Industrial Policy: briefing by Minister; Department Budget briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE; ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE: JOINT MEETING
23 April 2002
INDUSTRIAL POLICY: BRIEFING BY MINISTER; BUDGET BRIEFING

Chairpersons: Dr. Davies (Portfolio Committee) and Mr. Moosa (Select Committee)

Documents handed out
Integrated Manufacturing Strategy (Powerpoint presentation)
IMS: Accompanying data
Budget 2002/3. Budget Briefing - Output Targets (powerpoint presentation)
Trade and Industry Budget Vote [on Treasury website]

SUMMARY
The thrust of the meeting revolved around the Minister of Trade and Industry's presentation of the DTI's Industrial Strategy. He focused on the challenges facing the country and outlined areas where South Africa could become globally competitive. He stressed the need for improving competitiveness within the manufacturing sector where SA still lagged behind many other developing countries. Committee members questioned the Minister on a number of issues raised in the presentation.

The second part of the meeting was a discussion on the output targets as outlined in the DTI budget. A number of issues were raised. These included: DTI's role in regional growth; DTI's role in NEPAD; human resource challenges still facing DTI and the overall improvement of departmental functions.

MINUTES
Presentation by Minister Alec Erwin
-The Minister focused on the challenges facing the manufacturing sector. He said South Africa needed to concentrate on becoming a net exporter of manufactured products.
-Another major challenge was redressing the unequal participation of blacks in business. This included small enterprises and larger corporations which did not employ blacks in managerial positions. Percentages given reflected this unequal participation.
-South Africa's inability to keep pace with its competitors was also of major concern to DTI. The Minister outlined a number of key perfomance areas which could assist in rectifying this situation. These included: growth, competitiveness, employment and small business development.
-In the final part of his presentation the Minister outlined the role of DTI in the governments overall industrial strategy. The key points were: championing competition within government equity policies, providing customised services in prioritized sectors, more efficiency, leadership of economic and employment clusters, the provision of valid and reliable information.

Discussion
Mr Zita (ANC) asked how the failures in the clothing sector could be rectified. He also asked for more information on how the department intended to tackle unemployment.
-The Minister replied that the failure of the clothing industry was as a result of the failure to work with suppliers. In contrast, the auto industry showed what success could be achieved if one worked with suppliers effectively. Overall the vision of the clothing industry was wrong - they were to keen to protect their markets.

Dr Davies (ANC) asked how the DTI proposed making the move from dialogue to collective action within the business community. What are the ingredients for success?
-The Minister said that much depended on the business leaders in the country. If these leaders had the right vision there would be progress. The Minister said that he was happy with the changing mindset of business leaders.

Mr Durr (ACDP) asked whether DTI was working with other government departments?
-The Minister said there was general improvement in inter-departmental coordination. A lot of work was being done with treasury. Another example of coordination was over the Durban port. In this case DTI was working with Public Enterprises to improve conditions at the port.
The Minister did comment that there needed to be more coordination with the department of home affairs to assist in passing the immigration law.

Mr Turok (ANC) asked why the department was still under-spending on its budget. He also suggested that in terms of competition there was a need to separate internal and external issues.
-In terms of spending, the Minister assured Mr Turok that anybody who made a persuasive case would be given more money. He continued by saying that it was important that projects were efficient and that they focused on delivery.
-The Minister said that competition was all encompassing and needed to be both internal and external. This was a major debate with the unions. He said that the protection of domestic markets was no longer a feasible strategy in today's world.
Mr Turok replied that small business in rural areas should not be exposed to the realities of the global market in the same way large corporations are.
The Minister agreed to an extent but also said that many markets were linked and that small businesses needed to be competitive to ensure they were not overrun by larger businesses. This could be done by improving technology.

Ms September (ANC) commented that the report did not provide a gender analysis of work being done by the department.
-The Minister admitted that in terms of gender there was a need for improvement. However, he did mention that programmes for women were quite active and could be found in other departmental reports.

Mr Bruce (DP) asked how this years report differed from last years. He asked whether this paper had been discussed with the trade unions. He also questioned whether the department was spending enough on fighting AIDS. He concluded by saying that the document did not give a clear plan on privatisation.
-The Minister replied this paper was considerably different from last years. It was more detailed and focused. Further, there was more consultation with business and the unions. This paper also focused more on microeconomic issues.
In terms of AIDS expenditure, the Minister commented that before any adjustments were made the department wanted to ensure that the statistics on AIDS were reliable. There were mechanisms to adjust the budget if necessary.
On the issue of privatisation the Minister said it was a fair comment to say it had probably been to slow. However, he defended the delays by saying it was important that the government got value for money. Ports and Telkom, in particular, were massive deals and with constantly changing market conditions it was crucial that the right deals were made.

Mr Rasmeni (ANC) asked what was being done to uplift the SADC region.
-The Minister said that the department was constantly looking for ways to link the economy with the rest of the region. Progress had been made with Mozambique with the soon to be opened gas link and the prospect for cotton projects.

Budget Briefing
The DTI Director-General, Dr. A Ruiters, asked if there were any questions on the discussion document which was distributed on the 20 March 2002.

Mr Lockey (ANC) asked why the department was still facing human resource challenges. He said that he was under the impression that these challenges were supposed to have been tackled when the DG was appointed.
-Dr Ruiters replied that no organisation is ever going to meet its human resource challenges. He pointed out that transformation was an ongoing process. The DG then proceeded to explain how HR improvements were being made. He said the focus of the department was now on how its customers perceived it. To improve customer perception the department focused on its core functions.

Ms Hajaij (ANC) asked if there was any truth in the media reports that the EU was demanding a restructuring of our economy. She also asked what role DTI was playing vis-à-vis NEPAD. Thirdly, she asked what was being done to ensure that under-priced goods were not illegally dumped on SA's markets.
-The DG responded to the first question about EU by saying, as yet they had not received any notification from the EU. He pointed out that any negotiations with the EU were being handled by one of DTI's most experienced negotiators who was now permanently based in Geneva.
In response to the question about NEPAD, the DTI had played a major role in the establishment of the NEPAD Secretariat. This Secretariat was focused on serving the continent and DTI had representatives within it. With regard to dumping, the DG pointed out the difficulties in tracking down the companies that dumped under-priced goods on SA markets. Some companies based in East Asia and China simply disappear without a trace. Generally dumping investigations were a long process.

Mr Turok (ANC) commented that he was very impressed with the complexity of the work being done by DTI. However, he asked how DTI related to industrialists and business people on the ground. Was there really a close relationship between DTI and business?
-The DG responded by pointing out that there were over 700,000 active companies in SA. He said that obviously it was the objective to interact with all these companies, but the reality was that many of these companies do not need the DTI's assistance. However, the DTI was playing an active role in maintaining contacts through email. Further, he said the DTI always had an open door to anybody needing advice or assistance.

Mr Lockey (ANC) asked what the timeframe was for successful black economic empowerment. Was there the likelihood on any new legislation or was empowerment no longer a priority for DTI.
-Dr Ruiters said that the DTI's role in black economic empowerment was captured in the Presidents State of the Nation address. The DTI's commitment could also be found in microeconomic strategy documents.

Mr Bruce (DP) commented that the increased activity of the DG was impressive, but asked whether outputs had really been positive. He suggested that perhaps there was too much legislation.
The DG answered by saying that more reliable statistics were required to gauge exactly what progress had been made. He admitted that some customers do come to DTI and do not get what they want. However, the DTI puts in place procedures that ensure every entrepreneur gets given a fair chance.

Dr Davies (ANC) asked what general steps could be taken to ensure that there was greater oversight on the budgetary processes.
The DG replied that the DTI was committed to greater oversight at all levels. A document was currently being prepared to measure performance and it would be submitted to the portfolio committee.

Output Targets
Ms P. Molefi, a senior representative from DTI, gave the presentation on the output targets for 2002/3 (see powerpoint presentation).

The following questions were asked after the brief presentation:
- What measures are in place to ensure that support given by DTI is actually successful?
Has DTI played any role in Urban-Rural development strategies? Rural areas still tend to be neglected?
Is South Africa and DTI focusing too much on dying industries, which have low margins and high costs? Should we rather be focusing on industries which will result in greater profits?

The following responses were given -
While sustainability is always the objective, global trends indicate that often businesses fail. So the DTI cannot offer any guarantees against failure.
In terms of rural development it was mentioned that sustainability must be the key criteria. Businesses most appropriate for a particular area must be given priority.
It was pointed out that there has been some movement towards non-traditional sectors e.g. information technology. However, the country's current competitive capacity must also be considered.

The meeting was then closed.