queried the defence aspects of the NIDP (National Industrial Development Programme) as well as rail investment with reference to the Competitive Supplier Development Programme (CSDP) approach.

A          The Minister responded that on the matter of NIPP, they had produced the draft of the new programme. They had undertaken consultations with industry in order to have a fair sense of their views before meeting with Cabinet. They had already gotten a good sense from the response of the Original Equipment Manufacturers (OEMs). Treasury and other stakeholders need to be included and all aspects were still subject to consultation. The final product would be taken to Cabinet. He said the industrial financing work was unfolding. They were not at a stage where they could say they have a complete architecture. The department had reviewed schemes, drawn lessons from the review, and had developed a new suite of industrial financing schemes. The challenge was that there was not commonality to the understanding between the DTI and the National Treasury. Another issue was the design of the financing instruments and what they intended to achieve. The upshot was that funding had to be a lot more conditional in terms of delivery on the important priorities. They have targeted as well as generic schemes to consider. The final makeup would be clearer over time and the scale could not be clear right now as that work was still unfolding.

Q          The media queried rail investment and the Competitive Supplier Development Programme (CSDP) approach to procurement.

A          The Minister commented that the question was a bit complex. He responded that the Department would be managing the Offset Programme and that a lot of this project was done under the Offset Programme. It was reported on annually and that information was available. Another annual report was currently being prepared, so there was material available detailing the real figures on outcomes and jobs created from the Offset Programme.

Mr Matona responded that concerning the South African Rail Commuter Corporation (SARCC), the CSDP did not seek to overturn the NIPP. The NIPP sought to maximise industrial development opportunities. If the Department of Public Enterprises (DPE) preferred another approach like the CSDP, then it would apply to procurement under the DPE.

Mr Davies responded that NIPP was the norm and that CSDP was put forward as an alternative relationship between suppliers and the procurement agents. This required additional effort on the part of the procuring agencies. If CSDP were not used, then NIPP would apply.

Q          The media posed a question on land reform and referred to the 5 million hectares to be reformed over the next two years. How could this be guaranteed and were there any new ideas on this matter.

A          Minister Mpahlwa responded that land reform was not an area where they had introduced change – it was not a new programme. It has been given a new burst of energy and was based on reflections of what had not worked. He commented that land restitution had not amounted to viability. They would have to provide support mechanisms for people to start viable agricultural activities. The previous programme had implementation challenges. The requisite capacity was lacking. More focused attention would have to be given to implementation. Clearer targets had to be set, especially for increasing black entrepreneurs, trade and access to services.

Mr Davies suggested that questions be held over until the Working Group on Agriculture had met. This concerned mostly geographic work, identifying the best commercial agricultural prospects across the country. This was a comprehensive programme around support and acquisition. This work was, of course, also linked to the issue of climate change and medium term rain prospects were a consideration.

Q          The media queried SARS' targeting of the underreporting of import figures and the DTI's opinion on this.

A          Mr Matona replied that this was an effort to improve customs administration and law enforcement at the border. He could not say much about this at this point. As regards the aims of SARS – customs had not had the capacity to address this and Commissioner Gordhan supported the need to maintain South Africa's integrity at the borders. He reported that the budget for incentives currently stood at 700 million over the next 3 years. The budget would be reviewed upon the response. The total available budget was R5 billion over the next 3 years.

Mr Davies responded that the NEDLAC partners had agreed to work together. This was an engagement of business, labour and government departments. It was not just SARS but other stakeholders would also contribute information and resources. Key to this initiative was a bigger effort to detect illegal imports.

Q          A journalist referred to the recent discussion in Cabinet on the Free Trade Area (FTA) with the Southern African Development Community (SADC) and the subsequent approval of the SADC FTA. He requested further detail on this matter.

A          The Minister responded that this briefing did not cover that. It was meant to be a report on the outcomes of the Cabinet Lekgotla. He could confirm that the FTA would be launched at the SADC summit. At the appropriate time information would be provided from the SADC Secretariat, who would be doing the launch at the summit. Elements, such as what the FTA would mean to the stakeholders would be covered by the SADC Secretariat.

Q          A journalist asked for more information on South Africa’s trade policy, regarding the collapse of the Doha Round of the WTO. She wanted to know where South African trade talks would go now.

A          The Minister replied that the work on trade policy flowed from the Industrial Policy Framework (IPF), which was clearly informed by the Industrial Policy objectives. There was work underway in the Industrial Policy review. The DTI sought to achieve simplification of the tariff book. They had identified sectors such as clothing, textiles and chemicals and would review tariffs in these sectors to facilitate a clearer view on these sectors.

Generally they addressed the question of input costs and would duly eliminate those that serve no purpose except adding cost.  They would work bearing in mind what they had expected to come out of the Doha negotiations. This was necessary as they had not achieved a result. The view of the DTI was that issues around agriculture were the main reason for the standstill of the Doha round. It had previously been agreed that agriculture was at the centre of many issues of global trade and to address development issues. This round confirmed the attempt of the developed countries to shift focus away from agricultural market access to other types of markets.
There was not a commonality of meaning of achieving developmental outcomes. It was necessary that developed countries have more commitments than developing countries. They had seen quite an aggressive approach to obtaining market access for developed countries products. This was less than full reciprocity and in their view, was the reason for the subsequent breakdown.

The problem was the attempt to adopt rigid approaches to the issues of developing countries. He commented on the agriculture text being very complicated and that it sought to accommodate the needs of developed countries. The text did not allow flexibility for developing countries to deal with their difficulties and meet their needs.

South Africa had already taken up commitments in the Uruguay round and felt that the recognition for this was insufficient. There was also not enough flexibility in the proposals of the developed countries. They have noted particular challenges of lack of flexibility in certain chapters referring specifically to South African trade challenges: clothing, textiles and footwear. However, work on trade policy would continue.

Mr Davies replied that fairly heavy tariff cuts had gone through at the Doha round. On the prospects for resumption, he stated that the WTO talks might not resume until next year, at the earliest. They were attempting to reserve the good work done but maintain that the packet presented could not be the basis for future engagement. How the ball would be picked up remained to be seen.

The DTI's current position was predicated on the realisation that the dynamic countries are the developing countries (making up 30% of world trade currently with a projected 50% share in the future). He stated that half of that was South-South trade. This trade was particularly responsible for the minerals boom. The priorities the Department would pursue, energetically, would be South Africa's relationship with these dynamic countries.
Regional integration was also on the agenda with the upcoming SADC summit later this week.
In the main, the basis for future interaction would be more equitable relationships with developed countries. The multilateral system had been weakened for the moment as the developed countries' needs had been put ahead of developing countries needs. He had no doubt the Doha round would resume in the near future.

The media briefing was adjourned.

Media Briefing

Economic, Investment and Employment Cluster’s Report from Cabinet Lekgotla
Briefing By:The Honourable Minister of Trade and Industry, Mandisi Mpahlwa

11 August 2008

Introduction
The July 2008 Cabinet Lekgotla reviewed progress in the implementation of the Economic Cluster’s Programme of Action (POA) with a focus on the Cluster’s Apex priorities and key projects in the Medium Term Strategic Framework.

Regarding Apex priorities falling under its purview, the Cluster highlighted progress and challenges in implementation of the Industrial Policy Action Plan (IPAP) coordinated by the dti, the Land and Agrarian Reform Programme which is jointly implemented by Departments of Land Affairs and Agriculture, the National Energy Emergency Response Plan coordinated by Department of Minerals and Energy as well as Department of Communications’ ICT interventions.

Medium Term Strategic Framework issues that Cabinet considered included the Revised National Human Resource Development Strategy (NHRDS) led by Departments of Education and Labour, the Framework for Economic Regulators developed by the Presidency and Department of Environmental Affairs and Tourism’s Long Term Mitigation Scenarios (LTMS) on Climate Change.

Progress on Apex Priorities
1. Industrial Policy Action Plan
The report on the implementation of industrial policy highlighted progress that has been made in key actions of the IPAP. The progress also highlighted government’s experience of implementation of industrial policy, challenges as well as recommendations on how best to implement industrial policy going forward. This input was timely, given that it is a year since Cabinet’s adoption of the National Industrial Policy Framework and its first action plan exactly a year ago.

Progress on sector strategies includes:
First draft outlining new motor industry support programme has been completed and is on track to be announced in August 2008
In the metals and chemicals sectors, the implementation of NEDLAC sector agreements reached with industry stakeholders has begun
The National Tooling Initiative has been launched in support of the capital goods sector
Draft CSDPs have been developed for Transnet and Eskom
Tariff review in clothing and textiles, chemicals and aluminium products are to be finalised by the end of the year
Urgent interventions in clothing and textiles are being developed in consultation with industry stakeholders
Good progress has been achieved in the implementation of actions in AsgiSA priority sectors; such as the roll-out of existing BPO incentive scheme and the launch of Tourism Support Programme (TSP)
In forestry, work continues in the Eastern Cape and KwaZulu-Natal and new interventions are being investigated for Mpumalanga and Limpopo

In the cross-cutting areas identified by the IPAP, progress includes:
A comprehensive review of industrial financing has been completed and new support programmes are being developed including:
Enterprise Investment Programme launched
Film and TV production rebate launched
Agreement on the structure of tax incentives for industrial policy interventions has been reached with NT and will be completed in September 2008
Competition Amendment Bill is being considered by Parliament
A comprehensive trade policy is being developed to ensure alignment with industrial policy. This will be completed by end of 2008
The Technology Innovation Agency is being established

On the approach of industrial policy, the focus of implementation has been on low-hanging fruits (implementation of actions in sectors such as BPO, and tourism) and it has been agreed that going forward there is a need to step up industrial policy interventions that will transform the structure of the economy and ensure that is more labour-absorbing. These interventions will focus on growing the tradable sector of the economy, increasing the level of competitiveness through the reduction of costs of key input sectors and improving the level and quality of government’s ability to implement industrial policy.

Cabinet approved the shift to a three-year rolling IPAP that while retaining annual targets but will be aligned to government planning and budget cycles and allow for a longer time horizon for implementation of industrial policy actions. Cabinet further tasked the Economic Cluster to develop mechanisms to ensure that industrial development objectives are promoted in large scale public procurement and infrastructure roll-out.   

2. ICT Interventions
The Cabinet noted progress that has been made on ICT interventions particularly regarding the Broadcasting Digital Migration and deployment of submarine cables. To highlight the progress that has been made thus far on submarine cables:
Infraco has reserved manufacturing slots with suppliers for the African West Coast Cable (AWCC). The main objective of the cable is to ensure the sufficient supply of broadband and connectivity with the European markets.
On UHURUnet agreements have been reached with Nigeria and discussions are underway Kenya to finalise implementation plans.
Guidelines on the rapid deployment of electronic communication network facilities have been gazetted and comments are being incorporated. This work will inform policy directives around the issue of balancing investment into South Africa and Africa network infrastructure and ensuring that national security concerns are catered for.

On Broadcasting Digital Migration, progress has been made to finalise the policy. On the development of the Set Top Boxes, consultations with industry are underway on the manufacturing strategy which will be finalised by a task team made up of the dti, Department of Communications and Department of Science and Technology. This strategy will ensure that local manufacturers access the opportunities as a result of increased demand and will be a catalyst for the further development of a competitive electronics industry. As announced recently the roll-out of Set Top Boxes to poorer households will be facilitated via a subsidy.

3. National Emergency Response Plan
Government has succeeded in responding to the immediate electricity emergency with institutional structures in place. Supply as well as demand side interventions have been developed and are currently being implemented.

On the supply side, the reduction of unplanned maintenance has been kept below 2500 MW per day and Eskom coal stockpiles have increased from just less than 13 days in January 2008 to 19.8 in June 2008.

The progress that has been made in the implementation of the response plan was noted by Cabinet and the Cluster was tasked to continue its work on developing a framework for large new electricity connections. Cabinet also approved an Inter-Ministerial Task Team which includes Departments of Transport, Public Enterprises, Minerals and Energy, the dti, including relevant provincial departments and local government to ensure that logistical challenges to coal transportation are overcome.


4. Land and Agrarian Reform Programme (LARP)
On LARP, which has faced considerable implementation challenges,  such as escalating land prices, inadequate coordinated funding, the capacity of targeted beneficiaries and funding for rehabilitating collapsed agricultural infrastructure, Cabinet approved that the programme should be sufficiently resourced going forward.

Medium Term Strategic Framework Issues
1. Revised National Human Resource Development Strategy
The Cluster has finished its work revising the National Human Resource Development Strategy and it is ready for consultation with stakeholders.

The review process of the current strategy revealed that appropriate institutional mechanisms are crucial to the effective integration, coherence and coordination of human resource development initiatives.

The main challenges in the human resource development system includes the responsiveness of education and training to the development agenda, skills shortages in priority areas, quality issues in the skills development pipeline, quality and effectiveness of education and training providers.

The strategy will be focused on strategic priorities that are aimed at addressing the most pressing imperatives for HRD and in so doing, to leverage and stimulate other HRD related activities in the country.

The strategy takes both a short-term and a long-term perspective n what is required. The 5-year strategic framework is focused on a call to action and uses the concept of ‘commitments’. The 5-year framework also comprises of strategic priorities, objectives with indicators and timelines. The purpose of the framework is to respond to the immediate short-term needs of the economy.

The 20-year framework comprises long-term strategic priorities focused on improving human resource development indicators and overall country competitiveness in skills development initiatives.

2. Long Term Mitigation Scenarios on Climate Change
The issue of global warming has become a reality that will require swift interventions on a global scale to reduce or eliminate climate change impacts.

Six broad policy direction themes have been developed to respond to climate change and greenhouse gas (GHG) emissions. These include:

GHG emission reductions and limits, including targets
Build on current initiatives. This policy direction is focused on scaling-up current energy efficiency and electricity demand-side management initiatives and interventions
Implementing a business unusual approach call for action. This will require significant investments into the energy renewable sector and development of appropriate measures and policies to meet ambitious national targets on renewable energy.
Preparing for the future, which will include the support for new and ambitious research and development targets that are being set, most importantly in the field of carbon-friendly technologies
Vulnerability and adaptation. Interventions in this area will include the continuous identification, description and prioritisation of South Africa’s vulnerabilities to climate change. This will result to the development of appropriate adaptation interventions
Alignment, coordination and cooperation. This will include clarification of roles and responsibilities of all stakeholders, particularly organs of the State

Cabinet approved all the policy directions that have been highlighted and the process going forward that will lead to the development of the country’s Climate Change Response Policy.

3. Framework for Economic Regulators
The Cluster presented a draft of the Framework for Economic Regulators for input by Cabinet. Cabinet noted the progress of work undertaken so far and highlighted specific areas where work must be developed going forward. The Cluster will provide progress updates during remaining cycle reports.

Conclusion
In conclusion, Cabinet noted progress that has been made by the Cluster and directed the Cluster to further accelerate the implementation of current initiatives. This implementation will be reported on in remaining cycle reports during the year.