Department of Trade and Industry Budget and Strategic Plan 2010-2013

Meeting report

Department of Trade and Industry (dti) Medium-Term Strategic Framework (MTSF) briefing
Dr Rob Davies, Minister of Trade and Industry, commenced the presentation and introduced the Department of Trade and Industry’s (dti) team to the Committee.

Mr Tshediso Matona, Director General, Department of Trade and Industry, tabled the Medium Term Strategic Framework (MTSF) to the Committee. He noted that the economic outlook for South Africa had improved since 2008, when the credit crunch had become an economic crisis. The Department of Trade and Industry (dti) needed to build on the Framework Response to the International Economic Crisis and carve a new growth path for the economy. Mr Matona said that Industrial Policy (IP) and the Industrial Policy Action Plan 2 (IPAP2) would be a pillar of the Department’s strategy for economic growth and the creation of decent work.

The key highlights or interventions regarding Industrial Development pertained to the launching of IPAP2, the development of implementation guidelines for the Automotive Production and Development Programme (APDP) and the development of a new support package for the clothing and textiles sector.

Highlights or key interventions pertaining to trade, investments and exports pertained to the finalization of the Trade Policy and Strategy Review document as well as the continual engagement with the Southern African Development Community- European Union Economic Partnership Agreement (SADC-EU EPA) process.

The dti had also undertaken several trade and investment promotion activities and had facilitated key investments with Ford and BMW.

Enterprise Development was one of the key interventions that the dti had undertaken with regards to broadening participation. It had gazetted sector Charters, launched an Advisory Council, and implemented Acts that were passed in 2008/09.  Regulation and new law reform and policy initiatives were undertaken, as more fully described later.

With regards to administration and coordination, a recruitment strategy to fill managerial posts, as well as initiatives to review post-graduate and cadet programmes, had been implemented.
The dti had initiated a project to upgrade the Information Technology (IT) infrastructure and conducted training and awareness campaigns around corruption and fraud prevention.

Mr Matona then presented an overview of the dti strategic key interventions over the Medium-Term Strategic Framework (MTSF) period. The ongoing scaling of industrial policy through the development and implementation of an annual three year rolling IPAP was tabled. Overview issues pertaining to the Industrial Development Zone (IDZ) programmes were tabled, as well as issues pertaining to trade, investments and exports and broadening participation. In respect of the last, he made reference was made to Small, Micro and Medium Enterprises (SMMEs). The dti wanted to ensure that the Small Enterprise Development Agency (seda) improved service delivery to SMMEs and its cooperatives.

In respect of regulation, the dti wanted to complete the implementation of new law reform and policy initiatives pertaining to Estate Agents, the National Lottery, the Gambling Review Commission, intellectual property (IP) and liquor. The dti also wanted to improve efficiencies and turnaround times to services delivered by the agencies like the National Lotteries Board, the new Commission for the Companies and Intellectual Property Registration Office (CIPRO), the National Credit Regulator, the Consumer Tribunal, the National Liquor Authority and the Estate Agency Affairs Board.

Dti also wanted, internally, to implement its Disability Management Strategy, the revised Fraud Prevention Plan and the Service Delivery Plan. The dti would leverage Information, Communication and Technology (ICT) as a strategic resource, and align the recruitment strategy with dti priorities. It would also strengthen the management of human resources (HR) and skills, revamp the dti website, review outreach channels and consolidate and enhance customer contact points.

The allocated resources for the Medium-Term Expenditure Framework (MTEF) as well as a five year comparison of the budget and expenditure were tabled to the Committee.

The challenges the Department was facing related to the impact of the global recession, capacity constraints, ICT services, the transition of reorganised departments, the empowerment of women and people with disabilities and the coordination amongst and between the three tiers of government.

Discussion
Mr A Van Der Westhuizen (DA) said that the dti’s budget for this year had reflected a decrease in nominal value and that it was disturbing. He said that it should surely have been expected, in times of economic recovery, that the dti should have received a larger percentage of the allocations. He wanted to know if that decrease reflected the expenditure of those entities that were going to be transferred to the Department of Economic Affairs. He added that it was good to have plans but that these needed funding, and he was concerned that the dti did not have the necessary scope.

Minister Rob Davies said that there was a deficit of over 7% and that the agreement in Cabinet was that dti would fund some programmes. Every other department would have to look at the economy itself. The wage increase that was already agreed in the Bargaining Council was not fully covered by the allocations. Minister Davies said that the major funding was for IPAP and that the clothing incentives and Automotive Production Programmes were also covered. He added that the change was also explained by the transferal of functions.

A spokesperson for the dti’s Chief Financial Officer said that between 2009 and 2010, the amount paid out to Coega in the new budget was lower, and so was that for East London. Although there was R1 billion shifted out of the dti to the new departments in the Medium-Term Expenditure Framework (MTEF), there had actually been another R3.8 billion added to the dti in other ways over the MTEF.

Mr G Radebe (ANC) thanked the dti for the good work done thus far. He noted the current public consultations that the dti was engaging in and said that the Department was a very consultative Department. However, he was concerned that the dti website was not user-friendly. He was also concerned about the monitoring and implementation of agreements, as well as the existence of specific Tribunals for the overall protection of the country’s economy.

Minister Davies said that he was aware of the current website not being user friendly. He said that he knew that it was sometimes not available, and that there had been problems with the call centre. He said that those services needed improvement and that that was one of the tasks assigned to Ms Jodi Scholtz, the Group Chief Operating Officer (COO). 

Ms Scholtz said that a project had been put in place to review and revamp the website and that this would be done by the second quarter of the financial year.

Mr Radebe made reference to Broad Based Black Economic Empowerment (BBBEE) and the new phenomenon in South Africa of ‘tenderpreneurs’. He said that people were becoming millionaires without even working, and wanted to know what the dti was doing about that. He said that if South Africa was not giving sufficient support to the people in the production part of the economy, merely proceeding to the tendering part, then it ran the risk of destroying enterprise development. He wanted to know if the dti had put any regulations into place.

Minister Davies said that this was one of the issues that the dti had asked the Council to debate. The issue of fronting needed to be addressed. Three forms of fronting occurred. The first instance was when a company purported to be a black owned company but it was not. Promotion of a junior employee to a supposedly senior rank such as Chief Executive Officer was also deemed as fronting, and constituted fraud. The Minister agreed that there was a need to encourage people in developing more than just tender skills, and that they needed to become skilled in other tasks. He added that ‘tenderpreneuring’ was IPAP import fronting, where imports were done at the expense of local production. He said that the dti wanted to increase access of Black Economic Empowerment (BEE) individuals and entities through the tender process but that dti wanted it to work so that the entities could develop real skills in capacity and productive activities. He added that this issue remained a challenge.

Ms C Kotsi (COPE) was concerned about the clothing and textile industry’s new support package. She felt there was a need for greater diversification and visibility of that package and was concerned about the dwindling industry and the loss of jobs. She said the closing down of these factories was a real problem.

Ms Kotsi noted, in regard to IPAP2, that many of the industries that the programme was going to be creating jobs not in trade and industry, but actually in sectors falling under other departments. She wanted to know what the dti was doing to ensure that other departments were also going to be part of the programme.

Minister Davies responded that in regard to the Clothing Support Package, dti had finished drawing up all the regulations, terms and conditions and that it would come into effect on 1 April 2010, with the new incentive scheme. He said that the other problem in the industry pertained to a lack of investment in new equipment and the altering of labour processes to make them more competitive. He said that there was a phenomenon in the industry called ‘sweating the assets’ where machinery was run until it broke down irretrievably, at which point the owners would close down the factory and dismiss all the workers.

In regard to the automotive investment scheme, dti wanted to build on what was already in place, to help this sector save and grow jobs. He said that he knew that currently the clothing and textile industry was suffering, but if dti could get the automotive scheme in place, and make some real new investments, it would mean that it could then turn to growing employment in the clothing and textile industry.

Minister Davies said that he had been out to Atlantis and the Tedelex factory recently, but had only heard, when he entered the factory, that it was intending to close. Tedelex,  along with some other television manufacturing companies, had come to the dti in 2009 and said that they needed a rebate from the dti. There had been an arrangement put into place for those who were eligible for the rebate and it had been gazetted before the end of 2009. Subsequently, some of the same companies who had requested the rebate had approached the Court, thinking that the rebate would not come into effect before the year-end.  Dti had now asked Tedelex not to close down but to engage with the Department on what it needed. When the presentation on IPAP was given in Atlantis, it was noted that people needed to apply to the municipality for authorisation for the municipal land, a process that used to take three months but was now taking 18 months, which was a problem.

Minister Davies said that the success of IPAP depended on government working together as a unit. According to the action plan, it was not the sole responsibility of the dti, but needed an inter-governmental collaborative effort. Some of the items in IPAP1 were carried over into IPAP2, because other departments had not done their work in the first instance. He added that the Cabinet system was going to be changing, to put better structures in place for implementation. He said that that had been a proposal through the monitoring and evaluation mechanism.

Ms Kotsi displayed concern about SMMEs and the fact that they were not being paid on time. She added that there were municipalities who were currently under administration, due to not paying SMMEs.

Minister Davies said that it was already contrary to the Public Finance Management Act (PFMA) not to pay SMMEs in 30 days. A failure by municipal, national or provincial structures to pay SMMEs on time would lead to auditing consequences. The dti had set up a SMME hotline to start a service dialogue with people. However, it must be borne in mind that there were valid reasons why an SMME might not have been paid, which could include a failure to deliver.

Ms Kotsi said that the estate agencies had not been transformed, in terms of opening the industry up to the youth. She wanted to know how far there had been reform in this sector.

Minister Davies said that according to its legislation, the role of the Estate Agency Board was largely in the field of consumer protection. The transformation of the Estate Agency industry was something new that needed more engagement. 

Ms Zodwa Ntuli, Deputy Director General, dti, said that the Department already had a policy framework around the Estate Agents’ review, which had been finalised, had been taken for consultation to the industry, and would now be referred to Cabinet and thence to the Committee.  The dti was in the process of drafting a Bill. She agreed that this industry was seen by the dti as one that was still lacking in transformation.

Ms Kotsi wanted a clear indication as to which specific entities or units were being transferred between the Department of Economic Affairs and the dti.

Minister Davies indicated the transferred units. This had been tabled in the dti’s MTSF.

Mr S Marais (DA) made reference to the Investment Protection Treaty with Zimbabwe. He wanted to know how long that would still drag on. Since the discussions regarding the treaty there had been a number of transgressions already, and that many South African investors were approaching the courts for relief. He wanted clarification as to how the treaty would assist investors.

Minister Davies said that the Investment Protection Treaty with Zimbabwe would shortly be tabled to the South African Parliament for ratification, but that he was not sure about the Zimbabwean Parliament. He added that the agreement would come into force only 30 days after it had been ratified by both Parliaments. He added that the Zimbabwean government had noted that it was keen to deal with the matter expeditiously. There were a few cases that had emerged, but the same people who had tried to prevent its signature were now insisting on it being implemented, although it was not even in force. He confirmed that the treaty would create conditions for companies to invest in Zimbabwe, and would assist with the normalisation of the Zimbabwean economy. 

Mr Marais said that the dti had indicated that it was continuing to engage with the SADC-EU EPA process.  He wanted to know the implication of this, and what plans and strategies were being put in place.

Minister Davies said that there had been some changes in the European Commission and that a new Commissioner from Belgium had been appointed. The new Commissioner had been on a learning curve and had written a letter stating that he was committed to carrying on the work that the former Commissioner had begun. The dti had met with the Southern African Customs Union (SACU) and was going into another round on negotiations with SADC-EU-EPA.  The dti had been putting those issues together as a package. The first issue been a technical one around the alignment of the tariff regime.  Dti needed progress across the outstanding issues in the next negotiating agreement.

Mr Marais enquired what the dti was committing to Ford and Volkswagen.

Minister Davies said that the automotive investment scheme envisaged a company getting 20% of the qualified investment, and another 10% would be added if additional targets in terms of employment, local production and other issues were met. This was not the full value of the investment, and that it could also be available in the form of cash grants. Minister Davies was confident that the dti had the budget to cover most of the likely investments.

Mr Marais displayed concern about the gazetting of further Charters.

Minister Davies said that basically the Charters had to conform to the Codes. The dti wanted to achieve broad based Black Economic Empowerment (BBBEE). The dti wanted those parts of the codes which were trying to broaden the impact of BEE to move forward.

Mr Marais referred to the dti’s stipulation of strengthening market standards to protect from poor quality imports. He asked the dti how it intended to do that. He added that he did not have a problem with the principle, but wanted to know how it would be implemented. He added that issues like under-invoicing remained a challenge.

Minister Davies made reference to the National Regulator for Compulsory Specifications, which applied to many automotive components and electronic goods. A minimum standard must be met and the standards were technical. There was also an Inspectorate, which identified goods coming into South Africa that did not meet those standards. Whether it was applicable with regards to clothing and textiles remained to be seen. He added that the specifications were based on safety and consumer protection, and that quite a few goods had been destroyed when not meeting the specifications.

The Chairperson made reference to the dti presentation, and asked how the  implementing, monitoring and evaluation with respect to incentives would be carried out.

The Chairperson also expressed concern about the need to depart from the “silo” mentality across government and business. Insufficient notice had put a real constraint on planning. She wanted a broader understanding of all the entities with whom the dti would be involved since the transfer of functions.

Minister Davies said the government’s new approach with monitoring and evaluation recognised the need to work together as a team and for all to be co-responsible for sets of particular outcomes and not outputs. He was in favour of breaking out of the silo mentality and keen for an approach that allowed the sharing of tasks. 

Mr Marais wanted a breakdown of the Industrial Development Zones (IDZs) in South Africa, noting that he knew about Coega, East London and Richards Bay, but enquired if there was a plan to expand them. He recommended Saldanha Bay and Atlantis to be IDZs. He was aware of the pre-conditions for IDZs.

Minister Davies noted that there were a lot of issues around IDZs and that there were questions around their governance. There was a proposal for new legislation, which was still under discussion. He noted that Saldanha Bay had submitted a proposal, and that IDZs were for particular types of economic activities with a high export potential. They were not necessarily available to every part of the country.

Minister Davies then said that there were more Special Economic Zones (SEZs), which had different arrangements. The apartheid regime’s spatial development programme did not work and that it was highly costly.

Mr Marais was concerned about the development outcomes regarding the Doha round. During the public hearings on IPAP the perception had been voiced that this was merely an ongoing “talk-shop” and that some countries were abiding by the rules and regulations whilst others were not. He wanted to know what could be expected.

Mr N Gcwabaza (ANC) also made reference to the Doha round of negotiations. He said that there had been an attempt to hasten its conclusion at the expense of the developmental agenda. He wanted to know what scope existed for concluding this round of negotiations without compromising the developmental agenda.

Minister Davies said that in 2001, when another round of multi-lateral trade negotiations was agreed upon in Doha, it was done on condition that the needs and interests of developing countries would be placed at the heart of the work programme. The dti continued to demand a developmental outcome. The dti was currently standing at an impasse. At the end of March 2010 there was supposed to be a review and a stock taking exercise as to where the dti was with the Doha process. He did not think that it would be concluded in this year, and he thought that all the mandates that had come from the G20 countries to 2010 looked unlikely to be fulfilled. He added that the issue in regard to industrial tariffs had come no closer to a solution, nor was there any developmental outcome on the table. There was a need to grapple further with the issues.

Mr Marais was concerned that the Industrial Development Corporation (IDC) had been moved out of the dti. He wanted clarity on the rationale behind that.

Minister Davies said that the question of industrial financing through a development agency was a fundamental one. He said that there had to be a major overhaul of the way the IDC was working. The IDC needed to undergo some important reforms and the other departments could focus the attention on that specifically.

Mr S Njikelana (ANC) wanted to know if the Minister had any follow up comments with regards to Atlantis.

He commented that the Advisory Council had, in 2009, sent a junior person to make the presentation, and hoped that the Minister and Deputy Minister had noted that.

Mr Njikelana wanted to know to what extent the dti had been looking at linkages with the Department of Rural Development and Land Reform.

Mr Radebe also enquired what was being done to stimulate rural economic development.  

Hon Maria Ntuli, Deputy Minister of Trade and Industry, said that the dti was working closely with the Ministry on Rural Development and Land Reform, and would be issuing a report. The challenge of inadequate training of entrepreneurs in the rural areas was apparent. Although there were SMMEs in these areas, there were very few investors. A huge incentive package was necessary. She agreed that there was a need to move away from the silo mentality, and have a collaborative approach. She was highly motivated to alleviate poverty in the rural areas.

Mr Njikelana was keen on empowerment in the private sector and said that he felt uneasy about the budget allocation. He wanted to know what the overall investment of that allocation was.

Mr Njikelana requested another session on a comprehensive update of the economic recovery programme. It had to be inclusive of the involvement of all other Portfolio Committees and Departments.

Minister Davies said that at best guess the recovery of the economy was fragile and uneven, with a risk of a double dip. According to the World Bank, it usually took ten years to recover, and that was the current prognosis. South Africa had to make structural changes if it was going to address poverty, unemployment and inequality. He said that the world economy was not likely to go into a boom anytime soon, and that was where IPAP was going to come in, to bring about the structural changes. IPAP was a part of the critical growth path.

Mr Gcwabaza said that a comparison of the budget figures from 2007 to 2015 showed a steady increase in the budget. However, considering the importance of implementing IPAP2, he would have expected a marked increase.

Mr Gcwabaza wanted to know if the dti was considering taking IPAP and its funding to the National Economic and Development Labour Council (NEDLAC) to solicit consensus, especially with regard to its investment by the private sector.

Minister Davies said that the dti would be taking IPAP to NEDLAC and that part of it was to get the private sector involved.

Ms Kotsi said that there had been an outcry, in a number of submissions received on IPAP, about the volatility of the rand exchange rate.

Minister Davies said that the concern was not so much with the activity of the exchange rate, but with its competitiveness. The dti would have liked to have a competitive and less volatile exchange rate. However, that debate was still ongoing.

Ms Kotsi was concerned that the world could be heading for another economic recession and wanted to know what steps the dti was taking to ensure that the impact would not be felt so severely. South Africa, as part of the global world, suffered negative impacts when imports were used instead of products made by local companies. For instance, it was known that South Africa was capable of manufacturing the best bullet proof vests, so she wanted to know why it was not  capitalising on something like that, to expand and create sustainable jobs.

Minister Davies said that there were niches where it was possible to make progress in the clothing and textile industry. He mentioned fast fashion, which had the ability to respond quickly to the changing demands of retailers. The issue of the bullet proof vests needed further investigation.

Mr Radebe said that the public hearings in Worcester needed to be re-advertised as turnout had been extremely poor.

Mr Radebe noted that, in regard to the Cape to Cairo Free Trade Area, a comparison with free trade areas in the European Union would show that the latter’s countries had a lot of infrastructure and technology resources to defend their unions. He was not sure that South Africa could do this.

Minister Davies said that the free trade agreement did not really pose any problems, in the dti’s judgment.

Ms Fubbs wanted to know what had influenced Alcam to withdraw its investment, and what impact that would have on the critical infrastructure programme. She wanted to know what model was being used to ensure that its impact did not shift down.   

Minister Davies said that the reason had been related to the country’s lack of energy capacity. He said that there had been an amicable agreement between the two parties to put the plan on hold until the energy situation in South Africa had dramatically changed. 

Ms Fubbs wanted to know what the impact was on the current procurement regarding the SMMEs.

Deputy Minister Ntuli challenged everybody to support developing small businesses. She requested that members of the dti, as well as Members of the Committee, should support local Bed and Breakfast (B&B) establishments, as opposed to staying in hotels. She herself did so. She proposed that small businesses be given at least 35% of procurement so that they could sustain themselves. She added that if South Africa were to grow the sustainability of the rural areas, it would be able to control the influx from rural areas into the cities.

The meeting was adjourned.