Economic Development Department Budgetary Review & Recommendations Report adoption, International Trade and Administration Council (ITAC) Annual Report 2011/12

Economic Development

22 October 2012
Chairperson: Ms EM Coleman (ANC)
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Meeting Summary

The Portfolio Committee on Economic Development considered the Budgetary Review and Recommendations Report (BRRR) on the performance of the Department of Economic Development (EDD). It was noted that although there had not been sufficient time to hear the reports of all the entities, the Committees had agreed to focus on the Departments firstly, and to continue to hear report backs on the Annual Reports from the entities at a later stage.

Members rephrased a number of the observations to make them clearer and more detailed, and also agreed to link them directly to the recommendations. Specific comments were made on the management performance assessment, which, although done, had not been used optimally to then inform improvements in the EDD. The Members noted their concerns about
slow pace of recruitment to fill vacancies in the Department, and the lack of appropriate training modules to produce required skills, commenting also that EDD was not doing enough to address the matter. Members noted the unqualified audit but also noted that EDD could still be summoned to the Standing Committee on Public Accounts. Concerns were also expressed that EDD did not update its website consistently, and wanted it also to improve Mr Mubu suggested adding a new point to note that the Department needed to improve its marketing and advertising to improve its visibility to the public. Whilst it was appreciative of reduction of expenditure on overseas trips, it cautioned that the EDD must be careful still to fulfil its mandate and should not unnecessarily curtail opportunities for engagement with counterparts elsewhere. There was some debate over how to phrase the recommendation on job creation, but it was concerned at the slow pace at which the Small Enterprise Finance Agency (SEFA) was established, particularly because the entity was key to job creation.  The Committee also noted its worry that there was a disjuncture between strategic planning in the national Department and that of the provincial and local governments, and called for alignment. It would like to see more cooperation and work on rural development matters. The Report was adopted.

The International Trade and Administration Council (ITAC) briefed the Committee on its Annual Report 2011/12. The presentation focused on key strategic objectives and performance areas and services, tariff and anti-dumping investigations, and import and export control. It included feedback on various tariff and rebate applications, and the decisions by ITAC. As a general principle, ITAC had approved tariff reductions on products which were not manufactured domestically and declined reductions involving products that had domestic production capacity. For instance, the domestic kitchen sink manufacturing industry had benefited from a tariff increase that protected it from low priced imports. ITAC generally approved rebates for duties on imported inputs that were in short supply domestically, or were not manufactured locally. The yacht and luxury boat manufacturing industry had benefited from the rebate of duties on components used for manufacture of yachts and boats, which were all designed to be exported. ITAC also reported that South Africa had held consultations with the Brazilian government, in line with World Trade Organisation agreements, after ITAC imposed duties on Brazilian poultry on allegations of dumping. A full report on the investigation by ITAC would be completed by November.

Due to time constraints, the Committee decided to re-schedule the meeting to a later date that would be communicated to ITAC.

Meeting report

Economic Development Department Budgetary Review & Recommendations Report deliberations
The Chairperson stated that the time allocated for the Budgetary Review and Recommendation Report (BRRR) process was very short, and therefore the Committee had not had time to meet with the entities. Committees had been advised to first focus on departments, meeting with entities later. The Committee had met with the Department of Economic Development (EDD) for two days but that had not been enough time. The Secretary of the Committee had had limited time to complete the report, which was the reason that the draft was only made available on the previous day. This BRRR was due to be submitted later in the day.

Mr S Ngonyama (COPE) asked how much time the Members would be allowed, that morning, to look at the BRRR. He suggested they focus only on the pertinent issues.

The Chairperson agreed and suggested that Members should focus on the observations and recommendations. She would look into the details of the rest of the report.

Mr H Hoosen (ID) asked if Members would have an opportunity to interact with the entities around the Annual Reports, saying that pertinent questions had to be asked.

The Chairperson replied that Members would get this opportunity. The Committee would be meeting with International Trade and Administration Council (ITAC) after completing the BRRR deliberations

Members then presented their observations on the draft Report.

Mr Hoosen suggested replacing “concerned with” with “concerned about” in the fourth bullet point.

Mr Z Ntuli (ANC) stated that the Department had done the Management Performance Assessment, which was basically a self assessment, through the Department of Performance Monitoring and Evaluation. However, he did not feel that officials had been upfront with the Committee about their knowledge of the strengths and weaknesses. The Committee should recommend that they should use this information to improve their performance further.

Ms D Tsotetsi (ANC) noted the slow pace of recruitment to fill vacancies in the Department.

The Chairperson added that the Department also lacked appropriate training modules to produce the relevant skills and were not doing enough to address this issue.

A Member suggested adding the words “regarding the establishment of the new Department” after the word “made” on the first bullet point.

Members agreed to remove the word “address” from the second bullet point and change “improvements in” to “improve.” They decided to end the sentence at “controls” and eliminate all the words that followed. The point would then read: “The Committee takes note of the fact that the Department had interactions with the Office of the Auditor General (AG) and made commitments to improve the internal controls.”

Mr X Mabasa (ANC) suggested inserting a new point that read: “The Committee congratulates the Department for the achievement of an unqualified audit outcome.”

Mr K Mubu (DA) suggested that this should also include congratulations on not being summoned to the Standing Committee on Public Accounts (SCOPA).

The Chairperson stated that that was not an achievement because the Department could still receive a summons.

Mr Ngonyama suggested that this could be qualified as something along the lines of]: “The Committee noted with pleasure the fact that the Department had never appeared before SCOPA for administrative challenges.

Mr Mabasa wanted clarification on whether the SCOPA only met with departments to discuss matters of negative performance.

A Member suggested that this point be removed; the AG had already made that report. Members had a long debate on whether it was necessary to include the point or not and decided eventually to remove it.

Ms S van der Merwe (ANC) expressed a need to clarify the points by making the sentences more detailed, so that those who were not on the Committee could understand them.

Members rephrased the fourth bullet point to say: “The Committee is concerned with the fact that the Department does not regularly update its own website or the information appearing on the (Government Communication and Information Systems) GCIS website, and this will have a negative effect on the visibility of the Department throughout the country.”

Mr Mubu suggested adding a new point to note that the Department needed to improve its marketing and advertising to improve its visibility to the public.

Members rephrased the fifth point as: “The Committee expressed concern at the high rate of staff turnover in the department and also the high vacancy rate. As employment creation is a key mandate of the department, this should be regarded as a priority.”

They rephrased the sixth point as: “The Committee noted the reduction of expenditure on overseas visits and regards this as a positive advancement, but this should not be at the expense of the fulfilment of the mandate of the Department, or stifle the opportunity for valuable engagement with counterparts in other countries.”

They rephrased the seventh point as: “The Committee noted that the Department reported that their current payment of creditors was within 15 days of invoicing and this was to be commended, and further recommends that this practice should be continued.”

They rephrased the eighth point as: “The Committee expressed concern that the Department does not have appropriate office space.”

They rephrased the ninth point as: “The Committee noted that the target for employment creation for the department was 250 000 new jobs, and that this target was exceeded during the period under review, as employment in the country increased by 322 000 retained and new jobs.”

Members then debated on whether 322 000 jobs included both retained and new jobs.

The Chairperson suggested that the facts be checked before the Report was submitted.

After discussion, Members agreed to leave the point as rephrased.

Members then added the following points:

“The Committee notes with concern the slow pace at which the Small Enterprise Finance Agency (SEFA) was established, particularly because the entity is key to job creation. “

“The Committee notes the Department’s concern about the disjuncture between strategic planning in the national Department and that of the provincial and local governments. These strategies should be aligned at all levels of government in order to function most effectively, and the national Department should lead in this regard.”

Ms van der Merwe proposed a rephrasing of the point on job creation, discussed earlier. She suggested:: “The Committee noted that during the height of the global financial and economic crisis, 2008-2010, the South African economy shed approximately one million jobs. This trend was reversed during the period under review, and 320 000 jobs were created. This trend should be encouraged and accelerated.”

Mr Hoosen pointed out that the trend had not been reversed, since not all one million jobs were recovered. Thus, there was a need to change the second part to: “progress has been made in reversing this trend and the Committee notes the retention/ creation of 320 000 jobs during the period under review.”

Mr Mabasa proposed adding the point: “The Committee noted with concern that the Department had not given adequate attention to creation of jobs for people living with disabilities, women, and youth.”

Another Member added a further point: “The Committee notes that the Department and the Department of Rural Development and Land Affairs are working together on a spatial development plan in order to reverse the apartheid legacy of discriminatory spatial planning, and that this work should be given more attention.”

Recommendations
Ms van der Merwe proposed having a recommendations paragraph that stated: “The Committee, having considered the reports of the Department and having made observations in this regard…” The BRRR should then re-state some of the observations to show that the recommendations fed off of those observations, in cases where direct action was called for.

Members agreed on this approach.

Adoption of Report
Members agreed to adopt the Report, which would be finally tidied up and checked by the Chairperson before submission.

International Trade and Administration Council (ITAC) Annual Report 2011/12: Briefing
The Chairperson stated that the ITAC representatives may need to appear again before the Committee, because there may not be sufficient time to address all the issues. She noted the appointment of the new Commissioners and would like more information about that.

Mr Siyabulela Tsengiwe, Chief Commissioner, ITAC, stated that there were five new commissioners, from 1 October 2012. There was still not a Chief Commissioner in the EDD, but the Department had advertised for this position.

He stated that the global financial crisis and its effects on the domestic economy presented new challenges to the Department, which had had to ensure that all instruments were aligned to the New Growth Path and South Africa’ s trade strategy and policy framework. The ITAC had reviewed the business processes for its instruments to shorten the time frames and turn-around times from twelve to ten months, for trade remedies, and tariff investigations from twelve to six months. ITAC followed a developmental approach to tariff setting, which was aimed at promoting domestic manufacturing, employment creation and international competitiveness.
In the vast majority of its investigations, it had met the new turnaround times without compromising on quality.
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An important aim for the New Growth Path was to build a lower carbon emission economy. Therefore, ITAC had embarked on an analysis of the tariff structure for Green Goods with the aim of identifying opportunities and trades. It had discovered that in areas where there was domestic capacity, there was a tariff support in place. ITAC had recommended to South African Revenue Service (SARS) the creation of additional tariff subheadings that would give the necessary specificity for particular products, for purposes of monitoring trade flows. However, ITAC was positioned to give tariffs for new industries for Green Goods. Tariff support was now tied to conditionality on production, investment and employment by the beneficiaries. Given the tough economic conditions globally, there was a need for swift action against unfair trade, which meant dumped and subsidised imports.

ITAC had approved four tariff applications and declined six. Of the approved tariffs, he highlighted stainless steel sinks, where there was approval to increase import tariffs from 20% to 30%. ITAC recommended an increase in duties to support the domestic kitchen sink manufacturing from low priced imports. It had since received positive feedback from the regional director of Franke Kitchen Systems, stating that the company had experienced an increase in orders that would require it to implement a third shift. This company claimed not to have experienced such a level of business since 2008, and noted that a continuation of this trend would result in an increase in employment.

ITAC approved 13 rebate amendments and declined seven. In most cases, it had approved rebates on duties on imported inputs that were in short supply domestically, or were not manufactured locally, to lower input costs for downstream manufacturers. He highlighted an amendment to the rebates on components used for the manufacture of yachts or luxury boats.  He stated that Cape Town had a flourishing yacht or boat building industry. This has been attributed to the rebate of duties on components used in manufacture, and he noted that these yachts and boats were mainly destined for export.

ITAC also approved tariff reductions on products which were not manufactured domestically. Those declined had involved products where there was domestic production capacity.

ITAC had introduced a rebate on specific fabrics used in the manufacture of home textiles two years earlier. These fabrics constituted a major cost in the cost breakdown for home textiles. Coupled with other incentives, the rebates resulted in 914 permanent jobs created and 798 job opportunities envisaged. Investment in plant and machinery increased by 122%, and the domestic textile manufacturers had regained roughly half of the market share previously lost to imports.

In 2004, ITAC recommended an increase in duty on salmon and other fish, to support trout farming and, therefore, aquaculture. Trout and Salmon were direct substitutes. Trout farming industry investment had increased by 73%, production increased by 30%, and employment increased by 19% during the last five years.

ITAC was responsible for the Motor Industry Development Program (MIDP), an incentive scheme based on custom duties and rebates. The Department of Trade and Industry (dti) was the policy making authority for the MIDP, and ITAC administered the programme. MIDP would be replaced by the Automotive Production Development Program (APDP) in 2013. He stated that the specific success of the automotive industry, compared to that of the manufacturing industry in general, was due, among other factors to the clear industrial policy of the MIDP. ITAC would continue to administer the policy even after it changed to the APDP. Certificates that had been adjudicated and issued for import rebate credit certificates, commercial vehicles, eligible export certificates, productive asset allowance certificate were highlighted.

Mr Tsengiwe then noted that, compared to 2010-11, ITAC had seen a significant increase in applications involving dumping. During the year under review it had initiated four anti-dumping investigations.  One highlight of the investigations was the alleged dumping of poultry meat from Brazil. Poultry was one of South Africa’s biggest sub-sectors. Thus, based on preliminary findings, ITAC imposed provisional duties. In the final stages of the investigation,
Brazilian officials requested consultation with the South Africa Government under the World Trade Organization Agreement. He said that the Brazilian government made a number of claims that ITAC had violated various WTO agreements in its investigations procedure. However, ITAC explained that it had used South African procedures, which were consistent with the WTO agreement. After these consultations, the Minister felt that there would be some risks were the country to move to the second stage of consultations, which involved being subjected to a rigorous review by the WTO panel. Consequently, the Minister had requested ITAC to have a closer look at certain aspects, and the report on this would be finalised in the following month.

Discussion

Mr Ngonyama asked if the companies indicated in the presentation were the only ones benefiting from the tariffs and rebates, and asked for those benefiting to be named.

Mr Ngonyama noted that ITAC was declining companies’ applications if there was local production. However, he questioned if this would not cause the country to miss out on opportunities if the companies wanted to settle in South Africa.

Mr Ngonyama asked about the significance of certificates with regards to the
Motor Industry Development Program (MIDP).

Mr
Ngonyama wondered what the prospects were of a compromise, in relation to the poultry dumping issue.


Mr Mubu noted that under export permit issues, South Africa was exporting blood, yet hospitals in the country did not have enough blood.

Mr Mubu asked if there were controls in place to prevent the stealing of cables.

Mr Tsengiwe replied that the tariff adjustments were for the industry as a whole. With regards to yachts and boats, companies in Cape Town benefited more. He stated that 4703 was a rebate where manufacturers could import goods tax free, only if the manufactured goods were for export. He added that the reason ITAC had declined applications to reduce duties on products manufactured in South Africa was to protect local manufacturers.

Mr Tsengiwe noted that the copper theft was rampant, due to a thriving scrap metal market in other countries. Exporters sold scrap metal to countries that wanted it, because it was cheaper to work with this than to mine the ore.  ITAC wanted to regulate this export to ensure that there was enough scrap metal for local manufacturers. However, this was a challenge because exporters got more money for exporting than selling the scrap metal locally. However, investigating illegal exports was the work of SARS and the police.

Mr Tsengiwe noted, in respect of the fish, that ITAC had found it necessary to protect trout farmers from cheap imported salmon.

Ms Rika Theart, Senior Manager, ITAC, stated that the motor vehicle scheme was to increase the industry by focusing on vehicles made locally. ITAC could conduct a proactive review of a specific sector to introduce or remove duties.

The Chairperson stated that due to time constraints, the meeting would be re-scheduled to a later date.

The meeting was adjourned.

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