Ratification of the Agreement between South Africa and Cuba on Economic Assistance: approval

NCOP Trade & Industry, Economic Development, Small Business, Tourism, Employment & Labour

08 August 2012
Chairperson: Mr D Gamede (ANC, KwaZuluNatal)
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Meeting Summary

The Department of Trade and Industry (dti) briefed the Committee on the Economic Assistance Package (EAP) that South Africa was offering to Cuba. It was explained that in 2008, Cuba suffered damage during the hurricane season, and South Africa sought to assist Cuba address the devastation and build on its hitherto underdeveloped bilateral trade relations. In November 2010, Cabinet had approved the principle of an EAP to Cuba, and a total R350 million package agreement was concluded on 25 November 2011 and signed on 3 February 2012. The EAP now required ratification by Parliament.

The Department explained the sources of the funds and the three distinct facilities in the EAP. The first was a non-repayable R40 million grant intended for Cuban seed purchases, including R5 million obligatory purchases from South Africa, which was non-repayable. The second was a R100 million non-repayable solidarity grant. The third was a R210 million credit line, to be paid in two tranches of R70 million and R140 million. The first tranche had to be repaid after two years, and once this was done, the second tranche would be paid, and would become repayable over five years. The sources of the funds included the African Renaissance Fund, Export Credit Insurance Corporation and Industrial Development Corporation, and the latter would hold the account for the R350 million and manage the payments.  

Members asked questions to clarify some aspects of the agreement, and were concerned with the benefits of the EAP to the South African economy in general, and smaller businesses in particular, and the specifics of the goods which would be purchased by Cuba. Questions were asked as to how the purchase of seeds, in particular, would benefit South Africa, and one Member asked why a number of high-quality herbs had not been included in the list. Members required clarification of the sources of funding. The Committee voted to support the ratification of the EAP.

Meeting report

South Africa’s Economic Assistance Package with Cuba
Mr Victor Mashabela, Chief Director: Bilateral Trade Relations, Department of Trade and Industry, briefed the Committee on South Africa’s Economic Assistance Package (EAP) to Cuba, and requested the Committee to advance the process of ratifying the Agreement.

Mr Mashabela noted, in his introduction to the EAP, that South Africa and Cuba had long enjoyed good diplomatic and political relations, but had under-developed trade relations, due to foreign exchange constraints. After the 2008 hurricane season damaged the Cuban economy, South Africa sought to assist Cuba bilaterally. In addition to providing humanitarian assistance, this EAP was intended to provide an opportunity for South Africa to introduce some of its products into the Cuban market. Cuba’s main source of agricultural goods was the United States, who provided these and other goods for humanitarian reasons.

The EAP was approved by Cabinet in November 2010, and in December 2010, President Zuma announced the total package of R350 million. After three rounds of engagement, the EAP was concluded on 25 November 2011, and signed on 3 February 2012. On 20 March, 2012, Cabinet instructed that the EAP be submitted to Parliament for ratification.

Mr Mashabela noted that the relatively short amount of time it had taken to submit the Agreement contrasted favourably with the longer period to conclude other agreements such as the World Trade Organisation (WTO) agreements. 

Mr Mashabela then described the terms of the EAP. It was separated into three facilities. The non-repayable Facility A consisted of R40 million intended for seed purchase, with R5 million to be purchased from South Africa. The non-repayable Facility B consisted of a R100 million solidarity grant. Facility C, which was repayable, consisted of R210 million in credit lines, of which the first R70 million was available immediately, and was repayable after two years. The second tranche of R140 million was available after the repayment of the first tranche, and had to be repaid over the next five-year period.

The main text set out the overall framework and main elements. Annex 1 set out the requirements for the purchase of South African seeds, in terms of the first tranche of the agreement. Annex 2 set out the requirements to put other grants into operation, and the export credit facility.

Mr Mashabela noted the sources of the funds. The Department of International Relations and Cooperation (DIRCO) provided R100 million, with R40 million as grants for seeds and R60 million as a solidarity grant. The Export Credit Insurance Corporation (ECIC) interest mark-up account provided for R110 million, with R40 million as a solidarity grant and R70 million for the first tranche of credit facility. A further R140 million, intended for the second tranche of credit facility following the repayment of the first tranche, was to be identified by the National Treasury (NT).

Mr Mashabela noted that the Industrial Development Corporation (IDC) would hold an account for the R350 million and would manage the payment on behalf of the Department of Trade and Industry (dti). Cuba would identify the goods it sought to purchase for South Africa, and then the IDC would pay authorised companies for goods exported to Cuba, on receipt of invoices and supporting documents. Only R35 million would leave South Africa, and all funds would be used for the purchase of South African goods. Cuba was not required to repay grants. Once it had repaid the first credit of R70 million in two years, Cuba would access the second credit line of R140 million, which was to be repaid in five years.

Mr Mashabela noted in conclusion that the purposes of the EAP included providing assistance to Cuba as well as introducing South African products to the Cuban market. Past experiences of South African goods’ introduction to other markets around the world had shown that when high quality South African products entered foreign markets, foreign perceptions of the South African industry were positively impacted. It was expected that the EAP would improve the South African productive capacity and help overcome the Cuban government and the Cuban people’s problems arising from natural disasters.

Mr B Mnguni (ANC, Free State) asked Mr Mashabela to clarify the particular types of goods that Cuba would purchase from the EAP money, and whether there were specific sectors in the South African economy, such as manufacturing or agriculture, which would benefit from these purchases. He asked about the purpose of the non-repayable solidarity grant, and how it would benefit South Africa.

Mr Mashabela clarified that the EAP had focussed particularly on agriculture, identifying the requirement to purchase seeds for R40 million, because the Cuban economy had a comparative advantage in the agricultural sector. Apart from the R40 million, the EAP did not mention specific goods or sectors, and allowed Cuba to purchase those goods it preferred to acquire. The purpose of the non-repayable grant was to assist a country in need.

Mr E Nyambi (ANC, Mpumalanga) asked which types of seeds would be considered of importance to Cuba.

Mr Mashabela replied that the EAP had ensured that a wide range of seeds were selected, and listed all 30 seeds described in the agreement under Article 3: Description of Seeds of Interest for Cuba to be purchased with the Donation offered by RSA.

Mr Mnguni asked for clarification regarding the R100 million which was not specified as money intended to purchase seeds.

Mr Mashabela replied that the three different facilities included Facility B, which contained a non-repayable solidarity grant, which could help South African exporters, since Cuba could use that money to buy other goods.

Mr S Montshitsi (ANC, Gauteng) asked whether it was better to give money to Cuba in order for Cuba to buy goods from South Africa, or whether it would be better to send Cuba the goods directly.

Mr Mashabela replied that the EAP would allow Cuba to acquire whatever high quality South African goods it required, and that the agreement was set up in this way in order to improve the bilateral relationship between the two countries. The R40 million designated for specific agricultural products was imposed because of the importance of agriculture in Cuba, and the availability of high quality seeds from South Africa.

Mr Nyambi noted that it was important that small businesses and agriculturalists also benefitted from the agreement, and asked how this would be ensured.

Mr Mashabela agreed with Mr Nyambi’s point, and said that the intention of the EAP was to give companies the opportunity to promote themselves and enter the Cuban market. It would be important for the dti to assist in the promotion, to allow all companies to have access to this process, but in the longer term even more companies would benefit, after the Cuban market had become more receptive to South African companies in general.

Mr F Adams (ANC, Western Cape) noted that, due to similar climates in the two countries, agricultural inputs would transfer well between South Africa and Cuba. South Africa enjoyed a historical relationship with Cuba and by further engagement on this bilateral relationship, there would be progress in South Africa. He proposed that the Committee should agree to set the ratification process in motion.

Mr Nyambi seconded the proposal.

Ms B Abrahams (DA, Gauteng) asked why Cuba needed the money and where the second credit line of funding would come from.

Mr Mashabela noted that the money would come from DIRCO, the ECIC and the dti. He stressed again that the EAP was intended to help provide for the needs of a partner country that had been struck by a natural disaster.

Ms M Dikgale (ANC, Limpopo) noted that Limpopo Province produced high quality herbs, yet these were not mentioned in the list, and thought that they should be. Apart from this minor concern, she supported the proposal to propose the ratification of the EAP.

The Committee then adopted Mr Adams' proposal to call for ratification of the EAP.

The meeting was adjourned.


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