Minister on DTI Annual Report 2011/12 & Trade Current Affairs: Tripartite FTA, EPA, PTA, Bulk Wine; Product Labelling)

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Trade and Industry

13 September 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Minister of Trade and Industry said South Africa was feeling the effects of the global recession and exports to developed countries would become more difficult. There had nevertheless been an increased amount of foreign investment in South Africa. Attention needed to be paid to beneficiation, and a greater emphasis was needed on buying South African goods and creating trading opportunities in Africa.

Members were briefed on the Annual Report of the Department of Trade and Industry. The rate of growth globally was slowing. South Africa was moving away from her traditional export markets, with increased exports to China in particular. The trade deficit was reducing. At the same time, international perceptions of South Africa were improving and foreign investments were being made, leading to job creation. There was a drive to localisation, with South African content an important part of such investments. The majority of investments were in the automotive, business support and film industries.

Work was progressing on developing industrial development zones in different parts of the country. Trade agreements were being concluded with a number of countries in Africa and beyond. There had been great success in encouraging China to import South African value added goods. The Department was encouraging the participation of black persons and women in business initiatives. Progress was being made with legislation and regulation. The Department's vacancy rate had been reduced, and it was meeting targets for the employment of women at senior levels and of persons with disabilities

The Department had spent all but 1.1% of its budget in the 2011/12 financial year. It had received an unqualified audit report although some concerns had been raised. These were mainly about the requirement to obtain three quotations for any purchase.

Members from all parties congratulated the Department on the quality of its work and its ability to adjust to changing conditions. The slogan of ‘continuous improvement’ was explained. Growth should be linked to economic and job growth. Members were assured that the Department was looking at developing markets for industrial parks and cooperative schemes. Members were concerned about the effects of increasing electricity costs and a tendency to employ foreign nationals. Some companies were still committed to maintain their production facilities in previously disadvantaged areas.

There was agreement that South Africa should look to position itself as a knowledge based economy. The production of an electric car using local materials and locally developed technology was advised. The cost of creating jobs had to be considered against a background of unacceptably high unemployment levels. It was suggested that iPad or Kindle technology could be used as a partial substitute for school textbooks. Concern was raised over South Africa's involvement in space projects.

The Minister briefed the Committee on the status of various trade agreements and initiatives. The level of intra-African trade was low, with most of African exports being raw materials. Another hurdle was the poor transport network, but there were plans afoot to construct a north to south corridor for both road and rail links.

South Africa's partners in the developing world, such as China, India and Brazil, all had huge domestic markets. One of the problem areas in trade with Europe was the regulation on marketing produce with geographic names. Non-tariff barriers in India also hindered trade. A recent decision by British supermarkets to import South African wine in bulk rather than bottled form had negative consequences for the South African economy. The same standards should be applied to whisky imports. Cabinet had taken a decision after wide consultation that all products of the regions beyond Israel's 1967 borders should indicate that they originated from the Occupied Territories.

Some Members were concerned over the political selectivity of the labelling of products from Israel. This move was not in South Africa's interest. There were many other occupied territories for which similar actions was not being taken, but the Minister told Members that Tibet did not count because of the policy of recognising a single Chinese nation. Free trade areas needed to be encouraged. The Trade, Development and Co-Operation Agreement with the European Union was still in place.

Meeting report

Introduction by Minister of Trade and industry
Dr Rob Davies, Minister of Trade and Industry, said the overarching objective of the Department of Trade and Industry (dti) was to contribute to the New Growth Path, bringing about structural change in the economy in favour of the productive sector with an emphasis on manufacturing and value added production. The dti had argued long enough on the importance of that in moving South Africa from an undeveloped to a developed economy. Where there were active programmes and strong interventions, the results had led to good results. A number of designations had been made to acquire from local sources. Organs of state had been directed to purchase from local sources. There had been an accord on localisation. This had to be strengthened.

Minister Davies said that those companies that had real prospects despite the difficult current circumstances would advance while those who were content to “sit out” the crisis would not survive. Manufacturers would be encouraged. Where they had assets which could be invested, the dti would partner with them and give them some support. In his budget speech he had quoted Karl Marx on making one's own history. Circumstances had changed. There was now a global slowdown. This was particularly so in the developed world, but there were lower levels of growth across the world. Brazil had reported this problem of reduced growth rate. There were some conclusions one could draw and the next decade would be very different to the previous one.

Minister Davies said that exporting goods to the developed world was becoming a less attractive proposition. China had realised this and had adapted its policies accordingly. The next decade would not be characterised by commodity super cycles. Growth was likely to be more moderate. Strategic thinking was needed. In the immediate term, industrialisation should be based on the infrastructure programme and the localisation concept. The orgy of imports had to end. Localisation had to be a change of mind set by business and consumers. People had to buy local and support the Proudly South African campaign.

Minister Davies said that there was an important change in perceptions about Africa. There were a number of dynamic economies and firms who were saying they were going to have to increase their presence on the African continent. And South Africa continued to be seen as playing an important role in Africa. In the previous year, there had been a sizeable increase in foreign direct investment (FDI) – not just portfolio investment but bricks and mortar investment. Two of the world's leading agro-processing industries had set up new plants and expanded operations in South Africa. Big automotive companies were intent on deepening their manufacturing presence in South Africa. This illustrated that Africa represented the next growth frontier and South Africa continued to occupy the strategic base here. Thus in the immediate term these were the issues dti was trying to attend to: identify dynamic opportunities; promote and support the infrastructure programme, and encourage localisation. In the medium term, SA had the great importance of the delivery and the promise of the regional integration programme in Africa,   particularly the tripartite programme which seeks to broaden integration across existing across regional communities, making big swathes of Africa as free trade areas. This was important as these could create the market size that could support industrialisation not just in SA but in other parts of the African continent. But of course one had to address that in a developmental way by complementing it with infrastructure programmes and by complementing it with actual on the ground work to support cooperation around industrial development. The other thing was beneficiation of mineral products which was absolutely fundamental. Beneficiation meant two things. The one was when we exported products to be used in somebody else’s industrial processes, we needed to do that in ways in which there was more value added in our own economy before it was exported. The other was we were going to have to create a new competitive advantage around availability of mineral products to support industrial development right here in SA – which was a critical medium term project.

The Minister announced that the Deputy Director-General: Industrial Development, Mr Nimrod Zalk, who would soon be leaving to study overseas and would return to the dti later in a different capacity. He noted the important contribution he had made to industrial policy. Dti had succeeded in institutionalising industrial policy action plans. Every year concrete action plans would be presented – not just policy. This was followed by regular internal monitoring within the dti. Mr Zalk had been an exemplary public servant. He had made a significant intellectual contribution, and would hopefully come back with greater insights and skills. An acting DDG would be appointed in the interim. Members should be aware of the International Small Business Conference being held on the forthcoming weekend. Not enough black industrialists were being produced.

Mr Lionel October, Director General, the dti, said that industrial policy had moved from strategy and planning into the real economy. This was particularly in the automotive, clothing, business process and outsourcing and the film sectors. The company landscape had been transformed. Companies in trouble had been rescued. There were new initiatives in cooperatives and small business. Another direction bearing fruit was the need to diversify trade from traditional to high-growth markets.

Mr October said that the global recession was now a fact. Global growth had slowed in 2011 to 3.8%. South Africa was very exposed to international trade. Over 45% of the GDP came from imports and exports. There had been a bloodbath in 2007/2008. This had picked up in the latter part of 2011. Additional jobs had been created, but the manufacturing capacity was still less that what it had been in 2008.

Mr October said that the BRICS countries (Brazil, Russia, India, China and South Africa) had managed to keep growing. Much of the new growth (21%) came from China. The trade deficit was still growing, moving towards 7%. This was dangerous territory.

Mr October said that there had been an increase in investment performance. State owned enterprise spending had increased, driving the increase in capital spending. Amendments to the Companies Act had also contributed to an increase in investment. There had been a big increase in FDI. In general, the overall investment climate had improved. South Africa continued to be an attractive avenue for investment. Audit systems were good. The country had advanced by thirty places to 44th in the World Bank ranking for the ease of doing business.

Mr October said that the bulk of new jobs had been in consumption sectors and less so in manufacturing. Even so, 52 000 jobs had been created in the manufacturing sector in the final quarter of 2011.

Mr October said that the implementation of the Automotive Production and Development Programme had helped to renew confidence. Some R15 billion had been invested. China's First Auto Works had invested $100 million in an assembly plant in Coega.

Mr October said that there had been meetings with major companies in the transport sector. Contracts had been awarded for new locomotives and rolling stock for Transnet. More than 70% had gone to local manufacturers. R2 to R3 billion would be spent on pharmaceutical tenders. The business process outsourcing sector had also picked up, with some global players being attracted to the country. The Monyetla II Programme was training 3 400 young people. The clothing sector was recovering after a period of massive retrenchments. Major retailers were now re-investing in South African manufacturers.

Mr October presented some major call centre enterprises. It was a mixture of local and foreign companies. There had been 23 approvals in this sector. There was also a good mix in the 12i Tax Allowance Incentive division. A number of major films had been shot in South Africa. There was an increasing local content.

Mr October said that just under 3 000 companies had been assisted. More than 48 000 jobs had been created. There was a positive effect on turnaround times, at four weeks for most programmes and six weeks for others. There was a move towards electronic processing.

Mr October said that the Industrial Development Zone (IDZ) programme was being revitalised. There had now been some significant investments, particularly in Coega and East London. There had been major infrastructure construction in Richards Bay. Work at Saldanha Bay was at an advanced stage. All feasibility studies and land issues had been sorted out. Within the next few months the application to declare an IDZ should be lodged.

Mr October told Members that R40.9 billion in investments had been facilitated. A major investment had been secured by the Airports Company of South Africa in Brazil.

Mr October said that in Africa, trade talks had been launched. Eight sectors had been identified for cross-border complementarities. At a bilateral level, there had been facilitation with fast-growing economies such as Angola and South Sudan. At a multilateral level, there had been successful co-ordination of work within BRICS. There had been work on two key projects. One was the undersea cable linking South Africa to Brazil, being done by a local company. A re-insurance tool had been proposed by Hollard and others. The BRICS-led development bank would be launched in the near future. Value added exports to China had to be increased.

Mr October said that ten projects had been proposed to China. A mission of seventy companies had resulted in over R400 million in trade. Trade with China was moving in the right direction. The trade deficit had been reduced to R18 billion. This was partly due to China accepting an import policy. Chinese importers would be visiting local plants.

Mr October said that there had been significant work towards boosting women-owned enterprises. There was a two-pronged approach to providing incubators for women. To date, 34 incubators had been set up but the private sector had made 44 proposals for additional incubators. Small business struggled with red tape. A forum had been set up to assist in this regard. The workplace challenge programme would help small business improve in competitiveness.

Mr October revealed that three industrial support clusters had been set up. The 30 day payment was a big problem in both the private sector and government. A hotline had been set up which would expedite late payments.

Mr October said that a code of good practice had been put in place for broad-based black economic empowerment (BBBEE) enterprises. A group of 74 students had graduated from a diploma programme at the University of Witwatersrand in management development.

In terms of regulation, Mr October said that the Gambling Review Report, Copyright Review Bill and Intellectual Property Bill had been tabled in Parliament. The Companies Tribunal had been established. The Estate Agency Affairs Board (EAAB) had been handed over to the Department of Human Settlements.

Mr October said that the number of failing companies had been reduced by 10.8%. The dti had managed to reduce its vacancy rate from 18% to 8.45% at year-end and by the end of June 2012, it was down to 7.4%. The Department had paid 95% of its bills within 21 days. The number of women was 43% of the staff, with appointments at DDG level at 50% female. The number of persons with disabilities was at 2.6%, above the target of 2%. Several engagements had been held with the public.

Mr October said that there had been a number of interventions. A critical one had been with the EAAB.

Mr October turned to the financial reports. The final appropriation for the 2011/12 financial year (FY) was R6.876 billion, of which R6 800 billion had been spent. The underspending amount was 1.1%. This was the lowest level in the previous five years. This underspending was mainly due to staff vacancies.

Mr October said that the Auditor-General's Report was unqualified, but some concerns had been expressed. Performance information and asset management were some of these but they had been addressed. One real issue was that of contingent liabilities. Conditions were put in place for the payment of incentives. This matter was being considered. There was an issue over irregular expenditure, which had been a significant finding. This was not due to corruption or fruitless expenditure, but was of a technical nature. The three quotation policy was being enforced, and an explanation offered if this policy was not enforced. Small and medium enterprises were often targeted for services such as conference gifts, and it was often not possible to follow the three quotation policy in this regard.

Mr October said the double dip recession was still a challenge. The country would have to grow under its own steam. The over-exposure to the global market could be a hindrance. The management and governance of entities was also a challenge, with four receiving special attention at present. In some sectors, licences were granted by other Departments. An example was in the energy sector. The dti wanted to engage on a programme to upgrade small and black business. They had to be brought into the mainstream. While the industrial policy programme was being implemented, these things could take up to five years while the demand for employment was immediate. Public Works schemes and partnerships with the private sector would be investigated.

The Chairperson said that there was an annual report due on IPAP. This would be detailed. Some of this information might be incorporated into the Committee's report.

Mr G Hill-Lewis (DA) congratulated the dti on an excellent report. This was one of the best performing Departments and their efforts were laudable. He did not quite understand the R112 million approved for disbursement in the clothing industry, but only R14 million had been disbursed to date. He asked what progress had been made on gambling legislation. On policy, he asked about the location of the International Trade Administration Commission of South Africa (ITAC). Their work was integral to that of the dti.

Ms S van der Merwe (ANC) agreed that the presentation was excellent. The slogan of 'continuous improvement' was being put into practice. She acknowledged the tough global conditions, but at some point growth must fuel the economy and job creation. A solid platform was in place, but she wanted an indication of how this could be made to take off. The current scenario had been termed 'a lame duck' by a study group she had been involved in, while the take-off scenario was dubbed 'the flight of the flamingo'. The FDI figures were encouraging, but she asked how this could be translated into jobs.

Mr X Mabasa (ANC) also congratulated the dti on a job well done. In initiatives to create jobs, it was not easy for government to lead the process. There was a disparity between provinces. He asked if this was being left to the market or if dti was intervening. The incubators would have a spin-off into local production. Even if it was a difficult area, the dti should persist in investing time and resources. The unqualified audit report and dti employment figures for those with disabilities were commendable. There were industrial parks in various parts of the country and he asked if there was any concerted effort to work with these developments. The bigger players would bring a broad-based aspect. Government should rather go to these people. He was no longer hearing anything about a South African car. He asked what movement there was with universities and technikons. Syllabi had to be in harmony with what the dti was trying to achieve. The infrastructure of Africa could not only be supported by South Africa, and he asked what was being done by other African countries.

Mr G McIntosh (COPE) was astonished that the Technology and Human Resources for Industry Programme (THRIP) initiative had not been quoted in what was otherwise an excellent report. The dti was a midwife to entrepreneurs and capitalists of South Africa. It could not itself create jobs, but was a midwife and an empowering institution. It would be sad to lose Mr Zalk. For those who read more history than Marx, Nimrod was a famous warrior. Swiss companies had not joined the boycott of apartheid South Africa. Nestle had one of its biggest factories in the world near his home town of Escourt. There was gossip that electricity charges were being increased so drastically that Nestle was reconsidering its R2 billion investment. Another enterprise in his area dealt with compost. Of the eight workers, seven were from Malawi. A factory in Molteno, owned by Foodcorp, was facing relocation to the West Rand. Foodcorp had decided to retain the factory. Problems with electrical supply had been addressed by direct negotiation with Eskom. This decision was about more than business. These country towns needed help, and he named a few more examples in the former bantustans. Some were successful but others were disasters. In Johannesburg, a service centre for Africa could be established in the way London was the financial hub of Britain. More financial and other services for Africa could be brought in. Other cities such as Durban and Cape Town should not be left behind. On the EAAB, an excellent intervention had been made, and the Small Enterprise Development Agency (Seda) was a similar example. There were fantastic statistics in the report. More than 50% of university students were black, and more than 50% were female. He asked how many graduates were in the dti's employ, and how many could speak languages such as Mandarin. Skills and abilities were needed.

Mr M Oriani-Ambrosini (IFP) said that Mr McIntosh was the one politician he could listen to forever. He urged the Minister to appoint him as a roving ambassador. The capacity of the Minister and the dti to adjust to rapidly changing circumstances was praiseworthy. In many other departments the annual report was the same every year. There had been a dialogue for some time. The Minister had not anticipated the double dip. He reminded Min Davies of what he had told the Minister some time previously, and now his prediction was coming true. He asked how South Africa would survive the recession. Large manufacturing facilities might move to the East and high technology to the West, with South Africa somewhere between the extremes of rich and poor. He questioned the relationship with China. The most fundamental transformation would be to develop South Africa into a knowledge-based economy. He had often put forward the option of making substantial investment in nano-technology, which was the technology of the future. An African electric car might be a suitable project. The most challenging form of beneficiation was gathering materials to develop the battery of the future. He appreciated the capacity of the dti to move with the times enormously, but it was time to leapfrog the times and make history.

The Chairperson had looked at the two pages on mega investments. Moving from R150 million with 226 jobs to R2 billion with 1 300 jobs, she asked how much it cost to make a job. Manual labour was less cost intensive. She had calculated rand values for some of the projects. She asked what the most urgent thing was, as she was convinced that unemployment was unacceptably high. Jobs were needed. The dti was creating an enabling environment. Education was another important aspect. An enormous amount was spent on ever-changing textbooks. She had experience as a teacher. She asked if it would not make sense to promote the manufacture of devices such as iPads. There would always be a place for books, but this technology could be used. Some components might still need to be imported. The film industry had also achieved commendable results. She also noted the rapid progress on the critical aspect of designations. She supported local components, but it seemed that some quarters hesitated to make use of local products. She asked if there was any way to incentivise the support of local products.

Min Davies thanked Members for their compliments. On the gambling report, the Review was at the National Council of Provinces. There was a lotto policy document which he had signed off, and was before Cabinet. The location of ITAC within the Economic Development Department was not problematic. The dti continued to work with them and sign off reports. The term 'continuous improvement' came from Asian industry. It was not very often that things improved as the result of one bright idea. Sometimes such ideas made things worse. The Asian experience was that small improvements, which might seem insignificant in isolation, made a huge positive difference over time.

Min Davies had a real question over the New Growth Path. It had been a slow growth path, but the flight of the flamingo concept was now showing rather than the disastrous example of Icarus. The first year had been extremely modest. The question was on how to accelerate the pace of change, and what short term interventions were possible. The dti steered rather than ran such initiatives. They worked largely with the private sector, and could only encourage them or provide incentives rather than give orders.

Min Davies did not recall being bullish on the possibility of recession, and was by nature pessimistic. There was a significant set of problems lying ahead in the next few years. The prognosis for Europe was a decade of contracting economic activity. He had seen a brief report on what the impact would be on South African jobs. If Europe slowed down on imports it would affect South Africans. It was not just China or BRICS. South Africa was opening doors to value added production. Dynamic opportunities were being sought across the world. He had been invited to a major organisation in Switzerland, which thought that South Africa was a considerable emerging market. Many companies not previously involved in Africa were now showing interest.

Min Davies agreed that a knowledge economy was part of the growth path. What could not be done was try to play for footloose basic processing activities run by multinational companies with no fixed base. Many of these were looking for cheap labour. South Africa needed to build manufacturing facilities with a high level of knowledge. The iPad suggestion would be a prime example. Dormant capacity could be rebuilt. Green industries were being encouraged. South Africa could be important players. Automotive companies and fuel cell technology should be pursued. This path should be followed doggedly.

Min Davies said the Special Economic Zone (SEZ) Bill would look to decentralise industry. Regarding the tertiary institutions, any investing company was expected to get involved in skills development. This was why the dti had developed its own course together with the University of the Witwatersrand. Regarding Nestle and the electricity charges, a cereal plant had been opened in Gauteng. They were locating in one of the former homeland areas. The dti was well aware of, and participated in the debate on electricity prices. Municipalities had a mark-up on electricity supplies, and this would increase prices and might discourage industry. The dti must tell all South Africans to save energy and use energy efficiently. Complying companies should perhaps be given a discount. Environmental consciousness was an element in competitiveness.

Min Davies found a case for both labour and capital intensive manufacture. In the film industry, the dti was looking for deeper local involvement. He had been impressed when visiting a local film studio where the set was a realistic representation of Robben Island. The only direction the dti took was the decisions over government purchases. An accord had been reached on localisation. The attitude of preference still had to be developed. The balance of payments matter had to be addressed.

Mr October said that FDI was linked to 42 000 jobs. There was a bias towards labour-intensive projects, and incentives were adapted accordingly. He was happy that technology resource information policy had been raised. This was a programme that could be upscaled. It had been running for some time. On renewable energy projects, financial closure had been reached and wind and solar plants would soon be under construction. Biofuels were another issue. Blending regulations had been finalised in the previous few weeks, and now incentives were being tied up with Treasury. This would generate jobs in the sector and downstream in the agriculture sector. Some 70 000 jobs might be the result. The capital-labour ratios were high. The cost per job was high. This was why dti targeted labour intensive industries such as furniture making and food production. The dti had met with all provinces, and had agreed on SEZs. At least one would be created in each province.

Mr Nimrod Zalk, DDG: Industrial Development Division, dti, said that the disbursement in the clothing industry should read R112 million. On the Jewel project, there had been agreement on the assembly proposals. The challenges were in establishing a credible marketing strategy. This was not unique to South Africa. A number of companies were putting electric vehicles on the market. Just about every major brand now had an electric or hybrid model on the market. However, the projects were struggling even in more favourable markets.

Mr October added that projects were sometimes approved, but companies claimed only over a number of years. Allocations could be made in one FY but payments only made in subsequent years.

Mr Mabasa asked what the strategy was for assisting in the development of previously disadvantaged individuals in entering trade. The industrial parks in Soweto, if well taken care of, could provide an opportunity for black people to enter the manufacturing sector. His observation was that these schemes were not receiving government attention.

Mr G Selau (ANC) had a friend working for BMW. This company had recently taken on 600 new workers. He had heard other companies doing so as well. He did not know if this was a result of incentives. He asked for clarity on South Africa's position on a customs union for the Southern African Development Community (SADC).

The Chairperson said that the dti would present later on trade issues.

Mr Selau said that there was a perception of China and Japan that they were experts at copying technology. Exports were now being made to these countries, but he was concerned that China might duplicate these items and start manufacturing and exporting these items themselves. There had been low spending on some items. It was not a crisis situation, but there was room for improvement. On the Auditor-General's (AG) report some irregular expenditure had been reported. One of these was the use of single source service providers without the required approval. He wanted to understand if this was the result of an omission or by juniors undermining the superior's authority. He asked if cooperatives would have their own type of incubator agreements. Companies might see cooperatives as competitors and not give them their best advice.

Mr McIntosh returned to the THRIP project. It was an exciting concept. He asked if there was any co-operation with the dti. There was an SMS reminder to take one's medication and a demonstration on how nougat should be cut in the brochure.

Adv A Alberts (FF+) noted that the space sector had grown lately. The company started at the University of Stellenbosch had had an agreement with the government, but the promised funds had not been forthcoming. This might force the company to close down.

Mr Oriani-Ambrosini said that Icarus's only problem was the wrong choice of glue. He had written a paper on a new generation of Kindle devices. This would solve problems with the distribution of books and would be a game-changer in both the education of children and their parents. Along the same lines, the Department of Home Affairs had leveraged the production of smart identity cards. An export market was available. There was a rumour that the President had sent the Intellectual Property Laws Amendment Bill back to Parliament. He asked if this could be confirmed.

The Chairperson said that some investors had indicated that they wished to send South Africans to their base facilities for training. This was discounted. All training opportunities should be pursued.

Min Davies said that the capacity to assist industrial parks was lacking. A new scheme was being developed. He could not confirm the figures from BMW. All of these automotive sectors were because of interaction with dti programmes. BMW was one of those which had made good use of the training lay-off scheme after the 2009 downturn. In most other cases, companies in the FDI pipeline wanted to draw on one or other dti programme.

Regarding China, Min Davies did not think that many South African products would be reverse engineered. He agreed that it was an issue. Improving an existing product was an example of continuous improvement. The British company BSA had dominated the motorcycle market after the Second World War, but was completely overtaken by Japanese companies. The importance of the initiative was that South Africa received 25% of China's exports into Africa. Nine of South Africa's exports to China was mineral. China had now agreed to import value added products from South Africa. Ten products had been identified. Ten investment projects had also been identified. R400 million in orders had been placed from this exhibition. Another exhibition would be held in 2012. Targets needed to be set. Wine should be one of these.

Min Davies said that the THRIP programme had been in the dti for some time. The Department presented awards for innovation annually. This was a key aspect. The Department of Science and Technology (DST) ran the science councils while dti was responsible for the commercialisation of these schemes. Solar panels were the best known, where South African technology had gone to Germany and the country was now importing panels from Germany. There were two bodies in South Africa. There was a Space Council under the dti, responsible for regulatory aspects such as the registration of South African vehicles in orbit, and there was a body within DST which played a similar role to the National Aeronautical and Space Agency in America. Min Pandor had gone to Kazakhstan to witness the launch of the South African satellite. He had heard the same rumours as Mr Oriani-Ambrosini about the Intellectual Property Laws Amendment Bill, but would not comment on it. He agreed that a high number of South Africans were undergoing overseas training.

Mr October said that the industrial parks would be the focus of the dti's work for the near future. A Director had been appointed to oversee this programme. Many of the industrial parks did not have access to markets. A partnership had been started with Pick'n'Pay to purchase from cooperatives. The emerging exporter development programme was stimulating business. The AG had raised a question over delegations. The authority to approve purchases under R500 000 was held by DDGs. Anything between R500 000 and R4 million was dealt with by a bid adjudication committee. The problems were in the lower tier of purchase. There had not been a specific instruction on what to do when deviating from the three quotation system. The delegations of authority to the DDGs had been amended. Deviations could be allowed where necessary. The viability of iPad and Kindle type devices would be investigated.

Mr Kumaran Naidoo, Chief Financial Officer, the dti, said that under-expenditure was mainly due to vacancies. On goods and services, a large number of invoices had been received after the end of the FY and thus could not be settled within the FY. Commitments had been made before the time.

The Chairperson said that time was running short. Any outstanding questions would have to be answered in writing.

Trade Current Affairs presentation
Minister Davies said that the presentation had been titled 'Current Affairs' as it covered a number of matters. He spoke about the
Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and Southern African Development Community (SADC) Tripartite Free Trade Agreement; the Southern African-India Preferential Trade Agreement

; the Southern African Development Community-EU Economic Partnership Agreement (EPA) Negotiations; Bulk wine matter and the Labelling of Products.

Essentially there were two paradigms on regional integration. All accepted that it was a good thing. One trade paradigm started with agreements, moving to a customs union and then to an economic union which might eventually result in a political federation. Some of the debate in Africa and the developing world indicated that the customs union was a higher level of integration than the free trade area. African countries were primarily producers and exporters of primary products. Only 11% of trade on the African continent was inter-regional. There was limited production capacity. Most of the infrastructure was to get raw materials out of the ground and onto the export market. The monetary union in Europe was failing because of the economic difference between the partners. There would be profound consequences if the Euro fell away.

SACU-India Preferential Trade Agreement
 ; Min Davies said that the customs union proposal should have come into place into 2010, but this schedule had been missed. In the same way, it was inconceivable that the goal of financial union by 2016 would happen. Many parties to the agreement were not doing what they had agreed to do. South Africa was saying that milestones should be identified, not necessarily with dates attached.

Min Davies said that emerging economies were looking at their domestic markets now. All those that were, had large domestic markets. China, India and Brazil all had huge populations. China was one unified country, unlike Africa which had been divided by colonisation. The tripartite agreement met the requirements of the time. A market of about 700 million people would be created, and would lay a basis for industrial development. Perhaps not all parties had understood this. An infrastructure needed to be built. Uganda was incredibly fertile, but there was no ready way to import produce from there. There were 85 projects to connect north and south. Pres Zuma had been designated as the champion of the project.

Min Davies said that there were three pillars. Trade was one of these. The Heads of State had set a completion date of 2014. Eleven negotiating principles had been tabled. This should be member-driven, not outsourced to consultants. There was an agreement not to re-open old protocols. It would concentrate on negotiating trade arrangements between those that did not have existing agreements. He mentioned Egypt and some East African countries. South Africa was leading the work on the Southern African Customs Union (SACU). Offers were being prepared.

Min Davies said one point would be rules of origin. The only problem he anticipated was on clothing. Two stages of transformation were needed. SADC was applying pressure to change this to a single stage. The matter was being dealt with. The African Union (AU) had reached an obvious conclusion in that West and North Africa were not being considered. A continental free trade union should be set up, and South Africa was not opposed to this.

Min Davies said that the quest was to diversify the trading relationships, both with countries and dynamic companies. The framework of IBSA (India, Brazil and South Africa) was also to be considered. There was also an agreement with a South American bloc of nations. Negotiations were also to be held with India. The countries now had a better understanding, and market requests were being exchanged. The legal texts were progressing. There was a lot of resistance from stakeholders. There were many non-tariff barriers in India. These diluted the value of concessions, and therefore South Africa was offering more.

Min Davies then turned to the Economic Partner Agreement (EPA). These were about trade-related policy obligations sought by Europe. The Europeans had been applying a 'take it or leave it' policy. This was to the detriment of smaller countries. Countries had been forced into signing agreements. There were more choices in Africa. Some flexibility was now been shown by the European Union (EU). A number of issues still had to be resolved. Many assurances had been given which had not yet been put into writing. There was engagement on other issues. If South Africa were to become part of it, better market access would be needed. There was agreement on this. South Africa had offered a concession on geographic locations, such as terms like port, sherry and parma ham. Most foodstuffs had originated from the fertile crescent of Europe. South Africa had provided a list of things not commercially significant. The Europeans were under-estimating the significance of the agreement, looking for greater access to meat and dairy markets in South Africa. If the EPA was not in force by January 2014, the preferences would lapse. This would have more impact on other African states.

Min Davies continued on the importation of wine in bulk into the United Kingdom. This had been happening, driven by retailers. About 1 000 jobs had been lost in South Africa as a result. It was a pricing issue. UK retailers wanted to keep the price of South African wine low. There was a UK body dealing with packaging issues. This body had launched a campaign with supermarkets. In the name of reducing carbon emissions, wine imports should be made in bulk rather than in bottles. He did not think the argument was rational and was purely based on transport. There were no multilateral rules on this issue. South Africa was thus subject to unilateral barriers which were unfair. South Africa had raised the issue with the EU. South Africa imported more whisky from UK than it exported wine. By the same token, whisky should be imported in bulk rather than bottled form. He had raised it with his British counterpart. It was not UK policy to support such things, he was told. The concept of food miles had been raised. Locally produced food produce should be used, but in UK food was cultivated in greenhouses instead of naturally.

Min Davies said that product labelling was an issue referred to the dti. A huge amount of heat and personalised invective had been generated. There were products on the South African market that had been produced in areas occupied by Israel after 1967. They were labelled as a product of Israel. There had been wide consultation, and the general feeling was that such products should be labelled as being from the Occupied Territories. Cabinet was preparing the legislation. He anticipated court challenges but felt that consumers had the right to know exactly where the products originated.

The Copyright Review Commission's Report was now published on the website. Judge McFarlane had made the finding that needletime royalty payments should have been made since 2003, but not a cent had been paid to local artists. Those withholding these royalties should be prepared to hand over not only the royalties due but the back-pay as well.

Mr Oriani-Ambrosini had noted a point in the National Assembly the previous day on the access to European markets. He agreed that Europe would decline in the next decade. War in the region was a possibility. He felt that substance should be given to the AU by negotiating the best possible tariffs for African goods. He had difficulty in spending time on the labelling of Israeli goods, when there were more important issues to be discussed. There was no international legal requirement to do so. There were 72 occupied territories on the United Nations list, one of these being Tibet. The Zionist Organisation of South Africa had already launched a high court action. He asked who would benefit from this legislation. He felt there was no gain to be made, and the proposal of government would divide the country. There were many negative consequences in the government's approach.

Mr McIntosh agreed that there was horse-trading at play. On the question of the marking of packages from the Occupied Territories, he asked what was in South Africa's interests. There was no doubt that if goods were packaged and manufactured within the Green Line, which was not necessarily the 1967 line, there was not a problem with the principle that the goods be honestly labelled. He also asked if this was in South Africa's interests. Israel was a small but useful trading partner, with a high state of technology. There was an element that the hinge which squeaked the most, got the oil. The Jewish and Muslim minority groups, which were very small groups in South Africa, made a lot of noise. He asked why political statements had to be made on what were peripheral issues.

Mr Mabasa said that political points were being raised. It was right for South Africa to act in a way that would advance world peace. He asked about the role of African countries in creating a communication web in all its regards.

Ms van der Merwe said that the presentation was of great interest. The mantra of continuous progress in regional issues was an important one. She agreed with the processes that had been set out. The free trade areas should be strengthened. Regional blocs should be strengthened. She agreed on the EPA negotiations. Some progress had been made, but it seemed that there were still obstacles. The rules of origin debate was one of these. She asked how the favoured nation status had been resolved. There had been a better deal under the Trade, Development and Co-Operation Agreement (TDCA). She asked if this was still in place. On the bulk wine issue, she agreed with the Minister. There was a trend towards bulk buying, especially from the new world. South Africa would lose its competitiveness in the developed world. It was important to diversify markets. A lot of wine going to Asia was already exported in bulk. A new industry strategy had been mentioned. There was a question of brand identity. South African bulk wines were often mixed with poorer quality wines, but still marketed as a South African product.

The Chairperson noted that the Minister had mentioned a SACU proposal. She asked which legal texts were being referred to. Regarding India, South Africa had been fighting non-tariff barriers elsewhere. She asked what the barriers were. The approach was not to adopt protectionist strategies. On the EPAs, she was not sure what was meant. It seemed that Britain was more flexible to a degree, but on the other hand they were tightening arrangements.

Min Davies had been present for the debate on negotiating Free Trade Agreements (FTAs). South Africa would seek concessions from trading partners. On the Israeli labelling, two principles were defined. Decisions had to be in accordance with foreign policy. South Africa had a one China policy, and Tibet did not count. South Africa had the choice of ignoring the Israeli issue. If goods were coming in which did not conform to foreign policy, government had an obligation to respond. The policy was not anti-Israeli. A former speaker of the Knesset and a former Israeli ambassador to South Africa both agreed with the decision. A Swiss supermarket was introducing a similar arrangement with government support and there were similar moves in Denmark and Britain. He was not sure if South Africa would be the first government to act in this way. Consumers had a right to know what they were buying. The dti was used to facing litigation. It was in the country's interest to be correct. A principled approach was needed.

Min Davies was not aware of an African communication web. A report was still awaited on the status of favoured nation. Different rules could not be applied to the SACU partners. There were still outstanding policy matters. The blockage was now with agricultural issues.

Min Davies said that the TDCA was still in force. If this was to be dissolved, an alternative had to be put in place. South Africa acknowledged that the only reason for the shift to bulk wine exports was not the environmental one. Industry had to curb carbon emissions. The country would be hugely disadvantaged if it did not happen. South Africa would always be disadvantaged if long-haul transport was to be an issue. There had been a similar issue around food miles. The British government had taken up a policy of fair miles in changing the behaviour of supermarkets to prevent them from enforcing bulk rather than bottled imports. South Africa would be forced to retaliate if this went through. He did not think that the matter was taken seriously until he had raised the whiskey issue. Brand identity issues did need to be taken up.

Min Davies said that the SACU offer was the tariff offer. SACU was not recognised as a body. Countries negotiated as individuals. Common offers were made on tariffs. The one barrier often cited in India was state taxes imposed on crossing internal boundaries. Business people should be consistent in their negotiations. The value of a tariff advantage was diluted by such measures which did not exist in South Africa.

Min Davies said that the legal texts went with legal tripartite agreements. They mainly covered agreements and detailed tariffs.

Mr Selau accepted that the document was work in progress, with challenges. The only area of importance was that whisky should not be reduced to plastic bottles.

Min Davies had said that the concern was for lighter packaging, to which he had suggested the use of plastic bottles.

Mr Mabasa said that intra-continent trade was being led by South Africa. He asked how committed other countries were to this.

Mr October said that the north-south corridor would cover eleven countries. The dti chaired an inter-governmental committee to steer the project. A treaty was being prepared. This would cover road and rail links.

The Chairperson thanked the dti for their contribution. She was proud to serve on a Committee overseeing the work of this Department. The dti was good at explaining issues. This did not mean to say that further issues would not arise in time. Many more questions would be raised in future. The Annual Report was heartening even though Members had made some comments. The issue of virements had to be addressed. She reminded Members of the meeting scheduled for the following week. They were a bit behind on the cooperatives legislation.

The meeting was adjourned.


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