Industrial Policy Action Plan (IPAP2): Minister's briefing

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Trade and Industry

17 May 2010
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Minister of Trade and Industry thanked the Committee for its time in conducting the public hearings on the Industrial Policy Action Plan. He said that the response to the call for submissions had been plentiful.  The Minister explained the move from the first to the second Industrial Policy Action Plan and referred to issues that had been raised in the hearings. These issues related specifically to funding and the budget, the Proudly South African campaign, the Competition Commission, unemployment, the green economy and the mismatch and deficit in skills. Also mentioned in the public hearings had been the transversal ‘big ticket’ items, the implementation of which was critical to the overall success of the Plan. Of specific concern was the need to secure industrial financial concessions for Industrial Policy Action Plan Sectors. The best model for industrial financing was being studied with the Economic Development Department, National Treasury, and the Industrial Development Corporation. Another ‘big ticket’ instrument was leveraging of public procurement. The Minister said that he was looking forward to the Committee’s report that would be tabled shortly.


Members asked about the monitoring and evaluation of the Industrial Policy Action Plan implementation process, the state of training institutions, the funding model that would be adopted by the Plan and the role of green industries in the Plan. Of particular concern to one member was the neglected role of the financial sector. Other questions referred to municipal procurement, the timeframe of the Plan and the exact differences between the Industrial Policy Action Plan 1 and the Industrial Policy Action Plan 2. The general consensus was that much had been done to engage the public but that the next challenge would be the implementation of the Industrial Policy Action Plan.

Meeting report

Minister’s Input on the Industrial Policy Action Plan (IPAP2)
The Hon. Dr Rob Davies, Minister of Trade and Industry, gave a detailed briefing to the Committee on the Industrial Policy Action Plan (IPAP2), which had developed out of the first IPAP. The IPAP had been approved by Cabinet, tabled to the National Assembly, and had been the subject of public hearings by the Committee. These public hearing sessions had involved 38 Government departments, public entities, trade unions, business organizations, industry bodies, companies and academics. A wide range of opinion had thus informed the IPAP2.


The Minister thanked all individuals and organizations who had made submissions, as well as the Committee for its contribution to the public hearings. He said that he was looking forward to the Committee’s report that would be tabled shortly.

The Minister said that all constructive comments and suggestions had been taken on board. At the same time, however, it was urgent to begin to implement the IPAP. In this regard, the IPAP was a ‘living document’ - one which must be strengthened in an iterative manner over time. The Committee would need to play an active part in the continuation of engagement with the IPAP.

The submissions heard in the public hearing process were overwhelmingly supportive of the IPAP and pointed to the grave threat posed to the economy by deindustrialisation. There was also consensus on the need to actively utilise the policy instruments outlined in the IPAP and to further develop a ‘toolbox’ of instruments which could be used creatively to further the goals of the IPAP. Many submissions fell outside of the ambit of industrial and economic policy and others expressed narrow organisation-specific interests. Whilst attention was paid to all submissions, the Department of Trade and Industry (DTI) adopted a wider view and balanced a range of interests with the public interest.

Many submissions expressed the view that implementation of the IPAP required extensive integration of responsibilities across departments, agencies and state owned enterprises (SOEs). For this reason, the IPAP was a plan generated by the Economic Cluster of Ministers, not the DTI in isolation. The Committee had a responsibility to oversee the coordination of departments, agencies and SOEs. Further co-ordination mechanisms lay within the Economic Cluster of Ministers which was required to report back to Cabinet and the Committee once every six months. This would provide for an opportunity to report on successes and highlight blockages. The National Economic Development and Labour Council (NEDLAC) would also be used as a forum to monitor and evaluate the progress of the IPAP on a regular basis.
Submissions indicated that the IPAP was perhaps undertaking too many actions. In light of this, it was necessary to move from ‘easy-to-do’ to ‘need-to-do’ actions within the IPAP framework in order to ensure its successful implementation. The plan to carry out all the necessary actions would be approached according to a set of priorities and would be carried out in ‘bite size chunks’. There was also a need to debunk the myth that other countries had carried out successful industrial strategies on the back of first building ideal public service capabilities. The Minister used the example of South Korea, which had begun its successful campaign of industrialisation when their governmental capacity prior to the programme was perhaps even lower than South Africa’s on the eve of the implementation of the IPAP.

Input during the Public Hearings referred to the transversal ‘big ticket’ items the implementation of which was critical to the overall success of the IPAP. Of specific concern was the need to secure concessional industrial finance for IPAP Sectors. The best model for industrial financing was being conducted with the Economic Development Department (EDD), National Treasury (NT) and the Industrial Development Corporation (IDC). 

Another ‘big ticket’ instrument was leveraging of public procurement. Progress on this issue, first raised in IPAP1, had been slow but there had been considerable progress during the process of public hearings. Specifically, a joint task team of the DTI, EDD and NT had been hammering out final details of a new set of regulations to the Preferential Procurement Policy Framework Act (PPPFA), which would advance the objectives set out in the IPAP2. Under these amendments, high pricing by local companies would not be willingly accepted, nor would any form of corruption. Support for local procurement, it was encouragingly noted, came from many SOEs and the example of the eThekwiniTransport Fleet Procurement Programme was cited as reason to be optimistic about the potential for utilizing procurement to build domestic industrial capacity and incur lower costs to the fiscus. Private sector bodies had remained mostly silent on the issue of local procurement. The private sector had a huge role to play in ensuring pro-active support for local production and the call was made for them to join Government in support of South African producers. 
The demise of the Proudly South African (PSA) campaign was also discussed in the public hearings. The labour relations dispute that had previously bedevilled the campaign had since been resolved and NEDLAC was in the process of developing criteria for PSA membership, which was good news for the longevity and success of the campaign.

Submissions supported the proposal that the IPAP augment the work of the Competition Commission. Consideration was given to measures to amend the Competition Act to deal with monopoly behaviour. The DTI had referred the case of the Arcelor-Mittal South Africa (AMSA) steel price increase to the Competition Commission and the DTI looked forward to the rapid investigation into AMSA’s case.
 
Issues pertaining to product standards, with specific reference to the Standards Quality Assurance and Metrology (SQAM), had arisen during the public hearings. It was suggested that standards institutions could play a stronger role in growing the manufacturing sector through accessing the export market and dealing with sub-standard products entering the domestic market.

The alignment and calibration of macro- and micro- economic policies had been the focus of much public debate. The Minister assured the Committee that there was a sustained and serious engagement on this issue at the highest level.

Unemployment was another issue that had arisen in the public hearings. One of the central objectives of the IPAP was the creation of decent jobs. The IPAP allowed for the creation of jobs in three ways: direct employment creation of 826 00 jobs over ten years, indirect job creation impetus of around 1 674 000 jobs, and by stimulating a more dynamic production-driven effort.

Some submissions tackled the IPAP on the grounds that it did not have an adequate budgetary allocation from the DTI. Minister Gordhan’s statement that financing in support for the National Industrial Policy Action Plan would be prioritized was used as evidence to allay these concerns. The IDC had also done much to re-prioritise its balance sheet with a focus on financing IPAP sectors.

Public inputs also focused on the issue of green and energy saving strategies. A number of different departments and agencies were doing important work on this matter and there was a need to ensure that there was a coherent national framework for strategy and policy development, and programme implementation.
The issue of the mismatch and deficit of skills was alluded to in many submissions. The DTI rejected the view that no training was taking place in the economy and that the Sector Education and Training Authorities (SETAs) were not functioning uniformly. The DTI would work closely with SETAs, the Department of Higher Education and Training and Further Education and Training colleges to achieve greater alignment and make the system work better. In a number of sectors, the DTI saw improved skills outcomes when this type of interaction had already happened.

The Minister said that he could not deal with every input and suggestion raised during the public hearings. He said that the DTI endeavoured to ensure that all relevant submissions were taken on board. The DTI also ensured the Committee that Members would be apprised of the monitoring and evaluation process as it unfolded. The Minister concluded by saying that history suggested that industrial policy was a tool for successful growth strategies if the right policies and implementation were established.

Discussion
Mr Tshediso Matona, Director General, Department of Trade and Industry, thanked the Committee for conducting the hearings. He said that the hearings had helped the DTI to position itself in such a way that it could amend IPAP in order to increase the chances of successful implementation. He said that an opportunity existed to reshape the implementation of the IPAP under the IPAP2.
 
Mr S Marais (DA) said that the IPAP was a good document that was widely supported. The devil, however, would be in the detail and this detail referred to IPAP’s implementation. The challenge would be accountability and prudence. 

The Minister responded the devil might indeed prove to be in the detail. The IPAP contained regular milestone assessments and internal monitoring within the DTI would be conducted monthly. The Minister extended an invitation to the Committee to attend these internal meetings. This monitoring and evaluation would ensure that the implementation had an oversight element.

Mr Marais said that the private sector would need to be on board for the IPAP to be successful. He asked what role incentives could play in encouraging people to produce and buy locally at competitive rates, specifically with regard to the PSA campaign.

The Minister responded that PSA did not fall under the responsibility of the DTI but rather under NEDLAC. He said that the problem had previously been that the ‘feel-good’ campaign had not been successful and that companies did not see any benefit in joining PSA. An accreditation process was needed to ensure the success of the campaign and accreditation would be an incentive for producers to become members.

Mr X Mabaso (ANC) suggested that a conscious effort must be made to thank individually those who had made submissions in the public hearing process. This effort would serve to improve relationships between Government and private stakeholders.

Mr Mabaso said that training institutions were inherently weak and generally used old teaching methods that were not relevant. He asked whether there was any provision to improve these institutions.

The Minister responded that training was critical to the success of the IPAP implementation. The DTI was working with universities and engaging with the Minister of Higher Education and Training to assist in developing training courses. This cooperation would hopefully turn around a situation in which most graduates had no knowledge of industrial policy.

Mr G Radebe (ANC) thanked the Chairperson and the DTI for running such a consistent input campaign. He said that the funding model articulated in the IPAP was appreciated and requested further details. 

Mr Nimrod Zalk, Deputy Director General: Industrial Development Division, Department of Trade and Industry, responded that the funding model that was used as a framework for the IPAP was the Brazil National Development Bank model. In the case of Brazil, the difference between the commercial interest rate and the rate that made high-multiplier sectors viable was made up by fiscal resources. 

Mr Radebe asked if there was place for the DTI to cooperate with the South African Reserve Bank (SARB) and the NT on issues pertaining to the volatility of the currency, interest rates and employment.

The Minister responded that a debate existed in the upper executive about currency volatility and there was certainly a consensus that the Rand should be less volatile. The question of how one achieved this was the responsibility of the NT and the SARB, although the DTI could make its input if necessary.

Mr Radebe asked about the role of green industries in the IPAP.

Mr Zalk responded that work still needed to be done in tying down where opportunities in the green economy lay. He said that cooperation needed to take place in the process of establishing green industries. The IPAP would continually seek potential initiatives and rapid progress had already been noted with specific regard to energy efficiency for buildings.

Mr M Oriani-Ambrosini (IFP) said that he accepted the aspects relating to employment and social accountability within the IPAP but struggled with the notion that key profitable sectors in the economy had not been adequately identified. He said that IPAP can only be successful if it is built on these key sectors.

Mr Zalk responded that the most profitable sector was the financial sector. This sector saw growth of 7% of GDP between 1994 and 2008. The growth in this sector has not come with corresponding improvements in the rate of investment and savings. He said that this pointed to a divide between profitability and developmental imperatives. Mr Zalk said that sectors had different multipliers and that the IPAP focused on sectors with high growth and employment multipliers. The role of the IDC had also been focused more on high-multiplier sectors, where financial investment did not often go.

Mr Oriani-Ambrosini said that he believed three sectors needed attention in the IPAP: the biotechnology and nanotechnology sector, the agricultural sector and the infrastructure sector.

Mr Zalk responded that the IPAP approach was to commercialise viable technology. The IDC, he said, could play the role of a venture capitalist and take the risk that the private sector would not take in developing bio- and nanotechnology.

The Minister added that proposals would be needed by the DTI for bio- and nanotechnology before consideration would be made into focusing on this particular advanced manufacturing sector. He said that the infrastructure sector was fundamental to the growth of the economy and stimulating industrial development. This sector was certainly important in the IPAP. With regard to agriculture, the Minister said that the DTI was planning a response to the necessity to enter the high added value agricultural products market. He said that the DTI was specifically exploring the aquaculture sector. The Department of Agriculture, Forestry and Fisheries wanted to engage the DTI in monthly meetings about potential cooperation on this subject.

Mr Oriani-Ambrosini said that Johannesburg should be a key world financial centre and the fact that it was not pointed to measures taken by the NT to stall foreign investment on the grounds that stringent legislation prevented abuse. He said that the DTI should look at cooperating with NT to address this legislation in order to improve the chances of IPAP’s success.

The Minister responded that the problem with financial growth was that it was unsustainable if it did not contribute to domestic development. A lack of regulation would only serve to encourage investors to prey on productive sectors. As a result, stringent legislation was necessary. The Minister noted that it was this legislation that saved South Africa from the worst effects of the global recession.

Prof B Turok (ANC) said that he was aware of a situation in which officials from both Cape Town and Johannesburg complained that they could not buy locally because their demands were too small. Prof Turok suggested that municipal buyers should merge their demands to ensure lower prices and increase local demand.

The Minister responded that the National Industrial Participation Programme opened up channels for municipal cooperation. He said that the eThekwini example proved that cooperation was possible.

Prof Turok said that subsidies in other countries were generally lower than in South Africa, which meant that our competitive labour cost advantage was mitigated. Whilst not suggesting that the DTI introduce heavy subsidies, Prof Turok said that the DTI must explain to the public through IPAP public awareness campaigns the nature of competitive advantage.

The Minister responded that the issue of subsidies was indeed a big one. He said that South Africa should not attempt to match other countries’ subsidies but agreed that the people need to be made aware of why South Africa did not increase subsidies. 

Mr S Njikelana (ANC) said that the Minister’s input was very informative. With reference to the statement that IPAP was a ‘living document’, he asked about the timeframe of the Programme. Specifically, he asked whether the IPAP was a three year programme or a long-term programme.

The Minister responded that the IPAP was a long-term programme with medium and short term assessments.

Mr Njikelana asked what the explicit differences were between IPAP1 and IPAP2.

Mr Matona responded that the IPAP1 was a diagnostic exercise to assess the state of affairs with regard to industrialisation. The IPAP2 identified new areas and development strategies that could be used, and proved to be more than just a hard choice between sections. The IPAP, he said, was continually evolving.

Mr Zalk added that the IPAP2 illustrated a move from addressing ‘easy-to-do’ actions to ‘need-to-do’ actions. He said that the IPAP2 recognised that public procurement was not being conducted effectively and that a funding issue might be apparent.

The Chairperson thanked the Members of the Committee for dedicating so much of their private time to the public hearing process. She said that regular strategic reviews of the IPAP were necessary. She cited the example of China which initially embarked on ten year reviews and ended up conducting almost weekly reviews of its industrialisation programme. With regular reviews of dynamic progress, early alert signs could be seen and action could be taken that avoided expenditure in the wrong direction. She concluded by saying that South Africa should not risk undermining its manufacturing sector and that the IPAP was an important step to stimulating industrial, economic and social development.
 

The meeting was adjourned.

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