Minister & Department of Trade and Industry on Strategic and Annual Performance Plans 2013; Industrial Policy Action Plan (IPAP): discussion

Meeting report

Introduction by Minister
Minister Davies noted that IPAP 2013/14-2015/16 had been presented the week before but discussion on that presentation would take place later in this meeting and he looked forward to a robust discussion. He would not say much on IPAP except to say that it remained the flagship programme of the DTI and this year it had introduced new features to make it user friendly and as this term of government was reaching an end, it had also reflected on its achievements and challenges over the current term.

Looking at trade policy, there were several trade negotiations on the table that were expected to reach a conclusion in the course of this financial year. Most important amongst these was the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC) Tripartite Agreement. Much headway had been made towards concluding this agreement and the agreement was supposed to be concluded next year. No negotiations were being done into opening up the original internal trade agreements of those three entities. Instead negotiations would focus on arrangement for parties that were not covered by those. So for South Africa that meant arrangements with countries that were not members of SADC but were part of the EAC or COMESA such as Egypt and Kenya. There has been a broad agreement on a high level of ambition and now there was an exchange of requests and offers. A ministerial was scheduled for the middle of the year. So it was moving and it merited a lot of attention because this was the most important trade negotiation that they were in.

Next there were the negotiations on the Economic Partnership Agreements with the EU. The EU had set a unilateral deadline for visible intention through the signing of an agreement amongst parties even if this fell short of full ratification by October 2014 - otherwise they would remove the interim trade preferences. South Africa was not happy with that deadline but work was proceeding and there have been several rounds of engagement. Work was continuing but it was not easy as South Africa wanted improved agricultural market access. SA have made some big concessions on the recognition of some geographical indications. There were tradeoffs and issues at stake plus SA had not seen the final text of issues that were a point of contention before the trade-related policy measures. The convenor has called a SADC ministerial meeting next month to take stock. There should be quite a lot of developments in the course of this year on these negotiations.

The next one was the SACU-India Preferential Trade Agreement (PTA) negotiations. This had been making quite slow progress but it was hoped it would pick up. Finally, at the end of the year, there would be a WTO ministerial level meeting in Bali. A small work program had been suggested on trade facilitation and border management. Many developing countries had argued that the work program was not balanced and argued for the inclusion of agriculture and the least developed countries (LDCs). The Minister was not sure of the status of these new proposed agendas. Whether they made it to Bali was an open question but there would be an informal ministerial meeting taking place on the fringes of the OECD meeting and he would take part in that meeting. There was also the process of electing a new WTO Director General. They had been through one round of interviews in the search for a new Director General. They were busy with the second round before a final round between two candidates.

In the legislative realm there were three bills currently before Parliament. The Cooperatives Amendment Bill was due to go to the NCOP plenary next month after it had been passed by the NA in November 2012. He did not think there were any problems as this was straightforward legislation but it had been a long process and they wanted to move ahead on the establishment of the institution as soon as possible.

There was the Intellectual Property Bill - which, by the way, if it had been through would have given SA an instrument to deal with the Rooibos matter. The third one was the BBBEE Amendment Bill. Others due to come through were bills about the Credit Regulator, and the Lotteries. The Lotteries one was the culmination of a long process. He noted that when he had come to office, there were R3 to 4 billion unallocated lottery funds and now there were no unallocated funds. R2 billion was anticipated to be raised this year and the bill was expected to make the system of distribution more efficient. The draft bill was now out for public comment. There were also some private members bills on the subject and they would have to see if they were all compatible with one another.

Discussion on the Business Registration Draft Bill had caused more heat than light and an extension had been granted till the end of the month for public comment. There seemed to be some notion that this legislation entailed the establishment of an unprecedented bureaucracy with a huge detrimental effect on small traders. This was certainly not the case at all. He mentioned as an example that the City of Cape Town already held similar administrative requirements as per its Business Act 1991. Anyone involved in the sale and or preparation of foods was required to obtain a R25 licence. Persons hawking meals on the street corners paid R10 and were then allocated a place where they could hawk their wares. The current system in Cape Town had a set of forms and regulations. So this showed that there was an existing framework of regulation. There was no intention to add to this administration but merely to establish uniformity across the country so everyone would be put on a register and one would know who was operating a business. The architecture was "easy in". All business activities would be registered on a straightforward form with a low cost fee. Existing informal traders were threatened by the increased competition from illegal business selling illegal or sub-standard goods, employing illegal foreigners and involved with many nefarious activities. Plenty of people got through the border. The importance of this new legislation was that it created a mechanism to deal with this problem. If you were caught involved in illegal activities, you would be off the business register and would not be able to trade in SA. Currently law enforcement officials simply confiscated the illegal wares and the offenders would simply relocate to an alternative area and continue their illegal activities elsewhere. Offenders needed to be removed from the business register.

The Department has sought to continually improve its range of performance indicators. He listed as examples: the reduction in department vacancies, performance in the audit report, cracking down on corruption, and reduced turnaround time. This was part of the Departmental business model of 'continuous improvement'. The review of government paying small business entities within 30 days had found that the number of outstanding invoices in the DTI was zero - so they had managed to practise what they preach.

Department of Trade and Industry (DTI) Annual Performance Plan: Director General presentation
Mr Lionel October, DTI Director General, outlined the Strategic Goals and the Core Programmes which were:
- Industrial Development – the development of policies and strategies that promote sector competitiveness, growth, job creation and efficient administration of support measures.
- Trade, Investment and Exports – the strengthening trade and investment links with key economies and fostering African development, including through regional and continental integration and development co-operation in line with the New Partnership for African’s Development (NEPAD).
- Broadening Participation - the development of interventions and strategies that promote enterprise growth, empowerment and equity
- Regulation – the development and implementation of coherent, predictable and transparent regulatory solutions that facilitate easy access to redress and efficient regulatory services for economic citizens.
- Administration- effective co-ordination of departmental programmes and provision of necessary support for efficient implementation.
Director General, outlined the Strategic Goals and the Core Programmes Key Interventions in Industrial Development for 2013/14
▪ Upscale industrial policy by tabling the annual rolling Industrial Policy Action Plan (IPAP) to Cabinet and produce quarterly implementation reports.
▪Three sector specific action plans developed to influence and respond to the changing economic environment to enhance manufacturing potential.
▪ Complete and submit designation templates to National Treasury for two sectors for local procurement.
▪ Two key research projects will be undertaken to facilitate development of interventions to expand value-added activities in existing and new sectors of the economy including beneficiation.
▪ Finalisation and implementation of the Special Economic Zone (SEZ) Act with Special Economic Zone (SEZ) policy and Bill approved by Cabinet and endorsed by Parliament
▪ Enhanced technological competencies by supporting 1 350 students and 700 researchers via the Technology and Human Resources for Industry (THRIP).
▪ The Support Programme Industrial Innovation (SPII) would support 20 new projects valued at R43m
▪ Tool-making apprentice programme - support 385 enrolled students
▪ Industrial upgrading programme - support 220* workers trained through this programme
▪ 940 enterprises approved to participate in Export Marketing & Investment Assistance (EMIA) scheme
▪ 51 companies supported through the Workplace Challenge Programme (WCP).

Mr October provided a table of the seven Industrial Development incentives, showing how many projects were supported, how many potential jobs were supported and the investment leveraged (see document).

Key Interventions – Trade, Investment And Exports
▪ Africa regional development programme implemented - progress report to be produced on implementation of agreed programme and projects for priority development areas in SACU, SADC-FTA and SDI infrastructure projects.
▪ Conclusion of Economic Partnership Agreement (EPA) trade negotiations with the European Union (EU), Southern African Customs Union (SACU) India Preferential Trade Agreement (PTA), Southern African Development Communities (SADC)- East African Community (EAC)- Common Market For Eastern and Southern Africa (COMESA) Free Trade Agreement (FTA) –Tripartite-Free Trade Agreement (T-FTA): Status report to be produced on progress towards conclusion of trade negotiations.
▪Increased manufactured exports under EMIA by increasing the value of exports to R900 m
▪Investment facilitation in targeted sectors- R50bn.

Key Interventions – Broadening Participation
▪ seda Technology Support Programme (stp) would disburse R119 m for the establishment of new incubators / support of existing incubators; and support of Small Micro & Medium Enterprises (SMMEs). Performance monitoring reports on the STP would be produced.
▪ Implementation of Co-operative Amendment Act: Approval of business case for establishment of Co-operative Development Agency and Co-operative Tribunal and phased-in implementation.
▪ National Strategic Framework on Gender and Women Empowerment to be submitted to Cabinet for approval and a phased-in implementation report to be produced
▪ Isivande Women Fund: Approve 18 new projects
▪ Approve B-BBEE Amendment Act (by June) and simultaneously the revised Codes of Good Practice
▪ Business Supplier Development Programme (BBSDP): 1 560 enterprises approved
▪ Finalisation and implementation of Informal Sector Strategy: to address the marginalisation of economic development in the townships, DTI wanted to create a clear strategy for business development in townships.
▪ Finalisation and implementation of Youth Enterprise Development Strategy (YEDS) to address youth unemployment.

Mr October illustrated the four Broadening Participation incentives, showing how many projects were supported, how many potential jobs were supported and the investment leveraged (see document).

Key Interventions - Regulation
▪ Impact assessment of regulation on business and economic citizens: Two Regulatory Impact Assessment Reports with recommendations for approval on Liquor and Gambling.
▪ Develop these Policies, Bills and Regulations to enforce fair business practices:
- Two policies for approval on Intellectual Property and Gambling Act.
- Four Bills for approval on National Credit Act, Lottery, Liquor and Business Acts.
- Two regulations for publication.

Key Interventions – Administration
▪ Attract, develop and retain professional and skilled officials:
- Reduction of the vacancy rate to 7%.
- Reduction of the staff turnover rate to 7%.
- Employment of People With Disability increased to 2.9%.
- Employment of Women in senior management positions increased to 43.8%.
▪ Creditors’ payments made in accordance with legislative requirements made within 30 days.
▪ Service Delivery Improvement Plan - Report produced on the implementation of 2012-2015 Service Delivery Improvement Plan (SDIP).
▪ Conduct Public Awareness Platforms and Events.

Mr October took the Committee through the Medium Term Expenditure Framework for each of its seven programmes for the next three years. He showed what amount of the R9.5 billion budget was assigned to each strategic goal.

In conclusion, Mr October noted the challenge of the economic slowdown in traditional markets which limited export growth. The persisting dualism in South Africa's economy was a challenge too - trying to build support from big business to form partnerships with township business, small scale black farmers and the informal sector.  Another challenge was creating buy-in for local procurement.

Other comments by Mr October: One of the sectors that had been identified as having a key developmental potential was the local manufacturing and exporting of mining equipment. If South Africa wanted to move into beneficiation, it was essential to develop an adequately skilled human resources base.

Discussion
Dr W James (DA) sought clarity on page 21, where the DTI gave a breakdown on the Medium Term Expenditure Framework. He commented trade promotion did not seem to be priority to the Department. The Department spent 5% of the budget on trade promotion; and yet 74% on industrial development. He sought confirmation whether these figures indicated the priority of the Department was industrial development.

The Minister replied the budget figures were not an indication of priorities. The allocation only pertained to the nature of the work entailed in the programmes. Much of the budget went into transferring funds to support various programmes that were particularly heavy on industrial development. This was important; otherwise what would the country trade in the world. Would it trade raw materials, or more value added goods that were fundamentals of the trade activity.

It was the nature of the work rather than priority. If there were more money in the budget that would be good; the budget was tight, there was not enough money to do all these things. DTI was very much involved in trade investment promotion and trade negotiations. There was a team involved in trade negotiations. On trade and investment promotion, there were not many direct foreign investments coming to the country. Most foreign investors were not interested in what the regulatory framework was; most of them want to come and wanted to know what was available and what the issues were. The Trade and Investment South Africa (TISA) pipeline was a very good indication of what was happening. At the end of March the investment pipeline was R63 billion. He added that DTI’s chief director of investment promotion had been appointed the vice-president of the international body on investment promotion. This was a clear indication that the country was doing world class work in this area.

The Minister said in Trade Promotion, DTI had introduced a new export development programme. This was not just a matter of taking somebody on a trade mission from somewhere; people had got to go through a learning curve where they required skills and capacity for this. DTI was introducing a common exporter passport; it therefore recognised where people were with continued exporter development and was continually improving this aspect.

The Department did not have a foreign economic representative to cover every industry. With a little more budget, DTI could put a few more in; these should be people who had capacity to add more value to the Department of International Relations and Cooperation (DIRCO) diplomat. This was not a training opportunity; people had to add more value than the DIRCO diplomat. This was not downplaying the role of the DIRCO diplomats. DTI had worked closely with DIRCO. There was an agreement with DIRCO that the representatives appointed by DTI to the WTO would be full ambassador, but also that the former chief director of investment be ambassador to Saudi Arabia. As a consequence of this the Saudi-Arabia-South-Africa Joint Initiative, worth R20 billion of investments was entered into and projects were beginning to roll-out. This was the sort of thing that the two departments were trying to achieve; they reinforced each other’s work. The Minister said for DTI the fundamental issue was the quality of trade. The budget figures did not give an indication of the priorities, but reflected much more the nature of the activities than any kind of prioritisation.

The Director General, Mr October, added that in the budget there was about a R209 million allocation used to support companies undertaking trade initiatives. And about R217 million was spent on foreign offices. Foreign offices in about 20 embassies were quite high cost items. This would be expanded by about five offices to new markets such as Indonesia and Turkey in the current financial year. But the point had been made that before one could export, one had to produce. The previous challenge that the country had faced was the eroding of its export base.

Mr G McIntosh (Cope) commented the Department was fortunate to be led by a hard working Minister. He recommended Members visit the Good Governance Africa website (gga.org) which had simple information about trade.

Mr McIntosh said he wanted to understand the nature of trade relationship between SA and Zimbabwe. It seemed like a distinct possibility, but it looked like there would be a regime change in Zimbabwe. Their economy was starting to harm, because it was run on five currencies – rand, pula, dollar, pound and euro – which all traded freely in the country. What was happening with trade negotiations with Zimbabwe? Sometimes Zimbabweans complained bitterly that they contributed to SA’s economy.

The Minister replied that SA had had bilateral agreements with Zimbabwe since 1964. The agreement that was enforced now, which was more favourable to Zimbabwe, came into force in 2008. There were a number of issues on the trade front; Zimbabweans had requested delegations from the Southern African Development Community (SADC). Part of that was the market access by SA in Zimbabwe, and fees that would have been charged. Zimbabwe also asked that SA open up to some of their textile products; this discussion was ongoing with them. He disputed the harming aspect and said Zimbabwe’s Finance Minister had indicated that the harming was a bit less than a while ago.

Mr McIntosh commented that the Committee had previously received a presentation on Mining Equipment Manufacturers. The presentation sounded like a horror story. Challenges to the company related to electricity, because the municipalities could not supply and they charged unbelievable prices of up to 150% above the normal price. They then cut off supply and yet a significant amount of mining equipment was exported into Africa. There had been a big mining equipment service in Africa; the University of Witwatersrand used to have a special unit that developed special underground equipment. The country once had a viable mining equipment supply and manufacturing industry.

The Minister replied DTI recognised Bell equipment; there was a process of bringing Bell and other companies into the country. Hopefully the increased spending on infrastructure would create the sort of demand for other companies as well. DTI was paying attention to these issues as the country had a competitive advantage on this.

Mr B Radebe (ANC) commented the flexi programme – the Industrial Policy Action Programme – as articulated by the Minister adequately matched the Medium Term Expenditure Framework (MTEF) and was tilted towards industrialising the country. This was crucial; unless government started industrialising the country, the economy would never grow. The Western countries experiencing hardships currently, it was because they had ignored industrialisation. Countries that paid little attention to growing their industrial base in Europe fared poorly in economic terms, whereas those that maintained a strong industrial base like Germany, were able to weather the economic climate much better.

Mr Radebe said the presentation was well received because it came after Parliament had engaged with entities like the South African Bureau of Standards (SABS), and the Regulator for Compulsory Specifications (RCS). These were entities that needed to ensure that the industrial policy was enhanced in the country.

Mr Radebe said the issue of consumers was nevertheless worrying. The Committee had indeed looked at the National Consumer Commission (NCC) budget allocation. The staffing component of the NCC was a concern. This was an entity tasked with protecting the consumer. When would the budget situation be changed? The current budget allocation for NCC accommodated only 35% of the organisation’s approved organogram.

It was even more worrying that the Commission did not have any alternative source of income except for transfers from DTI. How would this budget improve NCC funding so that it improved on its mandate of protecting consumers? He commented that the big role players in the economy, especially in the retail sector, tended to get away with serious transgressions. If the Commission was not properly capacitated, these challenges would persist. What would the Department do in trying to curb this?

Mr October replied the Department was finalising the appointments of commissioners. The institution had been stabilised with regularising many of the vacancies.

The Chairperson sought clarity on boards and their potential to free up financial resources and enable them to be allocated elsewhere. The other issue on the NCC, was if the Department slipped on the consumer protection aspect, it would find that in other areas non-tariff barriers would kick in. There was a need for greater monitoring. It was evident in a meeting with the French delegation the day before; the country’s trade was highly regarded by the international community, and that had to remain.

The Minister replied there had been a significant change in the strategy with regard to the NCC. The approach currently was to build more partnerships and try to find solutions to problems as opposed to rushing to issues of compliance. There had been a challenge with people who were appointed to the Commission not following due process. The DTI was regularising that process. There was a degree of credibility that had to be gained by the institution.

The Minister said the labelling of goods was not an issue; there were two pieces of work going on. The first was the investigation by the NCC into the meat scandal, to ascertain if the existing regulations were crossed by anyone. He clarified that it was not only donkeys’ meat that had been found. The issue was much broader because SA did not produce Kangaroo or Buffalo meat. This was a global value chain matter. Consumers had a right to know what was contained in meat products. He said there was a government notice out for comment on improving the existing requirements.

The Minister said DTI was aware of the matter with the boards and a Bill was underway to address the challenge. At the time South Africa was following international best practice which resulted in the proliferation of boards but perhaps that needed to be revisited. He agreed that the international community accepted that localisation was unconventional but important to the country. He cited the example of the BEE Commissioner. DTI did not make a recommendation on a Commissioner; every time DTI found an issue it was with a board.

The Chairperson commented that within the overseas embassies, there seemed to be constraints on human resources equipped to promote the country. This had been raised by the Committee previously. Another worrying aspect was how few South Africans were involved in organisations such as the World Trade Organisation (WTO) because of the limitation of not having the languages required. Very few South Africans seemed to have the two or three international languages required. Ten years ago, Brazil hardly had anyone, and now they ran all the offices in Geneva. These were kind of issues that had to be addressed on trade.

The Chairperson noted the pending agreement with Mauritius on boat-building. That country had indicated it lacked capacity for production. She raised the matter in relation to trade as opposed to the Industrial Policy Action Plan (IPAP). It might be useful to explore this. The Committee was impressed with a lot of the points made.

The Minister replied DTI could look at the proposal. He was not sure if partnerships were being made with the country. The productions did not happen by chance; it was more about what DTI provided. The industrial activity and trade spin-offs of such initiatives were important. In the last few years the South African film industry has made a lot of headway and the reasons for this was not just limited to the locations we offered but the total business and support environment that had been established. He recently visited the film set of the ‘Long Walk To Freedom’ film currently being shot and it included a full set of Robben Island, produced from locally sourced plastic.

Mr James referring to the budget said if one combined the Trade and Investment South Africa budgetary allocation with International Trade and Economic Development cumulatively they amounted to roughly 5% of the budget and conversely when we combined the Industrial Development Policy Development and the Industrial Development Incentive Administration budgetary allocations it amounted to approximately 74% of the total budget allocation. This implied that trade appeared to be the lowest priority and industrialisation the highest developmental priority of the Department.

Mr October said the Department was investing into trade developments. Foreign office trade representatives were very costly to employ and only 20 South African embassies currently housed these specialists. The Department was hoping to add another five foreign office trade representatives in five additional embassies in the near future.

South Africa needed to give more attention to increasing its industrial base and simultaneously the Department was indeed giving more attention to export development. The country required the industrial manufacturing component to produce export items.

Mr Macintosh raised the matter about exporting South African scrap metal. He wondered aloud if the Minister had any thoughts around the matter and asked if one realised the national interest was seriously compromised by an exporter. Could not National Treasury, customs, and the DTI invoke some law that would put a moratorium on exports until such time as negotiated through IPAP?

Mr Radebe sought clarity on the World Trade Organisation (WTO) Director General. He asked what possibilities were there to have a ‘developmental type’ of a Director General. This would elevate developing countries issues, especially as they channelled a lot of money into the organisation. Was SA making any headway, given it did not have people in the organogram of the WTO. The developing countries should be able to get something out of this, so that it got value for money for what it contributed. He asked if a possibility existed for reviewing the developmental agenda of the WTO. He sought clarity about Rooibos tea and the status of the intellectual property policies in relation to WTO policies.

The Minister commented there were one or two South Africans working on the WTO. In general terms the country was underrepresented in many international agencies but DIRCO was starting address this.

The Minister explained nine candidates had been nominated for the WTO Director General position. The former trade minister of Ghana (African Union supported candidate), and a Kenyan candidate had stood for the campaign for WTO DG but unfortunately both were eliminated together with the Jordan and Costa Rican nominees. Five nominees from New Zealand, Mexico, Brazil, Indonesia and Korea were left. The next step involved eliminating three.

He said there was a convention, albeit a weak one, that a candidate from either Africa or Latin America should become the next DG of the WTO. All the other regions had already had an opportunity and it was now Latin America’s turn as all the Africans had already been eliminated from the race. The WTO DG would be appointed by 1 August. Given the nature of the WTO, it was doubtful if the new DG would be able to make any impact on the upcoming WTO meeting given the short time-frames involved. South Africa had engaged very closely with the Brazilian candidate and had recently heard reports that he was the current front runner. It was unlikely that the incoming DG would have an impact on the Bali agreements; there were a lot of challenges around the Bali outcomes.

The view around had been to say forget the Doha mandate; forget agriculture and focus on global value chains. Focus was on global value chains in 21st century as manufacturing was becoming increasingly globalised with various components manufactured in different countries. And this would definitely be high on the agenda at the WTO discussion and South Africa was ready for such trade facilitation negotiations and SA would not have any challenges meeting its obligations. But he emphasised that the Doha outcomes should not be forgotten.

The Minister replied when it came to food products, South Africa certainly had a claim to the rooibos and other brands just like Mexico has laid claim to tequila. These products came to the developing world through colonialism. When someone came out and wanted to register rooibos; DTI objected. The Department was urged to become part of the EU’s process on geographical indications (GI); DTI was still exploring what that meant, but it needed to be weary of endorsing something where SA producers would have to pay royalties to a well established enterprise. The tool that was there to deal with that issue was the Intellectual Property Bill. The Bill recognised indigenous knowledge.

Mr Gcwabaza sought clarity on exporting of furniture, given that the country produced wood and that the furniture industry was earmarked as having developmental potential in IPAP. He had procured furniture for his constituency office where he found a huge disparity in prices. He wanted to know why SA opted for exported goods in the furniture industry if it had good machinery to locally produce at cheap prices. He volunteered to mention the name of the shop he visited outside the meeting.

The Minister replied furniture was a forestry project in IPAP but it was held up by water licences. Progress was being made on the water licences. He was not sure of the tariff arrangement with regards to foreign imported materials. The important thing was that it had been agreed to in the framework of the accord on localisation.

It was agreed that government efforts to purchase locally would be multiplied but the country was also limited under WTO agreements. State organs would be required to purchase from local sources according to designated percentages. This arrangement could not be extended to a range of private sector players but private sector players had also pledged support for a move towards localisation of procurement. One of the areas mentioned was furniture.

He knew the Minister of Home Affairs (Naledi Pandor) was very sensitive to visas. There were processes to expedite business visas. DTI was working very closely with the Department of Home Affairs (DHA) on such issues but it was also an area with much potential for illegal activities and necessary prudence was required.

Mr October said South Africa had elevated the issue of rooibos to the French, EU trade ambassador, and the European Trade Commissioner for them to stop rooibos being registered in France. In addition to that, the DTI desk in the division was working with the industry to register rooibos under the existing trademark legislation. Through the desk, DTI had managed to increase the exports of rooibos tea to China and emphasised that the product had growth potential.

Industrial Policy Action Plan (IPAP): discussion
Mr G McIntosh (COPE) praised the presentation made on this the previous week. He said it was these times that made him proud to be a South African. He was looking at the macro-economic aspect of the presentation. Some of the key points were the interest rates and the current account balance, which was hugely worrying. The good thing was that the Committee now had the statistics. He had a question for the Minister about the IPAP that stemmed from a comment made by Mr Patrick Craven of COSATU. Mr Craven welcomed IPAP and said it was a wonderful counter to neo-liberalism. NUMSA also made a strong statement saying that the National Development Plan (NDP) was nothing more than a neo-liberal document. He assumed that the Committee knew that “neo-liberal” was a polite word for capitalist. He wanted the Minister to tell the Committee where the Department stood on the NDP. He stated that there was an “octopus” in the Department with tentacles into every little entity. There seemed to be a problem with criticisms coming from trade unions and he thought that the Minister had to tell Members whether he agreed or disagreed with the statements made by Mr Craven and NUMSA. This was important for national interests and for the future of IPAP.

Dr W James (DA) noted that 300 000 jobs were lost in manufacturing since 2008, according to the information he had. This meant that there were approximately 1.8 million South Africans employed in manufacturing. Over the last decade there was a high of R2 million in the first quarter of 2008 and the last quarter of 2009. Also, approximately 440 000 small business owners crashed out between 2006 and 2011. 2012-2013 seemed uninspired when it came to manufacturing. There seemed to be a contraction rather than an expansion in the manufacturing sector. He noted that the Department would be spending R7.1 billion on industrial development in the next financial year. It was a lot of money to be spent on a sector that did not show any evidence of growth. He asked the Department or the Minister to respond to this observation. He stated that there was no decisive leadership regarding the country’s economic policy and what it actually was. There were a number of policies that were floating around and a number of policies that overlapped.

Mr Radebe said that the Department’s IPAP report received a warm reception in last week’s meeting and it was praised for its clarity and direction. The political climate was hotter now that elections were coming up. There was the issue of the migration of the country towards nuclear technology. This seemed like a long-term plan. Skills in this area were very rare and difficult to obtain. Taking into consideration that the Departments of Energy and Public Works would be involved in this, he wondered if the DTI would oversee the process as well in terms of industrial development. There had to be cooperation between South Africa and Russia, because they had the skills the country was in need of for nuclear technology. He praised the IPAP, saying that it was one of the best policies that the country had. He thought there were instances where the state had to intervene to keep the IPAP going. He noted that the private sector seemed to be risk averse most of the time, and this forced the state to intervene. South Africa had to develop its manufacturing base. In this current global climate, it was countries that had strong manufacturing bases that fared well. He suggested that the Department of Home Affairs explore the idea of having special expedited visas for business travellers. He also noted that there was broad disagreement on the NDP, but it was understood that the country needed to expand its industrial base. 

The Chairperson said that what impressed her was the clear emphasis on transversal interventions and the linkages thereof. It had been difficult to see where everything fitted into the IPAP, but there seemed to be a cohesive approach now. The presentation clearly showed what the linkages were and the Department clearly communicated how it would be done. There was a clear acknowledgment by the Department of the importance of how they would support strategic industries, linked in with the creation of jobs. In the last few years, the Minister made it clear that in order for the country to grow economically, to develop as a country, and to create jobs, the country did not have a choice but to industrialise. She noted the importance of the mining sector in the value chain of beneficiation. The different views being expressed publicly were a sign of a mature democracy. This was her opinion, as it was a good thing to speak openly about the matter.

The Minister responded that the presentation tried to take stock of what had been achieved over the year, what the challenges were, and the direction in which the government should move in the next administration to have a more effective industrial policy. There were five areas that were identified that needed more attention. The message that came out of this was that the Department needed to raise the impact of its industrial policy over the next period.

The Minister replied to the Chairperson’s comment on the country moving towards being a mature democracy. He thought that the country was beginning to be able to have a mature debate about industrial policy. If he understood Dr James and Mr McIntosh’s comments, it was that the Department was spending too much money on a programme that was too dispersed across too many sectors, and that instead of a steady-handed approach; a light-touch approach was needed for industrial policy. He started with an anecdote, saying that he attended an opening of a factory in Atlantis that was also attended by the Premier of the Western Cape, who was supportive of the factory opening. More than 90% of the area’s workforce used to work at Tedelex, which closed down years ago. The CEO of the company made a presentation about television sets that were going to be manufactured under the Sony brand. The TV sets would be sold in the South African market. They told the Minister that the factory depended on the tariff rebate fees that the government introduced for the television sector – this was the tariff enforced on television that came into the country, but also the rebates offered. They complained about the slowness of the migration from analogue to digital television. This matter was in the courts so it was out of the government’s hands. His question was whether they should have gotten involved, but this was not a priority sector in the IPAP. There were a number of priorities, such as the business process services and support programmes. The film industry had grown sizeably but this was dependent on the overall support that sector received. If support were not forthcoming, many international players would not come to South Africa. If certain sectors did not receive enough investment, then the Department tried to support them. So, his question was: Which of these sectors should the Department not focus on? Which sectors should receive the “light touch”? The Department tried not to pick winners, or to direct against the advice and wisdom of important industry players. The IPAP identified priority sectors, but there was an existing manufacturing economy that was quite diversified, which the country could not afford to “let large chunks fall down the tube”. If this happened, many jobs would be lost.

The Minister noted that the country was on a growth path up until 2008 where manufacturing was not actually making the requisite progress, where consumption driven sectors were growing twice as fast as production driven sectors, and where there was a wide current account deficit already. 200 000 jobs were lost in 2008 in the manufacturing sector. This was in the context of where a million jobs were lost in South Africa as a whole and the country risked large-scale de-industrialisation. Over the last five years, the government has shown that where it has made purposeful interventions, it had achieved positive results in terms of investment and growth.

The Minister said that the Department had shown that where it had intervened purposefully, it had achieved positive results in the way of investments and growth but less so in terms of jobs. However, that was not very different from the global trend. Manufacturing sectors were also very big job multipliers. Most people would say that most of the jobs were in services. That was correct. But the experience showed that those service jobs were more strongly rooted and of better quality if they were linked to an economy that was growing its value added sectors than if they were completely “footloose”. A current example was Cyprus. If you want to run banking services for the benefit of Russian oligarchs and something happened, you would take all those jobs down. They were not rooted in the productive sector of Cyprus’ economy. That was the problem with “footloose services”. On the other hand, Germany had many more quality service jobs linked to that economy because it was a growing, productive, industrial economy. That was the lesson that the country needed to draw.

The Minister commented that the country needed a higher industrial policy as it moved forward because the structural changes that were need in the economy had not been made. There had been improvements against the background of extremely difficult and adverse circumstances but we feel that if “we bite the bullet of beneficiation, if we bite the bullet of creating the African regional market, if we support industrialisation across the continent, if we work much more purposefully with our BRICS partners, if we identify new export markets and if we continue to roll out the infrastructure programme on a more effective basis  we think that we will be a on a platform where we could have a bigger impact”.

The Minister pointed out that the IPAP document makes reference to the NDP. The document stated that  “The NDP is a living and dynamic document that articulates the vision which is broadly in line with our objective to create a national democratic society and should be used as a common basis for this mobilisation”. It further stated that “within the NDP vision, critical instruments and policy initiatives would continue to drive the government’s medium term policy agenda. These include the National Infrastructure Plan, the New Growth Path and the IPAP which guides the re-industrialisation of the SA economy”. He therefore did not believe that there was a conflict between what was said in the NDP and IPAP. The NDP did not say much about industrialisation. It talked about the need for the country to develop skills and to move towards less capital intensive industries. It did not say that there should not be an IPAP. It also did not say that there should be a “soft touch” IPAP. The Minister recognised that there was an ongoing debate. Lots of people had different views and visions about the NDP. He did not believe that IPAP and the way it was being done was trumped by the NDP or that the Department should be required to drop it because there was an NDP in place.

The Minister addressed Mr James comments that 400 000 SMMEs had closed. Firstly, he questioned the validity of those figures. Secondly, he stated that the rate of survival of SMMEs was low in any economy. In the South African economy, for every 7 SMMEs that were opened, only 2 would survive after one year. The world average was 9:1. This showed that the establishment of SMMEs was a difficult activity that required a huge amount of willingness by the SMME themselves to take a lot of risk up front. South Africa had a particular circumstance where under apartheid the small business environment was not just one of neglect but also of active discouragement and underdevelopment. The Department’s approach was to find a stronger and more sustainable basis for SMMEs to contribute to the economy. The President has asked where the black industrialists were. One of the things that the Department was tying to do was to pick out those parts of the SMME programme that had the biggest impact in terms of the creation of real entrepreneurs that could be active in the real economy. So incubation programmes and BEE were some of the tools that were being used to try to get more commitment by big companies in order to create a symbiotic economy in which big and small companies related to each other much more and SMMEs were not entirely dependent on contracts from government. That was the vision and direction that the Department wanted to go.

The Minister stressed that government had never thought that it could industrialise the country on its own. This was a sector where “we attempt to steer but we do not row”. “What we try to do is to influence the direction of industrial development and manufacturing so that we create more jobs and job markets for the economy”. He admitted that the government had not achieved its objectives as yet.

The Minister said that nuclear technology was one of the areas that had been identified in advanced manufacturing. There were potential opportunities there. There was an organisation called the Nuclear Energy Association of South Africa. That association was bringing together companies that would be potentially involved in the nuclear build. When the nuclear build happened, those companies would be involved. The Department was keen for South African countries to participate in the nuclear island programme. This was a high quality industrial development that required international certification. The Department was trying to develop and position South African companies so that when a decision was made about nuclear power, they could get involved and benefit. The infrastructure programme was a counter cyclical programme not just because it gave us the ports, railways, power stations the country needed but also because it was an important tool for industrial development.

Mr James said that the test was whether there was growth in the economy and if jobs were created.  On that score, the evidence was not good and not in the Minister’s favour. He did not disagree that the country needed some industrial policy but differed on how it should be done. Industrial policy interventions needed to be based on incentives and should target activities such as a new technology, a particular kind or regime of training or new goods or services. Activities should be targeted and not sectors. Secondly, he believed that these should be temporary in nature so that there were exit strategies with regularly published updates of support in that area. Thirdly, the sector intervention should tackle market failure through incentives for business and should not promote state involvement. Finally, all interventions should come together with comprehensive costing.

Mr James complimented the IPAP document and said that it was far superior to anything that the Committee had seen before, in terms of layout and ease of reading. He was able to get some sense of what progress had been made over the past five years. Also, he was pleased that there was recognition that transversal public management was a desirable thing. Whether that could be executed was another question because this government was notorious for not being able to successfully execute transversal projects. For the future it would be good to get a proper matrix so that the Committee could assess on an annual basis how much money had gone into IPAP and how much had come out of it in terms of the delivery.

The Minister replied that most of what was said was either already built into IPAP or debatable.  On the dual car, there was never any decision on whether to invest in the market. The Department was developing an electric vehicle policy which it still had to launch. It was trying to support innovation, investment and competitiveness across the manufacturing sector and create conditions that would be rewarded in this economy. On the point about market failures, he cautioned that one needed to look carefully at what industries operate around a temporary need for intervention. Unless you had a long term automotive programme, you would not be credible. You would be competing with a number of other jurisdictions for automotive investments because their programmes were more attractive in terms of offering higher tariffs and more support than was provided here in South Africa. The Department was trying to calibrate its programmes to ensure that it was relatively competitive and it got value.

The Minister highlighted that if the cycle turned - and there was no sign of this happening soon - then there was a case to review the level of support that the Department would provide. The document had tried to provide as many outputs to indicate progress and where achievements had been made. These were the levels of investment and job creation in the different sub programmes. The results showed that where there was a well targeted set of programmes in place and those sectors had performed better than they had done before against the background of the worst economic crisis since the Second World War. Added to that, the country was facing industrialisation taking place not only in the developing world but also in many parts of the developed world. The Department was therefore putting forward a more effective, targeted and high level industrial policy as our contribution.

The Chairperson made three points. Firstly, she expressed concern that even though manufacturing was moving ahead the number of jobs being created lagged behind. Secondly, she advised that the Committee together with the Department should monitor the developments in European trade policies and what implications this would have on IPAP. Thirdly, there was a transportation challenge in the region, in particular maritime. She would like to see the Department through IPAP explore a transport maritime initiative, in particular the building of smaller vessels.

The Minister said that an agreement had been signed between a Chinese company and one in Richards Bay during the BRICS Summit which could potentially lead to the building of the kind of ships referred to.  It was an important development. It looked viable and the Department would look into this. As it was reflected in the IPAP document, boat building and leisure boat building were areas where there were opportunities.

The Chairperson thanked the Minister and the Department.

The meeting was adjourned.