Minister of Trade and Industry on the Revised Industrial Policy Action Plan 2011–2013

Meeting report

Briefing on the Revised Industrial Policy Action Plan (IPAP2)
The Honourable Rob Davies, Minister of Trade and Industry advised that the IPAP2 was implemented nine months earlier.  It was agreed to brief the Committee on the progress made at six-monthly intervals.

The new IPAP was approved by the Cabinet and the Department was currently receiving feedback from the various Government Departments.  Monthly meetings were held by the Department of Trade and Industry (DTI) to discuss the progress made in implementing the key action plans.  A detailed progress report would be compiled by April 2011. Colour codes were introduced in the monitoring and evaluation system to indicate whether the implementation of the action plans was on track.  The progress reports would be similar to the reports issued by the economic and employment clusters.

A significant amount of work had been done and some outcomes were already apparent, for example an amount of R10 billion was invested in the automotive industry and had resulted in the creation of 12,000 new jobs.

IPAP2 was a major element of the New Growth Path (NGP), which aimed to create 5 million new jobs by 2020.  There had been some successes but more engagement was necessary in certain areas.  Most of the work done during the first year of implementation was focused on the development of the frameworks and systems.  Progress was being made in the development of the procurement framework, which was a critical element.  The lack of skills was a major constraint and skills development was a new component of the action plans.  Other new elements were the development of services to support the oil and gas industry and boat-building.  The revised IPAP2 was a continuation of the action plans rather than an entirely new IPAP.

Mr Nimrod Zalk, Deputy Director-General: Industrial Development, Department of Trade and Industry (DTI) presented the briefing to the Committee (see attached document).

IPAP2 was a key pillar of the NGP and focused on the sectors of the economy with high value-adding, employment and growth potential.  The plan required comprehensive and integrated action between macro-economic policies, industrial financing, procurement, development trade, competition, skills, technology and innovation policies and sector strategies.

The various sectors were classified into three clusters.  Cluster 1 comprised new areas of focus that included the metals fabrication, capital and transport equipment sectors, the ‘green’ and energy-saving industries and agro-processing.  Cluster 2 comprised sectors where intervention would be broadened, including the automotive industry, mineral beneficiation, plastics, pharmaceuticals and chemicals, clothing, textiles, footwear and leather, bio-fuels, forestry, paper and pulp, tourism and business process services.  Cluster 3 comprised those sectors where long-term advanced capabilities would be developed, such as nuclear, advanced materials and aerospace.

The briefing included an overview of the progress made in the key areas of public procurement and State-Owned Enterprise (SOE) supplier development, industrial financing, the National Industrial Participation Programme (NIPP), skills development, competition, trade, the automotive industry, the clothing and textile industry, business and process services, the ‘green’ industries, forestry and the iron and steel industry.

The most significant challenges were summarised and included the slow recovery of the global economy, the rapid growth of large developing regions, the appreciation of the real effective exchange rate, reduced fixed investment expenditure and the drop in manufacturing employment.  Graphs illustrated the fluctuation in the exchange rate and capital investment in recent years.  The key action plans (KAP’s) requiring fast-tracking were listed and the lead Departments for each KAP were identified.

The briefing was concluded with an overview of the focus areas for taking IPAP2 forward during the period 2011/12 to 2013/14.

Discussion
The Chairperson thanked the Minister and the Department for the succinct and informative briefing on the eagerly awaited progress report.

Mr X Mabaso (ANC) said that the assembly of 90 locomotives in South Africa for Transnet would be a major achievement for the country.  The necessary support structures would need to be in place and he wondered if there were any opportunities for small, micro and medium enterprises (SMME’s).  He was concerned that SMME’s would not share in the benefits unless their participation was actively encouraged.  He asked if IPAP2 would benefit neighbouring countries in the Southern African region.

Ms S van der Merwe (ANC) asked for more information on the development of the tourism sector, which had a large potential for further growth and job creation.  She requested clarity on the consolidation of development finance institutions referred to in the presentation.  There had been much talk about climate change funding but nothing had materialised since the global economic downturn.  She noted that the Department had refined the monitoring and evaluation system and welcomed the focus on skills development and job creation.  A skills database would be useful. She asked for feedback on what had actually materialised from international agreements.  She asked if any assessment was done of the impact on the South African economy when South African companies operated in other countries.

Mr N Gcwabaza (ANC) asked what was being done to develop local manufacturing capacity to support the assembly of the locomotives in South Africa.  He asked how many jobs would be created as a result of awarding most of the R4.2 billion tender for anti-retrovirals (ARV) to South African manufacturers.  He observed that the major focus was on the Industrial Development Corporation (IDC) and asked what role was played by other development finance institutions.  He asked for an update on the Kumba/Arcelor-Mittal matter, which had significant implications for the steel price.

Mr T Harris (DA) requested a detailed progress report on each of the 82 KAP’s, including target dates, milestones, the reasons for failing to meet the targets and if any new targets had been set.  He requested a detailed report on the NIPP, which had never been fully reported on.  The interaction between IPAP2 and the NGP was not clearly understood but he was under the impression that the focus of IPAP2 went beyond manufacturing.  There appear to be substantial overlap of responsibilities and he asked how the responsibility for the implementation of IPAP2 was divided.  He asked what action had been taken to promulgate the Preferential Procurement Policy Framework Act (PPPFA) regulations.

The Chairperson observed that the issue of unblocking the issuing of water licenses had been long overdue and asked what the challenges were.  The export of wood for pulping purposes to countries such as Japan had generated substantial returns in the past and she wondered what the returns would be from exporting forestry products in future.  She noted the successes of counter-smuggling operations at ports and asked if similar operations would be carried out to check the cargoes of trucks entering the country at the Beit Bridge border post.

Dr Davies agreed that the assembly of 90 locomotives was an important achievement for the country.  Previously, small numbers of locomotives were imported rather than placing an order for a fleet.  The necessary capacity was available in South Africa and the Transnet tender would now utilise it.  He agreed that SMME’s should benefit from the initiatives as such organisations tended to be more labour-intensive.  More component-producing enterprises were required, which lent itself to SMME’s.  The Department was developing a SMME policy to ensure that the benefits would be spread over a broader front.  Incubation programmes were found to be the most beneficial.  South Africa had 40 incubation programmes, compared to the 4,000 in Brazil.  The question of how to upscale the involvement of SMME’s had been discussed in various business forums and the Department aimed to get more private sector partners involved in what was essentially enterprise development.

Dr Davies agreed that climate change funding had not materialised but the industrialized countries were willing to support well-thought out ‘green’ initiatives.  Alternative sources of energy were more expensive to produce than energy from conventional sources.  Accessing international climate finance was the mandate of the South African Renewables Initiative (SARI).  A number of international agreements had resulted in investments of $US 115 million.  A distinction had to be drawn between new green field investments and other types of investment and the question was how many new jogs would be created.  It was debatable if an investment such as the one by Wallmart would result in any new jobs.  It was necessary to determine the best practice for sourcing international investment and approaches had to be more effective.

Dr Davies explained that there were three industrial financing institutions.  Each organisation had a different mandate.  The specific mandate of the IDC was industrial development financing, hence the focus on that particular entity.  The National Empowerment Fund (NEF) was moving towards providing funding for equity investments rather than for the purchase of shares by black persons.  The Kumba/Arcelor-Mittal matter was sub-judice but the production from the Sishen mines would at least remain in South African hands for the remaining 30 years of the lifespan of the mine.

Dr Davies explained that the Department had reviewed the unsuccessful aspects of IPAP1 and had attempted to fix what didn’t work before formulating the KAP’s.  The NGP included broader issues than what was covered by the IPAP, which pre-dated the NGP.  There were no disputes about whether or not IPAP or the NGP should have priority.  IPAP was a tool of the NGP and had multi-departmental application.  The development of the tourism sector was focused on strengthening the link with cultural industries.  The PPPFA regulations had been approved by the Cabinet but he was not in a position to confirm when the regulations would be promulgated in the Government Gazette.  He advised that 10% of the water license applications had been approved by the Department of Agriculture, Forestry and Fisheries (DAFF), mostly for forestry projects producing wood for furniture, rather than for pulping purposes.  The DTI would like to see more progress made by DAFF in this regard but forestry was a capital-intensive industry.

Dr Davies explained that the DTI was not involved in border control operations but he was aware that the issue of delays and blockages at inland border posts had to be resolved.  The issue of illegal imports was complicated and the question was where the most effective counter-smuggling activities would take place.  Most smuggling took place through the ports, rather than through the inland border posts.

Mr Zalk said that the DTI submitted a detailed annual report to the Committee, which included as much detail as possible on the KAP’s and on NIPP.  He agreed that there had been a lot of rhetoric on climate finance but little action.  One example was the bilateral agreement between Norway and the Amazon Fund.  South Africa was attempting to capture the first mover advantage.  Funding applications would have to be well-packaged and clear on how the funding would be applied.  There had to be a link between the industrial development agenda, climate change and mitigation.  Agreements had to be in place with companies on mitigating carbon emissions and the DTI was considering imposing fines on transgressors.

Mr Zalk said that incoming international investments had to be distinguished between new green field investments and mergers and acquisitions.  The DTI analysed incoming investments but had not investigated how outgoing invested benefited the country.  Procurement and the development of support industries were linked, for example specifying a minimum level of local content and providing financial support for local enterprises manufacturing components.  The forestry sector had experienced slow growth but produced a variety of products.  He undertook to provide a more detailed report on the forestry sector and the number or jobs created through the ARV tender to the Committee.

Mr J Selau (ANC) commented on the multi-departmental involvement in implementing the IPAP.  He noted that the South African Bureau of Standards (SABS) had issued standards for certain ‘green’ industry products but standards were also required for hydro-electric energy and oil refining.  He asked if the DTI was considering the storing and conversion of carbon.  He observed that the DTI and the Department of Energy had many common interests.

Mr Mabaso commented on the need to develop human capital to capitalise on the opportunities arising out of IPAP.  He asked if the curricula and courses offered by the technicons and higher education institutions were relevant and kept pace with the demands of industrial development.  He remarked on the need for a cohesive policy for the countries in the Southern African region.  South Africa needed to continue to reap the positive benefits from the successful hosting of the 2010 FIFA World Cup.  He asked what was done to ensure that cooperatives benefited from industrial development as well.

Mr Harris asked for separate reports on the 82 KAP’s and the status of NIPP, in particular the Strategic Defence Packages.  The Democratic Alliance had requested that the three consultant reports on NIPP were released to the Committee.  He asked if the 12(i) Tax Incentive would be applicable to smaller businesses.  He asked what leverage the State had to enforce the lower developmental steel price.  He asked why no mention had been made in the Minister of Finance’s budget speech of the new export tax on scrap metals.  He noted that IPAP2 would be launched in April 2011 and wanted to know if the Committee would be briefed on the launch.

The Chairperson asked for clarity on the skills development component of IPAP.

Dr Davies replied that IPAP did not replace the skills development programmes of the Department of Higher Education.  The IPAP initiatives referred to specific sector-related skills programmes.  The DTI consulted with the relevant stakeholders, for example, the Department of Energy developed the policy and the DTI concentrated on the manufacturing aspects.  There were many areas in the energy policy, requiring all the stakeholders to work together.  He explained that the SABS standards applied to the manufacturing standards of specific products, for example solar water heaters.  The DTI engaged with universities and technicons on the development of courses and curricula, including a dedicated course on industrial policy.  There was a general lack of understanding at the international level of what industrial policy entailed.  He agreed that regional cooperation was important but the role played by South Africa in the Southern African Customs Union (SACU) had to be reviewed.  He suggested that only one or two areas were focused on, for example the common interest in the beneficiation of minerals.

Dr Davies agreed that the Department’s annual report would differ from the report on IPAP.  The consultant reports could not be released to the public as the reports contained confidential information on certain companies.  The DTI was reviewing the tax benefits and incentives available to SMME’s but the 12(i) Tax Incentive was geared towards larger entities.  He was unable to reveal what leverage the State had to enforce the lower steel price but it was hoped that the two companies concerned would be cooperative.  Scrap metal was a major resource for the country and the export tax was intended to prevent too much scrap from leaving the country.  A briefing to the Committee on the launch of IPAP2 could be scheduled at a later date.

Mr Zalk added that only the finalised SABS standards were listed in the presentation document.  Other standards were in progress but had been omitted.  The DTI was considering the storage of carbon but the technology was still at an early stage of development and was not yet commercially viable.  The tax incentives were applicable to the larger companies but the enterprise development programme supported smaller businesses and was based on grants.  More energy was expended on producing one ton of steel than on recycling one ton of scrap metal, therefore South Africa was exporting energy as well.

Dr Davies cited the example of a successful dairy cooperative in Kenya.  Cooperatives tended to be more successful in agro-industries but he had asked the DTI to investigate this aspect of development as well.

The Chairperson observed that South Africa might have the capacity to assemble locomotives but the country needed to be able to produce the required standard of steel as well.  She asked how many jobs would be created by enhancing the country’s steel-producing industries.  Rail coaches could be assembled as well.  Transnet had informed the Committee of the high cost of laying down rails.  The small agricultural producers had major problems with moving their produce to the markets.  Agricultural produce used to be moved by rail but Transnet had subsequently closed down many branch lines and stations.  She asked what action was taken by the DTI in addressing these challenges.  She asked what progress had been made in developing the aquaculture sector.  She asked for an explanation of Set-top Boxes (STB’s).

Mr Mabaso asked what progress had been made in producing the South African Jewell electric car.  He mentioned a component manufacturing company in Johannesburg that only employed disabled persons and wanted to know what the Department had done to encourage the employment of disabled persons.

Mr Harris advised that the DA supported the industrial policy but did not agree on all the aspects.  For example, the DA felt that there was too much State involvement in the Msanzi stores and the Jewell car.  He noted that no timeframes were set for the delivery of the STB’s.  He asked when the report of the Intra-Departmental Task Team on Iron Ore and Steel would be released.  He wanted to know when the IPAP annual report and the NIPP report would be released.

Dr Davies replied that there was a small black-owned company in existence that specialised in the refurbishment of railway coaches. He explained that the STB’s were necessary to convert digital television broadcast signals into analogue signals for older television sets.  The project was delayed while the Department of Communications reviewed whether a different international broadcast standard would be adopted.  After engaging with neighbouring countries, it was recently decided to retain the Region 1 standard.  The Minister of Communications would advise the new timeframe for the change to digital television broadcasts.  A number of decisions had to be taken with regard to the Jewell car.  The DTI had found that disabled persons were sought-after for employment in call centres and continued to encourage the employment of this sector of the community.  The report on the iron ore and steel industries was in progress and had not yet been completed.  The annual report on IPAP would be compiled after one year of implementation had been completed.

Mr Zalk added that the DTI planned to produce the detailed reports on IPAP, the KAP’s and NIPP during the first quarter of 2011/12.  The quality and different types of steel formed part of the development of the steel industry and the DTI focused on producing the higher value products.  The entire value chain flowing from steel production had to be considered in determining the impact of the industry on job creation.  The rail transport policy was currently geared towards transporting bulk ore and was weak on the transport of high value small cargo.  Rail transport was a complex and costly issue and further engagement was necessary.

Mr Zalk advised that aquaculture provided significant opportunities.  There was an escalating demand for fish and fish stocks had been severely depleted through over-fishing.  Fish-farming could close the gap between supply and demand.  The industry required the regulatory framework for inland and sea water use and preventing pollution to be in place.  The Jewell project was supported by Government and was currently at the commercialisation stage.  The Jewell was aimed at the electric car niche market and the involvement of privately-owned ventures would be ideal.  The production of the Jewell must be linked to the automotive manufacturing sector and the demand needed to be in place.

Dr Davies related how the industrial policy in France had resulted in factories being replaced by a shopping centre.

The Chairperson thanked Dr Davies and Mr Zalk for the informative briefing.  She advised that further engagement with the DTI would take place in due course.

The meeting was adjourned.