Report on Department of Trade and Industry budget and Trade Policy: deliberations

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Trade and Industry

20 April 2010
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee deliberated on issues raised in the first draft of their report on the Budget Vote of the Department of Trade and Industry and on trade policy. They would meet again on 23 April after receiving input from the Minister, who would be attending, to finalise their report.

The Committee discussed trade and industry tariffs and policy issues in the context of the Department’s Strategic Plan and Budget. They recommended that the Department institute a dynamic tariff policy that would address de-industrialisation in certain sectors of the economy in order to promote labour absorption.

The Committee covered the Empowerment and Enterprise Development Programme, which accounted for 81% of the Department’s budget. The Committee wanted to see a broadening of participation in industry, but not one distorted by tenderpreneurship. There was an inadequate allocation to co-operatives and Small Medium and Micro enterprises (SMME).

In discussing the flagship IPAP2 (Industrial Policy Action Plan 2) programme, the Committee recognised this as an attempt to address structural constraints to stimulate the economy from a supply side perspective and arrest job losses. However, it felt the programme was not focussed enough. R6 billion was set aside to support distressed businesses.

The Committee recognised that the Department to date did not have a trade policy but the Committee welcomed the Department’s commitment to finalise a policy.

The level of support given by departmental entities like Small Enterprise Development Agency to SMME’s was questioned.

The Committee worked on developing a list of recommendations. A strong recommendation was put forward to raise the awareness of consumer protection through a campaign that included effective rural area coverage.

The Committee was updated on the Companies and Intellectual Property Registration Office. The matter was under the aegis of the Attorney General at present where a forensic report was about to be concluded. The Minister would be present at the meeting on 23 April to report on the matter.


Meeting report

The Committee deliberated on the first draft report on the budget. The Chairperson asked that the Committee focus on the issues that affected the budget. The Committee should look at what the intention of the Budget was and how resources had underpinned it. The Committee agreed that the aim of the budget was to stimulate industrial development.

Trade and Industry tariff policy
A discussion followed on whether the Department had a liberal trade and tariff policy.

Mr S Njikelana (ANC) asked whether the Department had a policy. He said there had been a lot of liberalisation in trade practices to the extent that the clothing and textile industries had severely suffered after 1994. South Africa’s re-entry into the world scene post 1994 meant it was to be expected that a strong focus would be on exports. He said that infant industries should be protected from global trade.

Mr G Radebe (ANC) suggested that the sentence be restructured to reflect a liberal trade policy on tariffs.

The Industrial Policy Action Plan 2 (IPAP 2) was the flagship intervention programme to address structural weaknesses in the economy, stop job losses through a focus on the domestic economy and to stimulate economic growth. R6 billion was set aside to support distressed business.

The Chairperson asked what the role of the Industrial Development Corporation (IDC) was. Was it a commercial banker or investment developer or a State Owned Enterprise out to make money?

Mr Njikelana said improving international trade relations referred to South-South relationships and intra -African trade.

Mr Radebe said he wanted to see an intensification of South African economic development (previously there had only been a focus on improved marketing of South African exports.)

The Committee then discussed the establishment of the Economic Development Department (EDD). The establishment of this department resulted in certain entities and their resources being transferred from the Department. Members wanted to know the rationale behind these moves.

Policy Context Issues
Mr Njikelana wanted a review of the policy of capitalisation for Development and Financial Institutions to ensure or increase capital availability for economic growth. He wanted a focus on the domestic economy as opposed to export led economic growth. He wanted a policy to protect infant industries ensuring that economic growth emphasised labour absorption. He wanted the executive, especially, to improve the co-ordination of the government’s Economic cluster.

The Chairperson said the Budget should be a reflection of policy and not vice verse.

Mr Radebe said Government purported to be a developmental state but the decline in the Budget of 5% did not address the issues of a developmental state that needed an expansionary Budget. The tariff policy of the Department had been liberalised too much and a new dynamic tariff policy was needed. There should be more consumer protection if the developmental state was people-centred.

The Chairperson said that they wanted a developmental state. Entities like Transnet and Eskom were addressing Industrial Policy Action Programme 1 (IPAP 1) and not IPAP 2. They were addressing demand whereas IPAP 2 and the developmental state were looking at supply. She said tariffs and consumer protection were very important strategically

Industrial Development
Mr Njikelana wanted to know what the Department’s beneficiation policy was. There was a need to broaden economic participation through promoting small-scale manufacturing. Did the Department co-ordinate with the Department of Rural Development from an Agro-Industrial perspective or with Southern African Development Community Countries (SADCC) countries, on regional economic integration?

The Chairperson said the Empowerment and Enterprise Development programme received 81% of the Department budget. The Committee wanted to see a broadening of participation in industry. This should not be distorted by tenderpreneurship. There was an inadequate allocation to co-operatives and SMME’s. The Department to date did not have a trade policy but the Committee welcomed the commitment to finalise this policy by the Department. They expressed concern at the fragmentation posed by Enterprise Performance Information and Reporting System (EPIRS) and other external trading mechanisms. There were still challenges in the downstream economy but the Committee was also concerned with upstream (beneficiation) activities.

IPAP 2
Mr Radebe observed that the problem with IPAP 2 was that it was something for everyone, there was no prioritisation.

The Chairperson said there were currently 27 items prioritised.

Mr Njikelana asked what informed those priorities. They needed strategic goals to arrest the decline in industrial activity.

The Chairperson asked if IPAP 2 addressed structural constraints. Intradepartmental priorities should overrule individual department’s priorities. How were lead departments co-ordinating resources and how were lead and support departments allocating funds? Who was going to ensure that targets were attained? Was it going to be the presidency’s monitoring and evaluation department?

Mr Njikelana said that notwithstanding this, the Committee had to monitor IPAP 2 as part of its oversight function.

 

A Member asked what the Committee's position was position regarding the budget allocation to steel. Did consumer protection have any role to play in this issue? What were the implications of the steel dispute on consumers?

Mr Njikelana said that IPAP 2 addressed structural constraints of limited growth due to the global financial crisis IPAP 2 intended to stimulate the economy. He asked if steel was the only strategic product that had a ripple effect in the economy?

Trade Policy
The Chairperson asked whether the Bilateral Investment Treaties (BIT’s) were meeting the Committee’s objectives

Mr Njikelana said they needed to get the report from the BIT’s task team. What was the Department’s export strategy? The Department still assisted small business in exports, what were the results for the years 2007 to 2009? The Export Councils needed to be restructured to enhance the export drive. The Committee should explore, with the Department, the framework for entering into trade negotiations. The Department needed to synchronise micro and macro economic policy regarding trade especially exchange rates.

Broadening economic participation issues
The Chairperson welcomed the establishment of an advisory council to monitor unexpected complications like tenderpreneurs. She warned of replacing one elite with another, as broader economic participation was not meant to develop by empowering 1% of the population at the expense of the rest. She questioned the quality of support given to SMME’s.

Mr A Van Der Westhuizen (DA) said they should put pressure on the Department as SMME’s had not received enough support for other skills they might need apart from sourcing funds.

Ms C Kotsi (COPE) said that companies were awarded tenders but did not have the finance to do the job. She said 70% of officials were also tendering for jobs, which frustrated companies. She suggested that officials, too, be compelled to declare their business interests.

Mr Njikelana said the National Empowerment Fund (NEF) had a product to address those who were awarded tenders but did not have the finance to undertake the tender and that the Industrial Development Corporation (IDC), Khula and Business Partners should also offer this product.

The Chairperson said there was an apparent inability to address funding challenges by developmental financial institutions. On whom did concessional funding apply? She said co-operatives were very underfunded.

Mr Njikelana said that there should be broader funding for them and that there was a dearth of insurance products for them.

Consumer protection
Mr Njikelana wanted the establishment of consumer protection through the consumer protection acts highlighted. How did the Department propose to facilitate consumer protection? Consumer protection worked hand in hand with the National Credit Act (NCA) and the National Credit Regulator. Some debt counsellors were abusing their position by being linked indirectly to bigger companies.

Ms Kotsi asked how effective the National Credit Act (NCA) was.

Ms F Khumalo (ANC) said that awareness of the act and its benefits should be raised through widespread dissemination of information.

Mr Njikelana said the NCA should be seen in tandem with corporate regulation.

Recommendations:
There should be integrated co-ordination with other lead departments.
The availability of capital should be addressed so that the Department was appropriately financed.
Departments involved in key action programmes should be held accountable.
Consumer awareness should be raised further and that rural areas were effectively covered in the campaign.
The Department of Education should be tapped to improve skills to address the needs of IPAP 2.

Mr N Gcwabaza (ANC) said that the declaration of interests found in the Public Servants Amendment Act should be revisited and the Act amended as people declared their interests but still continued to break the law. This issue should be referred to the Public Service Committee.

Mr Radebe wanted clarity on the decision to transfer some entities out of the Department. He said cartels were an area for EDD to address.

The Chairperson wanted to know why it was that the country had structural unemployment. She said IPAP 2 was to address an imbalance from export centred industrial policy to one that focussed on developing the domestic market so as to increase the labour absorption.

Mr Njikelana recommended that members on trade delegations or trade negotiations reassert constitutional authority of Parliament and that the economic sovereignty of the country not be diluted, and that a balanced approach to industrial development and trade be informed by industrial policy.

Mr Radebe said that funds should be allocated for some members to accompany trade delegations.

Cipro
The Chairperson said that Companies and Intellectual Property Registration Office (CIPRO) matter was out of their hands and under the aegis of the Attorney General where a forensic report was about to be concluded. The Minister would be present on 23 April to report on the matter.

The meeting was adjourned.

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