Ministerial & Department of Trade & Industry briefing: Strategic Plan & Budget 2009/12

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Meeting Summary

The Deputy Minister of Trade and Industry and the Department of Trade and Industry (dti) briefed the Committee on their Strategic Plan and Budget for 2009-12. The dti placed emphasis on its responses to the global economic crisis, by way of both defensive and transformative measures, on improving access to finance for small, micro and medium sized enterprises and large industry. The reluctance of banks to extend credit was a potentially large problem, but bailouts could be used, as with the motor vehicle industry, to protect jobs. The Department was concerned about illegal imports being easily brought to South Africa, and dumping. Competitiveness of local industries must be promoted. The dti would fight protectionism through active participation in trade negotiations and by promoting diversification of South Africa’s exports to other growing and emerging economies.  Industrial Development was one of the major focus areas. There should be a focus on capital intensive industries.  Production should be geared to international standards. There was a need to get the provinces more actively involved. There was also a need to improve monitoring and feedback processes. The importance of improving South Africa’s trade relationship with China was discussed, and it was stressed that this should not compromise the good relationship and preferential trade agreements with Europe and America. Greater collaboration with India would also be beneficial. Other topics discussed included the Credit Act and regulations, the amendments to the Competition Act, improved regulations on gambling and lotteries and the move to regulate estate agents.  Rural development was another area of importance. Challenges were listed as including high turnover of staff, a limited recruitment pool, and the need to raise the dti’s profile. The budget allocations were shrinking, and this was of major concern.

The Deputy Minister noted that the fact that there were still two economies highlighted the need to give urgent attention to poverty reduction and developmental goals on the ground. Implementation of good policies and practices were crucial. The budget should talk to objectives and there was a need to create co-ordination between provinces and municipalities. Internal staff, and not consultants, should be drafting business plans.

Members asked how the dti intended to deal with economic issues and how it would work with the new Department of Economic Development, questioned the links with China and what South Africa would do if Chinese construction growth slowed, asked whether the strict regulatory regime had deterred investment, and questioned whether macroeconomic policies were presently effectively used. Members also addressed the Accelerated Shared Growth Initiative, whether actions being taken were actually assisting the poor, whether development was reaching the rural areas, the reach of the Expanded Public Works programme, and the focus and location of Industrial Development Zones. They noted criticisms that the National Credit Act had hindered initiatives. They questioned what bilateral agreements South Africa had, the World Trade Organisation negotiations, the products in the Government’s preferential procurement schemes, the work with cooperatives, the fact that work was still needed to ensure that locally manufactured goods were affordable, and what impact the Small Enterprise Development Agency had shown. 

Meeting report

Department of Trade and Industry (dti) Strategic Plan and Budget 2009-2012
Mr Tshediso Matona, Director General, Department of Trade and Industry, tabled the vision and mission of the Department, and detailed the strategic objectives  (see attached document). The Department had formulated some responses to the global financial crisis; described both as defensive and transformative measures, and the specific responses of the dti were detailed on Slide 11 (see attached presentation). There was emphasis on improving access to finance for small, micro and medium sized enterprises (SMME) and large industry. The reluctance of banks to extend credit was a potentially large problem for the economy. The motor vehicle industry was used in an example of a bailout that helped to protect thousands of jobs.

Mr Matona said that the “porous” borders of South Africa were of concern, particularly because of the ease with which illegal imports were brought into the country. There were discussions with the Department of Home Affairs (DHA) on this issue. Many of the illegal imports were being sold at a price below local cost, an activity known as dumping. Competitiveness of local industries should be promoted by intensifying awareness campaigns other than Proudly South African. Protectionism would be fought through active participation in trade negotiations and by promoting diversification of South Africa’s exports markets to the emerging economies that were still registering positive growth and were forecast to recover earlier from the crisis.

Mr Matona went on to discuss the plans and interventions of the dti in terms of its major themes. Industrial Development was one of the major focus areas. It was noted that there should be a focus on capital intensive industries that had in the past declined, such as rail. Production should be geared to international standards through the use of agencies such as the South African Bureau of Standards (SABS) and others. The motor vehicle industry was used as an example of the strategic importance of this type of capital-intensive industry, due to its wide use of other components that could be locally produced and sourced. The importance of Industrial Development Zones (IDZ) was highlighted as a major focus of the Department’s strategy and an area in which the provinces could be instrumental and effective.

The monitoring and feedback processes should be given more attention, to ensure better feedback so that money was not given to those who did not deserve it.

The importance of improving South Africa’s trade relationship with China, at the same time not compromising the good relationship with Europe and America (US) was discussed. Mr Matona cited the preferential trade arrangements with the US as beneficial, and said this was an arrangement that should be kept firm. He explained that greater collaboration with India in certain areas where this country was more efficient at penetrating South African large markets would be beneficial, as South Africa would gain from increased support, interactions and knowledge, allowing for greater growth in those areas. The point was made that the dti did not receive sufficient funding to support enterprises that would fail routinely in the market. Government intervention was necessary in certain industries and one initiative was for the government to procure certain goods exclusively from local SMMEs.
Mr Matona then praised the credit regulations as most recently applied, and noted that the amendment to the Competition Act sought to target the large players in industry. The Competition Act had been strengthened and was under consideration by the Constitutional Court. He further discussed the improvements to regulations concerning gambling and lotteries, as well as monitoring estate agents, mentioning that the Estate Agents Board was interested in having the legislation reviewed. Rural development was another area of importance, and the Department was working on this issue.

Mr Matona moved on to discuss some of the challenges facing the dti. He said that there was still the challenge of high turnover of highly skilled workers, who were incentivised away from the dti into other departments and the private sector. It was noted that the recruitment pool was also highly limited. The dti was looking to internship programmes and increased interaction with the universities. He praised the Department as being well run by its officials, as evidenced by the unqualified audit certificates. The profile of the dti still needed to be raised, and it would be useful to avoid the spread of rumours by constantly putting out correct information about its achievements, as well as its shortcomings and problems.

Mr Matona tabled the budget (slides 33 to 35 of attached presentation) and expressed his concern that it was shrinking at a time when it was very much needed, and noted that the Department had been very efficient in the use of its budget previously

The Deputy Minister of Trade and Industry, concluded by stating that dti needed to make a concerted effort to implement poverty reduction and developmental goals on the ground.

Discussion
Mr B Mnguni (ANC – Free State) asked how the Department was going to deal with economic issues in light of the recession, and pointed out that since this was also listed under Programme 6 of the National Treasury and the new Department of Economic Development (DED), he would like to know how the dti envisaged working with the other two entities.

Mr Matona replied that the attitude of the dti was that it had a wide ranging mandate, so any structural changes that could assist it would be welcomed. For this reason the establishment of the DED was welcomed, and dti would work closely with them. Mr Matona stated that dti had to do things established by the budget, but that it would be limiting and short-sighted if it were only to focus on that and that the dti needed to work with other departments. He admitted that this was an area in which the dti had not, in the past, been entirely effective. Since economic development was something that government in its entirety needed to promote, it meant that the core function of the DED would lie in strengthening policy development co-ordination. He added that the DED had identified this as a problem and that he agreed that coherence had not been strong. Mr Matona stated that the provinces made their own strategies and that national government also did so, but whether these two levels’ policies actually coordinated with each other was questionable.  He added that dti was working with the DED and that it was very excited as the new Minister was a visionary. Mr Matona cited as an example three or four provincial strategies, including the development of international airports and steel mills. Because these were not sustainable in those provinces, dti needed to work on provincial strengths and potentials realistically. He stated that co-ordination was a problem. In the past, the Department of Health (DoH) issued a tender for anti-retroviral drugs. Local pharmaceutical companies asked to be given the tender and capacity to deliver. However, the DoH allocated the tender purely on the basis of cost, and was planning on importing a large amount from India. Only towards the end of the process had the DoH met with dti, who persuaded the former to promote the domestic production. However, Mr Matona did not know what would happen when anther tender was put out, and so there needed to be firm measures in place. He hoped that the DED would knit the various structures into a cohesive, coherent whole, so they could work swiftly and flexibly.

Mr Mnguni stated that during the budget revue, economists stated that economic growth in South Africa in future would be closely linked with construction growth in China. He therefore asked what the dti was planning to do if the construction industry in China were to slow down.

Mr Matona stated, in relation to the question on China, that two years ago dti asked the Chinese to hold back a surge of exports to South Africa. He said that they needed to change the structural relationship and find a balance, and the Chinese have accepted this. As the Chinese economy was very State-centred, so was decision control, and when something was agreed upon it would usually meet with compliance from Chinese industries. If South Africa were to enter a bilateral agreement with China, dti would expect China to open up their markets, which were still very closed to South Africa. He added that there was a need to change the balance, and instead of having China buying iron ore, which it would then process and sell back to South Africa, China could rather invest and manufacture in South Africa, and from there export to the rest of Africa and the US. Mr Matona noted that dti would seek to engage with China along these lines and was working very closely with the Department of International Relations and Co-operation (DIRC). With regards to the implications of a slow-down in growth in China, Mr Matona stated that it was not a worry as China was still showing growth figures of 7% per annum despite the recession.

Mr Mnguni stated that countries with less ‘red-tape’ were able to attract Foreign Direct Investment (FID). South Africa was overburdened with red tape requirements, and he asked what the dti was doing to attract investment in light of South Africa’s regulatory environment.

Mr Matona conceded that there was considerable ‘red-tape’ and regulation, but said that dti was seeking to reduce this. Instead of the former situation where six forms must be completed in order to register a company, only one would be needed in future. The dti, South African Revenue Service (SIRS) and Statistics SA were working on a single business register. He added that despite the complaints he did not think that regulations served as a very significant deterrent. Factors were also determined by opportunities. The regulatory environment in China, India and Brazil was just as bad and South Africa was not an outlier in this regard. An important positive factor in South Africa was the rule of law, as investments were regarded as secure.

With reference to slides 9 and 10, Mr Mnguni stated that the dti was talking about deploying macroeconomic policies more aggressively. He asked whether this meant that current macroeconomic policies were not deployed effectively, and asked whether the dti needed to look at inflation.

Mr Matona said that with regards to macroeconomic policy, the Reserve Bank had responded well in that it did what the dti had envisaged; for the first time the Governor of the Reserve Bank spoke about the impact of the exchange rate on the real economy.

Mr K Sinclair (COPE – Northern Cape) asked what the new administration’s viewpoint was on Accelerated Shared Growth Initiative for South Africa (ASGISA) as a government strategy.

The Deputy Minister of Trade and Industry replied that ASGISA was developed by government and was aimed at the development of the second economy, and at increasing the involvement of the previously disadvantaged, to address the victims of structured economic blocking. She would be looking at all policies in place and evaluating what needed to be retained and what needed to be dropped. She added that she would look deeply into ASGISA and other policies and see how best they could be implemented.

Mr Sinclair stated that, in regard to the recession, it was in theory good to say that actions were being taken to protect bigger industries, but that the reality was that people were poorer than ever due to the neglect of rural areas. He stated that whilst it was not the dti’s sole mandate, it should have a role in rural poverty alleviation, and so he asked what dti was planning to do about the problem.

Mr Sinclair also commented on the Expanded Public Works Programme (EPWP). He said that there were some incentive schemes where government institutions were paid R50 a day for job creation, and asked whether this could not be applied to rural job creation, as there was a need for rural incentives.  Mr Sinclair stated that Industrial Development Corporations (IDCs) tended to focus on developing the eastern part of the country and that in the Northern Cape they had mines with the largest capacity, but that iron ore was going all the way to Coega in the Eastern Cape. He believed that there was a need to re-think geographic spread.

Mr Matona replied that development did target rural areas and that dti was working with other departments, such as Agriculture. He added that rural development was identified as a priority and that the dti believed it could make a contribution as it had the basis for doing so. Mr Matona stated that dti was looking at how it could use EPWP incentives to leverage the greatest impact.

Mr Tumelo Chipfupa, Deputy Director General: The Enterprise Organisation, dti, replied that the Minister of Trade and Industry designated Industrial Development Zones (IDZs) in particular areas, but that the initiative to apply for a declaration as an IDZ rested with provincial and local authorities. Dti would then work with these authorities to do a study and draw up a business plan. The dti was not responsible for identifying areas, but was changing regulations so that if it did see potential somewhere it could act. In the Northern Cape, the Karegas Municipality in Upington had seen the potential for agro-processing and a cargo-hub at the airport. He added that often dti’s hands were tied due to the slow work of provincial and municipal authorities.

Mr Sinclair stated that there were allegations that dti was not developmentally inclined and that this was to do with the strict regulations of the National Credit Act; he believed dti needed to look at these very strict regulations if it wished to grow the economy.

Mr Matona responded that he did not think that the National Credit Act was the reason that banks were not lending. This Act was intended to root out irresponsible lending to those who could not afford to repay the loans. In the analysis on the Credit Act, it was found that the poor had the greatest cost, and the dti was trying to eliminate this problem.

Ms S Chen (DA – Gauteng) asked what kind of mechanism or plan the dti had in place for the new co-operative incentive schemes in rural areas. She asked whether there were any other bilateral agreements with countries besides India, Brazil, China, the United States (US) and the European Union (EU), and how the Department would implement these bilateral agreements. Ms Chen asked what the ten approved products were that SMMES would be asked to supply under government procurement.

Mr Matona replied that dti did need to find a balance around co-operative incentive schemes, as it had a very great responsibility of using taxpayers’ money and had to be very careful over how such money was disbursed. He added that Preferential Trade Agreements (PTAs) with other countries would only be effective if there was a capacity to export. There was a need to work on capacity development, as there were much larger opportunities in the US and EU than South Africa was currently using to its advantage. Mr Matona stated that a more ambitious approach was taken when embarking upon the government procurement tender products, and subsequently found that most of the feasible products were services, such as catering, rather than manufacturing.

Mr Sipho Zikode, Acting Deputy Director General: Empowerment and Enterprise Development, dti, added that the Government set aside ten Cabinet-approved products. After creating demand for SMMES, the Government procurement was investigated and Cabinet approved a 30 day payment cycle, and compliance with this period was to be included as part of the performance review for the procuring government entity.

Mr F Adams (ANC – Western Cape) asked when the restructuring of the dti in regard to economic development would take place. 

Mr Adams asked if the Western Cape was part of any Industrial Developmental Zone (IDZ), and if not, whether it would be, in which case when this was likely to happen.

Mr Adams noted from the remarks that there had been a focus on China, with regard to dumping and illegal imports of textiles, but he pointed out that this was also happening from India and enquired what the dti was doing about India’s product dumping and illegal imports. He added that the problem was that many local manufacturers’ prices were way out of the market, and that even though dti needed and wanted to promote local products, these products were simply not affordable to locals. Mr Adams stated that when he went to watch a FIFA Confederations Cup soccer match he bought a boerewors roll from a stand, and was charged R20; he complained to the proprietor that he had only wanted to buy a sausage in a roll, and not the entire stand.

Mr Nimrod Zalk, Deputy Director General: Industrial Development Division, dti, replied that with regard to iron ore export to China there was a big problem with manufactured steel goods being exported to South Africa. He added that there was a need to focus on local procurement and manufacturing. With regard to illegal imports, Mr Zalk stated that dti was working closely with SARS and that together they were looking at strengthening customs implementation and legislation. He added that SARS had developed a dedicated capacity to deal with illegal imports.  Through New Economic Development and Labour Council (Nedlac) there were efforts to make import data more transparent.  Mr Zalk stated that in the clothing sector it may very well be the case that South Africa could not compete in the cheaper segments of the market and that they may need to focus on parts of the industry where they did have an advantage.
 
The Chairperson stated that the Committee would be visiting the dti offices in July.

The Chairperson noted that in the State of the Nation address the President announced the creation of 500 000 jobs by December, and asked how the dti hoped to contribute.

Mr Matona replied that he had remarked to a colleague that dti had not established monitoring models for job creation, even in the case where the new jobs had been created, and that this would be addressed as well as using direct levers (incentives) to create jobs. He added that the dti was well placed to create jobs.

The Chairperson asked if access to finance had any rural bias, and asked also for more information about corporate investment schemes.

Mr Zikode stated that the dti was engaged in a project to assist economic clusters of rural areas, identifying products and then implementing support programmes. With the assistance of the Japanese Government it hoped to implement a one-municipality, one-product scheme. He added that the first part of SEDA was to roll out infrastructure, since then they assisted drawing up 20 000 business plans. SEDA gave assistance on average to about 1 500 clients per month.

The Chairperson stated that there was one IDZ in KwaZulu-Natal, and two in the Eastern Cape, and asked whether there was plan to get the Richards Bay IDZ moving.

Mr Chipfupa stated that the case in Richards Bay was the issue of the relationship between the province, municipality and IDZ operating entity, and took a long time to resolve, but that during the last year the Minster intervened and resolved the issue. He stated that there was a philosophical issue with the incentive schemes as in the long term the projects had to show sustainability. Mr Chipfupa added that most of the manufacturing incentives were focused around areas that were geared towards manufacturing, such as the Western Cape, KwaZulu-Natal, the Eastern Cape and Gauteng.

The Chairperson asked whether the dti could share its achievements on bilateral agreements. He said that Mr Matona glossed over the World Trade Organisation (WTO) negotiations and asked for more information on what the position was.

Mr Matona said that in the India –Brazil South Africa (IBSA) forum, political goodwill had been a lot stronger than definite outcomes, but that South Africa was learning a lot from Brazil on industrial development. He added that although this had not yet yielded material benefits, trade agreements would assist with this, and the idea was to establish a free-trade agreement with India and Brazil. He added that India, Brazil, China and Russia had recently met around this and that dti was looking at having a meeting with Brazil, India and China on South-South trade, as they were going to be the new faces of global trade. Mr Matona stated that the WTO was a very difficult negotiation and that it had come very close to clinching a deal, but towards the end the price that Europe, the US and Japan were extracting was disproportionate to the advantages, as they had wanted South Africa to drop industrial protections. He added that the economic crisis had made negotiations worse.

The Chairperson wanted to know whether the Small Enterprise Development Agency (SEDA) had shown any impact in the provinces since its inception. Finally, dti was asked to explain how funding for tourism from the dti had been utilised and had assisted historically disadvantaged individuals (HDIs).

Mr Chipfupa said that dti needed to enter into partnerships between SEDA and the provinces to ensure that training was ongoing along with the development of co-operatives and incentives. He added that there was R800 million for Tourism Enterprise Investment Programmes over the next three years. Tourism had the potential for creating jobs. However, the dti would focus on areas that were not the traditional tourism hubs like Cape Town, Durban and Gauteng. Mr Chipfupa stated that dti did allow for slightly relaxed requirements for HDIs and noted that the Enterprise Development Programme had approved more than 17 000 projects, with 48% being for tourism.

The Chairperson stated that the Committee would still engage with the dti and its agencies, especially those dealing with rural issues.

She asked the Deputy Minister of Trade and Industry to conclude the meeting.

The Deputy Minister of Trade and Industry replied that she was very pleased to meet with the Select Committee. She believed that they would have a very good working arrangement as long as everyone was committed to getting out on to the ground and working. She added that the dti could not do the work that it was tasked politically to do, and so it had to dictate what its agencies must do. The Freedom Charter stated that the wealth of South Africa should be shared by all. However, too little had happened since 1994, as shown by the fact that there were still two economies in the country. She added that poverty alleviation was the chief concern, and implementation of good policies and practices were crucial. The budget should talk to objectives and there was a need to create co-ordination between provinces and municipalities. She concluded that the focus should be on policy implementation and not formulation, and that internal staff, and not consultants, should be drafting business plans.

The meeting was adjourned.

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