Minister and Department of Trade and Industry: Briefings on Annual Report 2008/2009

Meeting report

Chairperson's Introductory Remarks
The Chairperson welcomed the Minister, Director-General and team from the Department of Trade and Industry. She noted that this was an opportunity for the Department to engage with the Committee on some of the achievements and challenges of 2008/09, and to see where the Committee could assist the Department.

Ministerial briefing on the work of the Department of Trade and Industry (dti)
Hon Rob Davies, Minister of Trade and Industry, thanked the Chairperson for her remarks and informed the Committee that the Department of Trade and Industry (dti) new Industrial Policy Action Plan was near to completion. He further asked the Committee to consider the release of the Trade Policy Paper for public comment as imminent.

Hon Davies introduced Ms Jodi Scholtz, recently appointed as Chief Operating Officer to the Department as part of the Department’s quest to improve on vacancy levels.

Department of Trade and Industry (dti) Annual Report 2008/2009 briefing
Mr Tshediso Matona, Director General, Department of Trade and Industry, presented the Annual Report 2008/09. He said that his presentation would concentrate on the economic context, strategic objectives, achievements, progress and challenges and the implications of the Medium Term Budget Policy Statement (MTBPS).

In outlining the economic context, Mr Matona outlined that the consistent period of growth experienced last year had been reversed due to the global economic crisis. Areas affected included the manufacturing sector, specifically the automotive and clothing and textile industries. He also pointed out that there had been a sharp decline in exports between January and February 2009, by over 6%.

The strategic objectives included promoting direct investment and growth in the industrial and services economy, with a particular focus on employment creation. The Department’s presentation on its achievements, progress and challenges focussed on five sub programmes. In the area of Industrial Development, he informed the Committee that dti carried this out in the context of the Industrial Policy Framework. Key aspects within industrial development included automotives and components and plastic fabrication and pharmaceuticals. Achievements under Trade, Investment and Exports included the consolidation of the Southern African Development Community (SADC) Free Trade Area (FTA) by addressing non-tariff barriers, standards harmonisation, trade facilitation and building productive capabilities.

Mr Matona outlined that achievements aimed at broadening participation included the reviewing of Black Business Supplier Development Programme (BBSDP) to include a once-off facility that would enable black Small, Micro, and Medium Enterprises (SMMEs) to access up to 40% of the costs required to raise a loan and buy tools, equipment and machinery, or to enter into a hire purchase agreement.

In the area of regulation, four Bills had been passed by Parliament, being the Companies Bill, the Consumer Protection Bill, Competition Amendment Bill and the Interactive Gambling Amendment Bill, all of which had now been signed into law. Mr Matona informed the Committee that dti’s administration and co-ordination focussed on strengthening capacity through training and high-value skills recruitment. Dti reduced its vacancy rate from 25% in the previous financial year to just over 18% as at 31 March 2009.

Mr Matona focused on the implications of the MTBPS. These included modernising of the investment framework to encourage foreign direct investment (FDI) and changing the orientation of industrial incentives to focus on labour-intensive industries.

He concluded that the Department had made progress in achieving its targets in the year under review, but that challenges still remained, including in recruitment, retention and development of staff.

Discussion
Mr X Mabaso (ANC) wanted to know how well the country was doing with regard to consumer protection. It was extremely important that people should not be exploited.

Ms Zodwa Ntuli, Deputy Director General, Consumer Corporate Regulation Division, dti responded that dti had introduced the Consumer Protection Bill, and that this was now passed, and would come into full effect in 2010. This would provide protection to consumers,  in line with the mandate of dti which aimed to giving consumers market confidence.

Mr Mabaso asked why some provinces were not covered by dti projects and what strategies had been put in place to address this.

Mr Sipho Zikode, Acting Deputy Director General: Enterprise and Industry Development Division (EIDD), dti, explained that the projects indicated in the report were not exhaustive, as projects that had been completed were not shown. He informed the Committee that in the next presentation a fuller picture would be given.

Mr Mabaso wanted to know what percentage of the overall support offered to enterprises was going to co-operatives, and how the outcomes were being measured.

The Minister explained that dti was no longer treating co-operatives as small businesses, but as some kind of enterprise, though he noted the need for co-operatives to be treated as specific programmes.

Mr Zikode also explained that assistance to co-operatives was also done by dti agencies, and where this happened, it was not reflected in the report. Once again, the overall picture did not appear from this report.

Mr Mabaso asked to know why dti had not met the disability criteria.

The Minister responded that the Soweto Call Facility, which employed disabled people, had helped to improve the dti disability target, and also was testimony that the Department recognised the skills of disabled people.

Ms Sarah Choane, Deputy Director General: Group Systems and Support Services Division, dti, added that the dti had a disability staff ratio of 1% in the 2008/09 financial year, but had now reached its target of 2%. She explained that dti had achieved this target not only based on appointments at the call centre, but also due to appointments it had made within the Department.

Mr S Marais (DA) wanted to know what plan dti had to increase value added exports to China and India.

The Minister agreed that current exports to China consisted mainly of primary products, and this was the focus of ongoing trade negotiations, to try and improve this scenario.

Mr Marais wanted to know why the taxpayers were funding the automotive industry, which was largely foreign owned, and pointed out that dividends were flowing out of the country.

The Minister responded that any developing country that was industrialising had an auto sector. Therefore, letting the auto sector go would lead to de-industrialisation. He explained that dti was focusing on encouraging component manufacturing that would in turn lead to greater job creation.

Mr Marais wanted to know how dti was assisting the textile and aluminium industries, which were being affected by unfair competition, due to cheap imports from China. He noted that imposing tariffs would be contrary to the World Trade Organisation (WTO) prescripts.
 
The Minister conceded that the textile industry had been affected by import penetration. This had many dimensions, such as illegal imports, under invoicing and false labelling of goods. The industry would survive if this unfair competition was addressed, and if the industry refocused into areas such as fast fashion. The Minister explained that the Department was working on an operation to crack down on illegal exports and had increased the trade boundary to the limits. He further explained that there was also a need to ensure that profits made as a result of incentives were reinvested into maintenance and procurement of capital equipment.

Mr Marais wanted to know whether the current situation with Economic Partnership Agreements (EPA) and the Namibian situation would not be damaging to the Southern African Customs Union (SACU), as it could create a mini bloc.

The Minister responded that the problems that existed with trade related agreements were linked to the problems that the European Union (EU) was facing on the Continent with regard to other important players who were emerging. He explained that this had led to clauses that curtailed policy space, such as the Most Favoured Nation (MFN) clause, which meant that every country that signed the European Free Trade Area (EFTA) agreements would commit to giving the European Union the same amount of trade as would be given to a third party country that had more than 1% of world trade. The Minister explained that South Africa was not bound by the same rules, as it was required to negotiate with the European Union, but was at the same time bound by SACU regulations that prohibited individual State negotiations. He explained that those countries that had signed the agreement within SACU felt themselves obliged to sign. Those, like Namibia, who did not wish to sign, should be allowed not to do so. However, he noted that some of the contents of the EFTA agreements were threatening the agreements within SACU.

Mr A Van der Westhuizen (DA) congratulated the Department on its unqualified audit report. However, he asked dti to explain the nature of some of the queries raised by the Auditor General, such as the poor record keeping and lack of human resource plan.

Ms Choane explained that dti had put a system in place to address the problems raised by the Auditor General. For instance, under record management, it was noted that some of the documents were not being returned upon completion of audits, and therefore the Department would resort to scanning documents to avoid losing original documents.

Mr S Njikelana (ANC) also congratulated dti on its unqualified audit report and the inclusion of performance indicators. He asked how the dti restructuring process had gone, and what had been its impact.

The Minister was not in a position to state the impact but said that the process was under way. He stated that the focus was to move away from the Department’s units operating in silos to a more co-ordinated approach.

Mr Njikelana asked why there were so few SMMEs on the ground, as this did not match with the aim of broadening participation.

Mr Zikode explained that the Department experienced budget deficits, so this limited financial support being given to SMMEs.

Mr B Turok (ANC) asked why there had been a lot of contract terminations within senior management.

Ms Choane responded that dti had finalised a draft retention strategy, which would assist in solving this problem. She explained that apart from this, the Department was doing its best in other areas, as evidenced by the improved turnover rate, which had dropped from 14% to 11%, and the drop in the vacancy rate from 25% to 18%.

Mr Turok stated that since 47% of dti’s budget related to incentives, he would have expected to see something in the report that described the distribution of these incentives.

Mr Tumelo Chipfupa, Deputy-Director General, dti, responded that the large part of incentives was included in the areas of the budget and the largest component included the Automotive Development Programme.

Mr Turok wanted to know what government’s view was on gambling.

The Minister agreed that there was need to produce a policy statement and for this reason there was an impact assessment process under way.

Ms Ntuli added that dti was not looking to generate revenue from gambling and that the regulations around gambling were meant to address the instances of illegal gambling that were taking place.

Mr Turok wanted to know how dti related to both organised and unorganised business.

The Minister responded that there were a number of dimensions in which dti related with business, such as conferences and trade missions.

Mr Turok advised dti to articulate some of the statements issued by government into policy.

The Minister responded that the next Industrial Policy Document was near finalisation, and this would attend to this point.

Mr Turok asked why dti was seemingly at the moment only making minimal improvements on aspects, instead of refocusing to address structural deficiencies in the economy.

The Minister agreed that there was a need to address structural deficiencies, as past improvements such economic growth percentages had not addressed structural unemployment.

Mr G Radebe (ANC) congratulated the Department on the unqualified audit report. However, he wanted to know about the matters that the Auditor-General had noted that related to non-compliance with National Treasury regulations.

Mr Matona replied that this was in relation to unauthorised expenditure which occurred in 2003/04, and that this would remain in the books as a matter of emphasis until it had been examined and condoned by Standing Committee on Public Accounts (SCOPA).

Mr Radebe wanted to know what had caused an increase in wastage of funds within dti, from R11 000 to R86 000 in the last financial year.

Mr Matona noted that this related to dignitaries invited to conferences, but who failed to show up. Payments could not be reversed and the expenses paid out could not be recovered. Dti had put checks in place to counter this. This was the reason for the reflection of the costs incurred in this area.

The Chairperson wanted to know why the performance contracts were noted at 80%, not 100%, compliance, and asked what were the deadlines for the contracts.

Ms Choane explained that the difference arose because SMMEs were allowed to have a window period in which they could still submit the contracts. She explained that the figure reflected those terminating or coming on board.

Mr Marais congratulated the Department for the unqualified audit report and employing the disabled. He asked how the tax incentives were being negotiated with National Treasury and South African Revenue Services (SARS), as these were a loss to government revenue.

The Minister explained that the Department tried at every point to justify the need for the incentives by proving what the potential benefits would be.

Mr A Van der Westhuizen (DA) wanted to know what the Department’s plans were to improve vacancy levels.

The Minister responded by reminding Members that the vacancy rate reflected in the report was for last year, and that the figures, as outlined earlier, had since improved. He further said that the Department was committed to improving vacancy rates, although some of the staff had been lost to the private sector, which offered more attractive conditions.

Mr Van der Westhuizen asked the Department to clarify reports about staff intimidation at Companies and Intellectual Property Registration Office (CIPRO).

The Minister responded that the Department was aware of a series of allegations about CIPRO and that it was putting in place forensic investigations to investigate and address the issues.

Mr Njikelana wanted to know the extent to which the Industrial Policy Action Plan (IPAP) would assist in restructuring the economy.

The Minister responded that IPAP was the beginning of a process to address structural rigidities within the economy and to shift the economy on to a new growth trajectory.

Mr Njikelana wanted to know the progress on the 30 day payment cycle for SMMEs that dti was assigned to handle.

Mr Zikode responded that the Department had launched a call centre through the Small Enterprise Development Agency, where suppliers to government could call if they did not receive payment within the 30 day period.

Mr Radebe wanted to know how many farmers had used the African Growth and Opportunities Act (AGOA) to grow exports, and how other countries were faring.

The Minister responded that most market access agreements were actually for agriculture, although he could not give figures on the level of participation among farmers. He further explained that South Africa had a more diversified base of exports than other African countries.
 
Mr Radebe wanted to know how many projects had been lost as a result of unstable supply of power.

Mr Nimrod Zalk, Deputy Director General, dti, responded that although electricity supply had normalised it was expected that in the future increased electricity tariffs would impact on the cost of production for industries. There was certainly a need to address this issue.

Mr Mabaso wanted to know to what extent training institutions were advised about the type of skills that were needed in the industry, to avoid future shortfalls of required skills.

The Minister answered that dti was in the process of starting an internship programme within the Department, in order to grow its own pool of people doing industrial policy.

Mr Mabaso wanted to know about the relationship between dti and other departments.

The Minister explained that there were a number of interactions with other departments. He explained that moving forward, dti wanted to focus on agro-industry and this required greater coordination with Ministry of Agriculture.

The Chairperson wanted to know how much work had been done on restructuring South African Women Entrepreneurs’ Network (SAWEN).

Mr Zikode responded that dti was rearranging SAWEN institutionally to allow for better functioning with its structures at local sphere.

The Chairperson wanted to know the time frame within which jobs highlighted under Business Processing and Outsourcing would be created.

Mr Chipfupa answered that the jobs would be created over a three year period.

The Chairperson wanted to know about dti’s relationship with SARS in combating illegal entry of textiles.

The Minister responded that the task team to combat illegal textiles was a joint initiative with SARS.

The Chairperson asked the Department to respond in writing to those questions that had not been adequately addressed. She then gave an opportunity for the Minister to give his concluding remarks.

The Minister stated that the presentation of the Annual Report was an opportunity to work with the Committee, and not a chance for the Department to be defensive. He further stated that dti would respond to questions as soon as possible and that he was glad the meeting had been fruitful.
 
The Chairperson praised the Department for the relationship it had developed with the Portfolio Committee, and thanked the Department for the orientation programmes and workshops carried out throughout the year.

The meeting was adjourned.