Industrial Policy: public hearings

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE: ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE: JOINT MEETING
30 APRIL 2002
INDUSTRIAL POLICY: PUBLIC HEARINGS
 

Cosatu's submission on Industrial Policy
Fawu's Submission on Industrial Policy
Numsa' Response to the Industrial Policy
Nehawu' s submission on Industrial Policy
CSIR's comments on the DTI's integrated manufacturing strategy
DTI Discussion Document: Accelerating growth and development: Contribution of an Integrated Manufacturing Strategy (.pdf file on DTI website)

SUMMARY
COSATU and its affiliates made submissions in response to the discussion document on industrial policy. The overall voice was one of dissatisfaction with some of the provisions of the new policy.

CSIR also presented and highlighted current projects and others in the pipeline. Generally they expressed consensus with the document but also expressed concern over certain issues which need better attention.

MINUTES
COSATU submission
Mr Tony Errenreich stated that the unfolding economic policy framework of the government. has been characterised by inequality and restructuring. According to COSATU, an effective industrial policy should drive government to create more jobs as well as promote equality in incomes and wealth. There should be more focus on labour-intensive forms of production, and this unfortunately had not been the case. He added that within this context, a key imperative is retaining existing jobs and creating more jobs, with emphasis on quality rather than 'survival jobs'. Fiscal and monetary policies should be restructured to improve production as well as social and economic development.

COSATU is not convinced that the document's proposals adequately deal with the structural problems facing the economy. He pointed out that COSATU supports the notion of collective action in the form of sector summits and forums and hopes to engage the government extensively on this issue.

It was noted that formal levels of employment have gone down. Whilst statistics for 1996-2001 cite the figures to be between 16 and 30%, COSATU believes this is an underestimation with actual figures at around 40%. He added that inflation is also a persistent problem. This means that the poor therefore experience increasing hardship as their spending power is gradually eroded. The slight economic growth between 1997 and 2000 has been eroded by the economic downturn.

In summary, since 1994, there has been a lot of job losses, disinvestment, stagnant investment and disappointing growth. He handed over the presentation to Ms Neva Makgetla to engage the committee on two approaches towards industrial policy.

She pointed out that the first is a competitiveness strategy, which aims to maximise competitiveness throughout the economy and this is measured typically largely through exports and rising productivity. The shortcoming of this approach is that it assumes that no major structural problems can be part of a particular context. It problematically over-emphasises exports. This approach also neglects production to meet basic needs, leading to poverty, lower employment and higher wage costs. Another problem is that within this approach, government neglects smaller enterprises and less developed regions and there is also an excessive dependence on world markets.

An alternative approach to this is the developmental approach. Here she highlighted a number of points which relate to structural considerations:
- Production structure
- Markets, high income or basic needs, exports or domestic, regional or overseas
- Spatial developmental both internal and regional
- The nature of capital and the role of the state.

She pointed out that the DTI's document is especially weak on the nature of capital. For South Africa the production structure needs to shift to more labour-intensive factors. There is a need to build on strengths in mining, manufacturing, etc. In terms of markets, governments must not support exclusively exports as in the past. She added that improved production of basic necessities can expand the domestic market.

Raising living standards and labour productivity should also be a priority of the government.
She informed the committee that this basically means that the government must align more carefully policies to combat poverty with this industrial policy. On regional development, she pointed out that there is a need for a spatial plan with clear proposals on the future of former homeland areas.

Lastly, on the nature of capital, she pointed out that there is a need to ensure greater equality and that activities align with long-term national needs.

The state must engage with the main stakeholders to mobilise around the aims. There is a need to define the purpose and structures of collective economic action.

Ms Fiona Tregenna focused on he particular details of the industrial policy. The main sectors here are the financial and retail sectors. The financial sector is characterised by low investment, which is mostly capital intensive. Measures for transforming the financial sector include an engagement at NEDLAC level with government, business, financial institutions, etc at a financial sector summit.

In the retail sector, she pointed out that currently the sector is polarised between the highly centralised national chain stores and the less developed 'corner' stores.

The fiscal and monetary regime is also not friendly to economic and social development. This can be seen with the issue of interest rates which are very high.

She also touched on the issue of trade agreements that the government enters into. She proposed that COSATU would like to see the government contributing more on WTO rules, especially on issues of tariffs and to be generally more aggressive on issues of self-interest.

On supply-side measures, she pointed out that there is a need to re-orientate incentive measures towards engagements which will ensure more job creation. There is should be a greater monitoring of incentive use.

Lastly, the importance of social protection is also an important proposal of the industrial policy.

Discussion
Mr B Turok (ANC) pointed out that the he DTI has come up with a new strategy for developing and going forward. The problem is selling it to the country, including parliament. He pointed out that COSATU has adopted a more developmental approach, and at this point, he fully supports their stance. Secondly, this means that there are two views and the challenge therefore is on how to reconcile them.

The Chair asked about the IDC where he noted that they seem to focus more on facilitating industrial projects for big entities like Mozal and Saldanha steel. Even though this mandate has changed to include SMM'S, the IDC still by and large focuses on the bigger enterprises.

Ms C September (ANC) pointed out that apart from IDC as a tool for industrial policy, can COSATU comment on the institutions that they think can play a major role such as Land Bank, NDI, Development Bank and Local Government?

Secondly, on the issue of readiness for social dialogue, the presentations made by the business community make it difficult to see how, given their arguments, this can be possible. She pointed out that COSATU does not have to respond on this issue if they do not want to.

On whether the proposals will catch the people's imaginations, Mr Neil Coleman of COSATU, pointed out that the key question is communication and that they believe that these are imaginative proposals which will be embraced by people once they have chewed on them.

On the issue of the IDC, Ms Tregenna pointed out that indeed COSATU is worried that the money which the IDC gets is being spent on big institutions when it could be spread wider to smaller organisations. She pointed out that it is COSATU's view that the institutions, as suggested by Ms September, also have a role to play in industrial policy albeit in different and specialised ways.

NEHAWU submission
Mr Mark Sweet commented that the DTI document gives NEHAWU the impression that there has either been an omission or mistake somewhere. The point of departure for NEHAWU is that the state must play an active role in industrial policy, not just leave the market to its own mechanisms. With regard to the state, she noted that there has been a tendency to present the state as a neutral force. NEHAWU disagrees with this conception and feel that the state represents certain 'class' interests.

The issue of property and power relations therefore becomes central pillars in their argument. In dealing with transformation, history has to be factored in. For growth and development, five areas have to be taken into account:
- Reshaping sectoral dynamics
- Expanding a comprehensive social security system;
- Supporting greater access to wealth & skills for the working class/poor
- Setting an appropriate fiscal and monetary framework as well as;
- The creation of sustainable quality jobs

As an example, the basic income grant is something which NEHAWU strongly feels has to be implemented. Society, especially in South Africa, cannot afford not to have it and it is high time that this is corrected.

He added that infrastructural expansion is also an important part of the proposals.

Strategies on transforming the state centre around two approaches, the managerialist and the developmental approaches. He pointed out that the former seeks to reduce the extent of state involvement in industrial activity. The developmental approach on the other hand looks at strong administration, dedicated units and appropriate decentralisation.

Weaknesses of the DTI document are:
- The document arises out of the micro-economic reform strategy of the government which effectively limits the role of the state in industrial activity. This in a nutshell informs the problem for NEHAWU. Four points become important in this regard:
* The global environment is not analysed at all.
* Characteristics of metamorphosis leading the globalisation push are not analysed, implicitly meaning that globalisation is taken as such/accepted
* Growth and development are separated. This is a serious flaw because growth does not necessarily lead to development
* Capital in South Africa is not analysed, this has to be done to have a clear picture of what the policy is dealing with.

Food and Allied Workers Union submission
Mr Eric Watkinson, a researcher at NALEDI, started by pointing out that structured agreements leading to a good workable environment especially in labour is an attainable aim. A precedent in this regard has been set as in the Department of Agriculture's labour policy.

More broadly, food price increases have pushed both FAWU and COSATU to develop a strategic document to engage the problem of food security. In Agriculture, they have noted that since 1970 ownership is becoming more centralised due to changes in policy. He added with regard to the issue of access to IT, a lot of farmers have these in place, especially those who are well established, whereas the smaller ones don't, so a perpetuation of inequality seems to be continuing.

He also informed the committee that in accelerating growth and development, the emphasis should be on a balance between domestic and export markets. The food industry is however still very much domestic, yet there is no clear deliberation in the DTI's document on this, therefore the assumption is that the DTI is focused more on exports.

On the issue of food security, he pointed out that organisations have reported that in the region, about 3-4 million people might be faced with food shortages in the next two years.

He pointed out that FAWU believes that regional capacity to assess and tackle the food crisis is of utmost importance. In an attempt to address the issue in South Africa, FAWU is particularly impressed by the efforts of the Competition Commission in bringing about engagement and thought processes on the issue. The further liberalisation of agricultural produce does not seem to be a good idea. FAWU supports a much more rigorous and balanced approach on the issue.

Lastly he pointed out that food safety and quality will become a critical issue in the next three years. Current interventions have not been viewed as adequate and this is where the government has to sharpen up its approach.

National Union of Metalworkers of South Africa submission
Mr Jeffrey Ndumo, a researcher from NUMSA, said that NUMSA welcomes the document and the summit on growth and development is especially welcomed. He noted that there are certain problematic issues - process issues as well as content issues.

On the issue of process, he noted that NUMSA has a problem with the "consultation approach". He pointed out that NUMSA believes that this is narrow and carries with it a tendency of promoting an asymmetrical relationship between stakeholders in the process of engagement.

On matters of content, NUMSA feels that the DTI strategy draft document lacks some critical details. The issue of 'meeting the needs of economic citizens' is regarded as a problem because in a country where the unemployment rate is 25%, those who are not economically active are seemingly neglected. The proposal from NUMSA is to change the statement to 'for the needs of all citizens' (see submission for full details).

Discussion
Mr Zitha (ANC) asked FAWU if they have looked at the challenges that food militancy (consumer boycotts) can have on township dynamics. He also asked NUMSA on OECD countries - what are the views from other developing countries, is NUMSA engaging its counterparts on the issue?

Mr Davies (ANC) asked NUMSA on the issue of motor industry as to what is their perspective on the conception that the motor industry is efficient/well run? What has been the union's experience in this regard?

Ms Ntuli (ANC) asked NUMSA to elaborate on the issue of DTI being silent on procurement?

Mr Ndumo pointed out that the motor industry might be perceived to be OK, but there are problems here, the issue of catalytic converters as an example. Even though this has been hailed as a success, the quality of these products at an international/ global market level has been questionable. In a nutshell, the 'success' that has been hailed in the motor industry is not as glittering as has been claimed.

On the issue of DTI's silence on procurement, Mr Ndumo pointed out that there are problems - each department is doing its own thing, and there is no alignment in terms of policy. Another problematic issue is that local councils often award tenders to foreign companies, meaning that local companies lose out. This has negative consequences for employment in the medium to long-term. In this regard, he made the example of the Johannesburg City Council which often buys new buses after 10 years and when they do, they prefer foreign companies at the expense of local ones.

The chair concluded by thanking COSATU and the affiliates for their thorough input and discussion on the matter.

CSIR submission
Mr Rasigan Maharaj and Dr Hoffie Maree from the CSIR made the presentation to the committee.

Dr Maree highlighted CSIR's areas of consensus on the DTI document:
- The CSIR agrees that the manufacturing and services sector can play a major role in economic development and job creation
- The CSIR agrees on the importance of advanced technologies;
- And the CSIR agrees on the potential importance of the value chains of multi-national companies. (see presentation for further details)

Areas to be enhanced include:
* Focus
- global business intelligence or data on global trends will help to identify desirable focus on niche areas.
- information on value matrices should be widely available

* Supply side measures
- where possible, these measures should be simplified, fewer categories and acronyms
- more effort is required to promote these measures

*SDIs
- Methods should be investigated to encourage many more investments to follow the successful macro-investments in SDIs.
- linkages between Supply side measures, SDIs and local IDPs to be developed

*IDZs
- a framework of acceptable Supply side measures Inccluding tax breaks) in IDZs is required.

*Skills Development:
- The new skills development act is a major step forward
- More active industry involvement is required
- Identification of key issues within the selected industries and;
- Identification of key interventions within the selected industries.

The CSIR also briefed the committee about partnering for a better future on new projects which they have embarked on and others on which they plan to embark. Mr Maharaj pointed out that these include new national initiatives to enhance knowledge intensiveness which have short term, medium term, longer term, comprehensive, inclusive cross boundary approaches as well as industry sector or technology drives.

Examples here include the AIDC project, which is a joint venture between the Gauteng Provincial Government and the CSIR which aims to improve the competitiveness of the South African automobile industry. The light metals centre is also another project which has been conceptualised and aims to improve the country's manufacturing capacity as well as competitiveness in this regard (see presentation for full details).

He concluded that the CSIR believes that the proposed strategy is a step towards creating the necessary conditions for sustainable growth and as they say the devil is in the detail which is the real challenge herein.

Discussion
The Chair asked about the DTI's shift to customise its packages, what is the CSIR's comment on the issue?

Secondly, what impact does funder interests have on the objectivity of the CSIR's R& D?

Ms Mohamed (ANC) asked how proactive is the CSIR in looking at the projects which take the context of the country into cognition?

Dr Maree pointed out that the DTI decision to customise its packages is a good one for attracting foreign investments, so they support it.

On the issue of funder's interests, he pointed out that this is a potential problem but that every possible measure is taken to ensure the objectivity of the research.

Lastly on the issue of local relevance, he noted that this is very much at the core of the DTI's strategy. An example is the various women projects in rural areas such as bead work which encourages/empowers poor rural women to make a difference to their lives and communities.

The meeting was adjourned.