Economic, Investment and Employment Cluster briefing

Briefing

10 Mar 2009

Presenter: Minister of Trade and Industry, Mr Mandisi Mphalwa

Miniser Mphalwa explained that the Cluster had made significant progress in implementing several of the interventions identified in its three-year programme of action. These achievements were in areas such as promoting economic efficiencies, for example work on competition policy as well as economic regulation.
In the area of industrial policy, the completion of the framework and implementation of sectoral actions had been vital in promoting coordination of the country’s industrial policy process. Less was achieved in some items of their Programme of Action, and all work-in-progress in the Cluster’s Programme of Action would be carried forward into the next term of government. The work to improve capacity to co-ordinate and facilitate the implementation of the Cluster’s Programme and securing additional resources to implement Cluster’s interventions would also be prioritised.

Progress had been made with regard to review of competition policy and legislation, as well as in undertaking more active enforcement. The review was completed in December 2007 and the drafting of the Amendment Bill began in 2008, culminating in the Bill being adopted by Parliament and referred to the President for assent. The Amendment Bill gave competition authorities additional tools to deal with uncompetitive behaviour and complex monopolies in the economy, which hampered the development of more labour-intensive downstream industries.

The work on the Capital Expenditure programme remained critical to address inefficiencies in the economy and drive industrial development. On energy, the Energy Master Plan was approved by Cabinet in 2008. Eskom had also begun with its built programme. In addition, mothballed power-stations Camden, Grootvlei and Komati were planned to return-to-service by 2011. Energy conservation in mitigating electricity challenges in the short-term, while the Electricity Build Programme and other interventions, such as that of encouraging Independent Power Producers, were being implemented. Resources of the National Energy Efficiency Agency, Department of Minerals and Energy and Eskom, had been pooled to reach a bigger target market and ensure that an integrated approach was followed.

As part of the strategy to improve access to finance for
Small Medium and Micro Enterprise (SMMEs), the Khula direct lending business case had been completed and was presented to Cabinet in November 2008. The direct lending strategy was focused on providing finance to the lower end of the market, which was not serviced by mainstream financial institutions. In terms of employment creation, the Expanded Public Works Programme (EPWP) remained an important component of promoting public sector employment. The programme achieved its one million employment target. Phase two of the EPWP would be rolled-out during the next financial year.

Questions were asked about
PetroSA intention to build a refinery at Coega and government’s intervention in the South African Broadcasting Corporation (SABC) and the motor industry. In addition, the media probed the tax incentives in support of government‘s industrial policy.
 

Minutes

Q: A journalist noted that earlier in the day, National Treasury had released draft regulations relating to tax incentives in support of government‘s industrial policy.  As a result, he asked the presenter to comment on those guidelines and to indicate how much had been set aside to fund this strategy.

A: Minister Mphalwa replied that he had not yet seen the guidelines and could therefore not offer any comment. In addition, he recalled that at the time when the project was announced, a figure of R5 billion had been projected.

Mr Tshediso Matoane, Director-General, Department of Trade and Industry (DTI), explained that the precise amount of tax that would be foregone (for the incentive) was R 5, 6 billion. DTI was working together with Treasury on the guidelines and they would be released in April. Lastly, he highlighted that in the draft regulation, the emphasis was heavily slanted towards projects that promoted job creation, skills and enterprise development and energy conservation.

Q: The media was interested in how government planned to respond to companies that were in distress.

A: Minister Mphalwa admitted that this was a difficult issue because different sectors exhibited different characteristics. The approach that government would take when dealing with the automotive sector would differ with the approach taken in respect of the textile sector. This was due to the fact that the former had many linkages to other sectors of the economy and was very important for exporting value-added goods. In addition, he stressed that South Africa’s response to the crisis as a developing country would have to focus on what was “do-able within reasonable means”. One of the challenges that South Africa faced as a developing country was that it had limited resources and could not pump money into the economy as industrialised countries were doing. Accordingly, he stated that government would consider tweaking existing instruments and incentive programmes to make them more flexible and accommodative. Also, he stated that the financial sector was “scared to death” to lend and collaborative ways had to be found to encourage it to do so, perhaps through joint ventures with development finance institutions. Finally, he recognized that in some instances regulatory changes would be required instead of pumping additional resources into companies.

Q: A correspondent noted that Minister Mphalwa had disclosed to the Nedlac Task Team that the overall spending package on the Infrastructure Programme would decline from nearly R 800 billion to R 620 billion. In light of this, he enquired whether this was still the case and whether the country was experiencing major funding problems.

A: Minister Mphalwa accepted that his remarks could be misconstrued. He clarified that he was simply warning that there could be a slight drop in the number given the current economic climate. Lastly, he pointed out there had been a commitment made both through the State of the Nation Address and the Budget Speech that over the next three years, government spending on public infrastructure investment would be valued at R 787 billion.

Q: A reporter noted that PetroSA intended to build a refinery at Coega. As a result, he asked whether an analysis had been done on the impact of such a project on the current account deficit. In addition, he asked whether the project would provide opportunities for black business. 

A: Minister Mpahlwa emphasised that government would do what it could to limit the impact of the refinery building on the current account. Furthermore, he disclosed that exercises were being done with the Industrial Development Corporation to see how the impact could be reduced through the capital goods programme.

Ms Buyelwa Sonjica, Minister of Minerals and Energy, explained that the building of a crude oil refinery at Coega by the state oil company PetroSA, would save the country R18, 5-billion a year on imported petroleum products. South Africa was keen to become more self reliant and the new refinery would be a step towards that. At present, the country imported 60 per cent of the refined oil products, which proved very heavy on the balance of payments current account. The Minister believed that some of the refinery production could also be exported, which would further assist the current account deficit. However, she highlighted that her department was still concerned about what impact the development of transportation infrastructure from Coega would have on the country’s current account.
 

A: In relation to the second question, Ms Sonjica replied that the project was expected to create 25 000 temporary jobs and 5 000 permanent ones. She added that the Chamber of Commerce in the Nelson Mandela region was involved in the process and would ensure that opportunities accrued to SMMEs.

Q: A reporter asked the Minister of Communications to comment on the South African Broadcasting Corporation’s (SABC’s) financial distress and what her department intended to do about this. Similarly, she asked what kind of financial support would be provided to the automotive industry.

A: Minister Mphalwa replied that representatives of the automotive industry had met the government to discuss ways of supporting investment. A task team has been set up to drive the process and their work was still ongoing.  While he would not speculate on the kind of assistance that could be extended, the Minister stressed that any support would be considered in the context of the larger work that was being done through the Nedlac process.  Lastly, he confirmed that government was not going “to give up on the automotive industry”.

The Minister of Communications, Ms Ivy Matsepe-Casaburri, said that s
he had recently received three reports on the SABC. The first report was requested by her department from board members and middle managers at the SABC. Accounting firm Deloitte had also submitted a report which focused on the corporate governance structures at the public broadcaster. The report highlighted that this was inadequate and criticized the lack of proper procedures in human resource management. The SABC board had also asked law firm Bowman Gilfillan to submit a report. Having consumed all the reports, the Minister was of the view that something had to be done to reduce the “bloated personnel” and to ensure proper supervision of procurement within the organization. The Minister also accepted the Board’s view that the global financial crisis had also played its part in contributing towards the organisation’s problems. About R400 million of the current year’s loss was due to shrinking advertising revenue, which contributed 86% of the corporation’s funding. The Minister was encouraged by the Acting Chief Executive’s remarks that the organisation was looking at ways of reducing costs. Some of these would include a hiring freeze and significantly reduced travel budgets. The Minister said that the financial support would be directed only at the SABC’s public broadcasting activities, not its commercial operations, to ensure a level playing field in the industry. She stressed that her ability to intervene in the SABC was limited by law to protect the institution from political interference.

Q: A journalist interrogated two issues. Firstly, she enquired whether National Treasury had indicated whether they would provide the guarantees for the public broadcaster. Secondly, she asked whether there were deficiencies in the corporate structure of the organization.
 
A: On the first issue, Ms Matsepe-Casaburri said that she had not received any indication from Treasury (as to whether they viewed the request in a positive way) because unlike the norm, the SABC had approached Treasury directly instead of doing so via her department. Nevertheless, she divulged that her department had recommended that it assist the public broadcaster.

In respect of the second query, Ms Matsepe-Casaburri replied in the affirmative and confirmed that all three reports had made reference to deficiencies in the corporate structure of the SABC.
Q: A journalist asked the Minister Mphalwa to elaborate on what was meant by a “consistent approach to economic regulation”.

A: Mr Matoane explained that South Africa had inherited a number of regulators from the past and in the new dispensation several more had been established. The problem was that each regulator adopted a different approach and there was no consistency on each relating to corporate governance, mandate and several other factors. As a result, the framework for regulators was intended to deal with those problems. The work was at an advanced stage and it would be released in due course.

Minister Mphalwa added that it was necessary to ensure that regulators had the capacity to effectively execute their mandates in away that facilitated investment.

The briefing was concluded.

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