Revised Industrial Policy Action Plan: Committee Report deliberations

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Trade and Industry

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

The Committee deliberated on the content of the Committee report on the Revised Industrial Policy Action Plan (IPAP2), following the public hearings earlier in the year. The Chairperson asked Members firstly to address the critical messages that should be conveyed, and then to suggest the recommendations that should be included, as also to consider whether particular submissions during the public hearings should be included.

Members believed that the critical issues to be included in the Report would include the levels of inequality, the need for redistribution of wealth, and concerns on how IPAP2 addressed infrastructure development and wealth creation. The need to curb unemployment, the need to promote manufacturing and offer concessional finance and the need for regional integration, as well as finding methods of subsidisation that did not conflict with World Trade Organisation rules, were mentioned. Other messages included the restructuring of the economy, volatility of the exchange rate, the need to develop skills, and to coordinate the efforts of the Department of Trade and Industry and of Higher Education and training. Mechanisms to attract foreign direct investment, methods to increase productive capacity, the policy of import substitution, and real empowerment achieved through transfers of skills and knowledge, were also vital. Regional and global cooperation, the importance of cluster work, rural infrastructure development, creation of sustainable jobs and the need to involve local government in exploring and taking advantage of opportunities were also mentioned. Regulatory changes in procurement legislation and funding resources were essential to success.

Members made suggestions on the recommendations to be included in the report. These included strategies for local government, incentives to encourage private procurement, the considerations for the bio-fuel industry (including the need to consider food security on a regional basis before pursuing this industry), and ways of assessing financing. Members felt that a national indaba should be held to show people how they could initiate development for themselves. Security measures and caps would need to be provided if pension funds were to be used a source of funding, other funding recommendations were made, and there were also suggestions about market intelligence and tariff developmental considerations. A register of skills should be developed, and vulnerable groups should be included in IPAP2. Land redistribution must also be reconsidered, along with optimal agricultural methods. The report would note that there had not been engagement with the commercial banking sector. A member suggested that cluster coordination was particularly important and that implementation of the IPAP2 should fall to both the Ministry of Performance, Monitoring and Evaluation and the National Planning Commission. Members understood that their recommendations would only be reflected in the budget for the next financial year.

Members then commented what they understood by public procurement, commented that they believed that local manufacture of the electric car the Joule should be supported, provided that it was viable in terms of costs, and that government could perhaps be asked to inject some capital to support this industry. They then agreed on the external submissions and recommendations that should be included in the Report. Another meeting would be held to finalise the report.

Meeting report

Revised Industrial Policy Action Plan (IPAP2): Committee’s Draft Report
Members’ comment on critical issues to be included in the Report
The Chairperson noted that 38 submissions had been received in relation to the revised Industrial Policy Action Plan (IPAP2). She said that the IPAP2 was the most crucial strategy since 1994 that dealt with trade and industrial policy. She said that many of these submissions dealt with the issues of unemployment, the gap between the rich and poor, and the rapid decline in the manufacturing sector. It was important to make it quite clear, in the Committee’s report, that these submissions were acknowledged when considering the implementation of the IPAP2.

The Chairperson asked the Committee members to give their comments on what critical messages should be included in the Committee’s Report (the report).

Mr X Mabaso (ANC) said that the levels of inequality in South Africa were unacceptable. The IPAP2 must include instruments to address this concern and must rigorously redistribute wealth and opportunities. The second message that must be sent through the report was the concern as to how IPAP2 encouraged infrastructure development and wealth creation.

Mr B Radebe (ANC) said that he wanted three critical messages to be conveyed in the report. The first and overarching issue was the need to curb unemployment in the country. He said that a 25% unemployment rate was unacceptable, and that knowledge-based technology skill development could help eliminate unemployment. The second message was that manufacturing must be promoted. South Africa must produce for the export market, and financing given to manufacturing must be competitive, by granting of concessional finance and preferential interest rates to this sector. The third message was the necessity for regional integration. He cited the example of the Southern African Development Community (SADC), saying that because the whole region was not short of water, the surplus water in some areas could be used by other SADC countries. Industrial policy should thus take regionalism into consideration.

Mr N Gcwabaza (ANC) said that methods of subsidisation that did not undermine World Trade Organisation (WTO) rules needed to be considered, in order to facilitate development of South Africa’s domestic industrial firms. Other messages that should be conveyed in the report included the fundamental restructuring of the economy, the volatility of the exchange rate and the need to develop skills. Coordination also needed to be achieved between the Department of Trade and Industry (dti) and the Department of Higher Education and Training.

Mr S Marais (DA) said that several important messages needed to be included in the report. These included the need for mechanisms to attract foreign direct investment, in order to create employment and stimulate exports, and methods to increase productive capacity. The policy of import substitution also needed to be included, as well as the necessity for real empowerment, which referred to a transfer of skills and knowledge. Other critical messages were the need for regional and global cooperation, sustainable job creation and rural infrastructure development.

Mr S Njikelana (ANC) said that the issue of cluster work and dti’s cooperation with other departments were critical messages to be included. The role of municipal cooperation, through the South African Local Government Association (SALGA) also needed to be addressed. Furthermore, municipalities should explore opportunities to assist the IPAP2. The issue of Broad-Based Black Economic Empowerment (BBBEE) must be highlighted in the Committee report. Regulatory changes in procurement legislation needed to be addressed. The availability of funding resources for the IPAP2 was another issue needing attention. The Brazil model of funding should, specifically, be understood by those involved with the IPAP2. Mr Njikelana agreed with Mr Marais that rural infrastructure and economic development should be accelerated by the IPAP2.

The Chairperson thanked Members and agreed that all the issues they raised should be included in the Committee report.

The Chairperson then asked that Members should suggest what recommendations  were appropriate for inclusion in the report.

Mr Marais said that it was necessary to recommend strategies for local government to be aligned with IPAP. Opportunities certainly existed for skills development through local government, but interaction needed to take place with the IPAP2 in order to develop these skills.

Another issue was the recommendation for inclusion of appropriate incentives to encourage private procurement of local goods. The bio-fuel industry, which could only be considered after all issues of food security had been addressed, also needed to be recommended as an opportunity that could be utilised by the IPAP2.

Mr Gcwabaza said that recommendations around rural support for food security needed to be included, and efforts to distribute seeds and implements needed to be improved and extended. Mr Gcwabaza said that ways of financing the IPAP2 internally needed to be assessed, so that the IPAP2 did not have to rely on the International Monetary Fund (IMF) and other funding institutions. The private sector should be persuaded to reinvest in domestic fixed investments, and the Committee should be recommending a move from economic growth to economic expansion. Lastly, the idea of a national indaba on the IPAP2 needed to be explored, in order to show the people that they could initiate development for themselves.

Mr Radebe said that the issue of pension funds as a source of funding was useful, but there was a need to recommend the institution of crucial security measures and caps so that individuals were not compromised. In regard to bio-fuel, he said that regional, and not only domestic food security, should be considered before bio-fuels could be explored. Mr Radebe also recommended that the IPAP2 report should address the poor state of market intelligence and should recommend that a developmental approach to tariffs be considered.

Mr Mabaso said that a register of South African skills, including both practising and retired professionals, should be developed. This register could assist in mass skilling campaigns, which were a necessity in this country. Vulnerable groups, such as the disabled, should also be encompassed in the IPAP2. Mr Mabaso said that whilst the issue of land redistribution was an emotional one, it must be addressed. Specifically, the ‘willing buyer/willing seller’ model needed to be assessed, to see if it was still viable. Every region in South Africa must specialise in a particular product and soil space in the country needed to be utilised efficiently. A ‘carrot and stick’ was recommended as one approach to take in order to reward industries sensitive to the needs of the country. Lastly, administrative bodies needed to give way to on-the-ground bodies.

Mr Radebe noted that the commercial banking sector was not called upon for comment during the public hearing process. He said that they should have been engaged with.

The Chairperson responded that the report would be tabled first, but the report must note that there was not engagement with the commercial banking sector.
Mr Njikelana said that other recommendations in the report should include the necessity to look at the issue of financing holistically, including both funds and resources. He also said that the report should include a consolidated plan to monitor the IPAP2 implementation process. Mr Njikelana reiterated that cluster coordination was important and recommended that implementation of the IPAP2 should fall to both the Ministry of Performance, Monitoring and Evaluation as well as the National Planning Commission.

Public Procurement issues
The Chairperson noted that the budget for 2010/11 had already been passed, and any recommendations that the Members were submitting would only be reflected in the 2011/12 budget year. She said that insufficient recommendations had been made around public procurement. She asked Members to give comments on what they understood by “public procurement”.

Mr Marais felt that public procurement meant that the public sector must pull together to have the power to be able to purchase South African products. Only through increased demand would input prices be lowered.

Mr Radebe responded that government was the largest procurer of goods, having a huge budget to procure goods. Public procurement ensured that the price of goods became cheaper and that new industries could be developed.

Mr Mabaso responded that a distinction must be made between real and nominal costs. Something may, for instance, be nominally cheaper if it was procured overseas, but in real terms, procuring the same item locally had greater real benefits.

Local Car Procurement- The Joule
The Chairperson introduced the subject of local procurement of cars and engaged the Members’ views on the Joule, a South African-manufactured electric car.

Mr Marais said that the Joule would only be successful if it was produced in large numbers.

The Chairperson responded that government procurement of the Joule would lower the cost of input and employment would be created. Additionally, the cars could be produced in depressed employment areas in the country.

Mr Radebe suggested that the Joule be put on display outside Parliament during the up-coming debate on the IPAP2. This would show that Parliament was supportive of local procurement.

Mr Marais said that the principle of supporting the Joule was correct, but caution must be exercised as the costs had not yet been made available.

Mr Radebe responded that during a car convention in Geneva, the Joule received good reviews, and so the Committee should be happy to promote it. He said that he understood Mr Marais’ concerns but that it was still worth getting people interested in local products.

Mr Njikelana said that a level of confidence was necessary in order to promote the Joule.

Mr Mabaso alluded to his comment earlier about nominal versus real costs and benefits. He pointed out that the Joule was an example of higher nominal costs but potentially higher real benefits.

The Chairperson said that although the cost of the Joule was relatively high, government could inject the difference in costs between the Joule and similar model cars to support this infant industry. Overall, she agreed that while it was necessary to exercise some caution, she thought that the support would be warranted.

Possible inclusion of external submissions in Committee report
The Chairperson asked Members to reflect whether important external submissions should be reflected in the Committee report. She suggested that the pharmaceutical sector’s concerns had to be included in the report. She also said that specific inputs by Dr Rob Davies, Minister of Trade and Industry, needed to be included.

Mr Marais said that the Minister’s statement about a pragmatic policy should be included. South Africa would face unique challenges, and appropriate policies were important. The Chairperson said that Minister’s input with regard to skills needed to be included. Specifically, the acquisition of skills must be fast-tracked and budget should be used strategically for this purpose. Additionally, issues relating to unemployment, green industries, pension funding and BBBEE that were mentioned by the Minister were worthy of inclusion. She added that the submission by Business Unity South Africa (BUSA) that South Africa had not used Small and Medium Enterprises to narrow inequality should be reflected in the report.

Mr Radebe noted that some recommendations could not be dealt with by the Committee, and should rather be addressed by the dti, who worked with these issues on a day-to-day basis.

Mr Njikelana said that the report should contain a matrix of key issues that were submitted, and that these issues should be grouped. In some cases, a direct response to the submission should be given, whilst it must be made clear that other submissions did not fall within the ambit of the IPAP2.

The Chairperson said that the South African Bio-Energy Association submission alluded to the creation of 2.5 million jobs. This had to be verified by the dti, and could still be included in the report. The submission by Ms Fiona Treganna included a statement that the IPAP2 did not respond sufficiently to macroeconomic stability, and she thought that this should be included in the report. She suggested that the submission by Mr Rudolph Louw, on the impact of the aerospace industry, and the various submissions that dealt with environmental sustainability, also warranted inclusion. Appropriate graphs should also be in the report.

The Chairperson concluded by saying that the IFP, COPE, PAC and FF+ representatives must attend the meetings held in preparation for the final Committee report. All submissions from all parties needed to be considered. She thanked Members for a constructive session and engagement.

The meeting was adjourned.



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