Department of Trade and Industry Strategic and Annual Performance Plans 2013

Meeting report

Briefing on the 2013/14 to 2015/16 Annual Performance Plan and Budget of the Department of Trade and Industry (DTI)
Mr Lionel October, Director-General, DTI presented the briefing to the Committee (see attached document).

The DTI had identified five core programmes for the 2013/14 to 2015/16 Medium Term Expenditure Framework (MTEF) period, i.e. Industrial Development; Trade, Investment and Exports; Broadening Participation; Regulation and Administration.

The Industrial Development Programme was aligned to the Revised Industrial Policy Action Plan (IPAP2).  The key achievements during 2012/13 included the designation of four sectors for the development of local production; alignment of the National Participation Programme (NIPP) with the Competitive Supplier Development Programme (CSDP); the introduction of the 12I Tax Incentive scheme; the launch of the Manufacturing Competitiveness Enhancement Programme (MCEP); the commitment of an investment of R5.5 billion in the green economy; localisation in the renewable energy generation programme; finalisation of the transition from the Motor Industry Development Programme to the Automotive Production and Development Programme (APDP); the launch of the People-Carrier Automotive Incentive Scheme (P-AIS) for the taxi industry; the Clothing and Textiles Competitiveness Programme (CTCP); the Aquaculture Development and Enhancement Programme (ADEP) and the review of port tariffs applicable to exported manufactured goods.

An overview of the planned interventions for 2013/14 for the Industrial Development Programme was provided.  The finalisation and implementation of the Special Economic Zone Act was regarded as one of the most significant interventions.   There were currently four Special Economic Zones (SEZ’s) (i.e. Port Elizabeth, East London, Richard’s Bay and Gauteng).  The intention was to establish a further ten SEZ’s in other parts of the country.  A map indicating the potential SEZ’s in each province was provided.  A summary of the industrial development incentive schemes was included in the briefing.

The interventions planned for 2013/14 for the Trade, Investment and Exports Programme focused on the implementation of the trade and development agreements on the African continent in particular.  Other agreements involved the European Union and India.  The objectives were to increase the value of manufactured exports to R900 million and to facilitate investment in targeted sectors of R50 billion.  Maps illustrated the number of manufacturing incentives, services incentives and competitiveness incentives approved in each province during 2012/13.

The interventions planned for the Broadening Participation Programme included support for the seda Technology Support Programme; the implementation of the Co-operative Amendment Act; the implementation of the National Strategic Framework on Gender and Women Empowerment; support for the Isivande Women Fund; the implementation of the Broad-based Black Economic Empowerment (B-BBEE) Amendment Act and the B-BBEE Codes of Good Practice; the approval of 1,560 enterprises for the Black Business Supplier Development Programme (BBSDP); the implementation of the Informal Sector Strategy and the implementation of the Youth Enterprise Development Strategy (YEDS).  A map illustrated the number of Broadening Participation incentive schemes approved for each province during 2012/13.  A summary of the four incentive schemes planned for 2013/14 was included.

The interventions planned for the Regulation Programme included Regulatory Impact Assessment (RIA) reports on the liquor and gambling sectors; the development of policies on intellectual property and gambling; the introduction of Bills amending the National Credit Act, Lottery Act, Liquor Act and Business Act and the publication of two new regulations in terms of business legislation.

The key interventions for the Administration Programme included the appointment, development and retention of skilled, professional officials; the payment of creditor invoices within 30 days; producing the report on the Service Delivery Improvement Plan and conducting public awareness campaigns, events, outreach engagements and exhibitions.  A map illustrated the number of public awareness campaigns planned for each province during 2013/14.

The funding budgeted for each programme over the MTEF period was summarised.  The total amount budgeted for 2013/14 was R9.572 billion, of which R5.543 billion was allocated to Industrial Development Incentive Administration and R1.606 billion was allocated to Industrial Development Policy Development.  The alignment of the budget to the strategic goals of the DTI was provided.

The three most significant challenges were identified as the economic slowdown in traditional markets (particularly the EU); the need to build support from big business for small-scale emerging farmers and entrepreneurs and increasing the level of local procurement.  The current trade deficit was 6% and it was essential to reduce imports.  Another crucial factor for the economy was the creation of jobs and the development and retention of skills.

Discussion
The Chairperson thanked the Department for the briefing.  The amendments to the legislation in particular had been eagerly awaited by the Committee.

Mr A Nyambi (ANC; Mpumalanga) noted that the Department had included provincial data in response to previous requests from the Committee.  He asked for more information on the ten new SEZ’s and on the planned awareness campaigns.  He felt that more events should be planned for the less-developed provinces.  He asked for details of the provincial origins of the 385 students enrolled in the Tool-making Apprentice Programme.  He asked if there was any overlap between the Department’s youth development programmes and other programmes aimed at the development of the youth. He felt that the efforts of the various entities concerning youth development should be better coordinated. He asked how the Department’s strategic plans were aligned with the National Development Plan (NDP). He suggested that a clear time frame was established to address the vacancy rate in the DTI.

Mr K Sinclair (COPE; Northern Cape) observed that the DTI had made significant progress in recent years. He noted that the Minister and Deputy Minister of Trade and Industry were often absent at the briefings to Parliament.  There had been speculation in the media on what progress had been made by the DTI in implementing the IPAD and National Growth Path (NGP) objectives.  More clarity on the Minister’s position and the potential conflict with other Government Departments and entities was required.  He felt that little progress had been made with regard to the Northern Cape Province.  It would appear that DTI interventions continued to be concentrated on the Gauteng “golden triangle”.  Statistics released the previous day reflected an increase in the number of jobs lost.  He wondered if the problem lay with the DTI or a general lack of capacity and resources available to entrepreneurs.  He was skeptical of the claims regarding the progress that had been made in the less-developed provinces.

Mr Sinclair said that it was essential to establish investor confidence in South Africa.  It was necessary to create a climate that encouraged direct foreign investment (FDI) in the country.  The current union policies and union culture in South Africa discouraged FDI.  He acknowledged that there were other factors that influenced FDI, for example the prevailing negative investment climate.  He noted the inclusion of green economy and renewable energy projects in the Industrial Development Programme.  The Committee was briefed by the Department of Energy on the previous day and it would appear that the concept of localisation in the renewable energy generation sector was not successful.  For example, all solar panels used in the country were imported.  It was necessary to establish a structure for the development of local industry and to enforce local content specifications.

Referring to the Department’s annual report, Mr Sinclair remarked that the DTI must be relieved that the legal action involving the National Consumer Commission was finalised.  The US dollar amounts on page 18 of the report did not make sense.  Excessive drinking, especially in the poorer communities was destroying society.  There was a need to establish national norms and standards for trading in alcohol.  He felt that it was too easy to obtain a liquor license.  The expenditure on consulting fees on page 47 of the annual report totaled R76 million.  Although the total amount paid had decreased from the prior year, there was an increase in the use of consultants.  He asked what the reasons were for the continued use of external consultants.

Mr Sinclair welcomed the trade agreement with India.  He felt that the Southern African Customs Union (SACU) was not working.  South Africa provided financial support to Zimbabwe and Lesotho but these countries had not supported South Africa in trade agreements.  He referred to the ‘Brazilian chicken fiasco’ and asked what the policy was regarding allowing local producers to compete with cheap imports from trading partners.

Ms M Dikgale (ANC; Limpopo) would like to see that one of the four sectors designated for local production benefited the Limpopo province.  She noted that officials from the Department had visited the Limpopo Province on only seven occasions during the previous year.  The strategic goal to facilitate the transformation of the economy was noted and she urged the DTI to continue its efforts to support black entrepreneurs and rural communities.

Ms B Abrahams (DA ;Gauteng) also wanted more information on the plans for promoting the Department’s initiatives in each province.  She asked for details of the Isivande Women Fund.  She asked if the projects referred to had been approved or if further applications would be considered.  She asked about the plans to promote the sponsoring of small business enterprises by big business and wondered who was considered to be “black”.

Mr B Mnguni (ANC; Free State) doubted if the funding allocated to the SEZ programme was sufficient.  He asked what the impact of the proposed new SEZ’s would be on the other provinces.  He asked for information on mining projects and if the Department had considered the impact of the platinum mining industry in Zimbabwe on platinum mining in the North West and Limpopo Provinces.  He noted that there were several job creation and incentive schemes but wanted to know what the average cost per job was and how many jobs would be created out of the Department’s ten major investment projects.  The availability of a skilled labour force was a prerequisite for economic development.  He suggested that the Department invested in skills development instead of continuing to support failed projects.

Ms E Van Lingen (DA; Eastern Cape) was concerned over the proposed legislation regarding the registration of small business enterprises. There had been positive reaction from the gambling sector to the proposed legislative amendments but the response from the DTI had been slow.  She suggested that the DTI prioritised the amendment to the Gambling Act.  She asked for a list of the projects under the Industrial Development Programme.  She noted that R119 million would be disbursed to seda but was concerned that not enough was being done to stimulate the small business sector and that the responsibility was being passed to another department.  She asked for information on how the funding for the awareness programme would be allocated.  For example, the South African Social Security Agency (SASSA) had spent a significant amount on advertising in the Mail and Guardian and the Sunday Times but these newspapers were not read by pensioners.  She asked if the issue of the port tariffs had been resolved.  She asked if the IPAP plans were aimed at pleasing the Congress of South African Trade Unions (COSATU) or if the focus was on job creation and a free market economy.

The Chairperson observed that many black entrepreneurs had become wealthy out of the mining sector but the green economy and the agriculture sector appeared not to offer the same opportunities.  He asked why South Africa was not taking the lead in producing its own motor car.  The Jewel car was interesting but had limited potential.  He asked about the involvement of other State entities in the development of the SEZ’s.  He understood that certain areas had been identified for revitalisation, for example the railway industry in Upington.  The existing SEZ’s were situated in three provinces and he asked how the DTI had determined the location of the ten new SEZ’s and how competition between regions would be avoided.  The Annual Performance Plan provided little detail on the involvement with the World Trade Organisation (WTO) and bilateral agreements in Africa.  He asked what the priority was for trade relations.  The Cooperative Amendment Bill was nearing finalisation.  Cooperatives were perceived to be South Africa’s saving grace but the establishment of a cooperative was a lengthy process.  He asked how the DTI’s youth development strategy related to the National Youth Development Agency (NYDA) and how duplication and “double-dipping” by beneficiaries would be avoided.

Ms Van Lingen asked what the plans were concerning the gas industry, particularly the importing of gas and the development of the local gas industry.  The industry could be developed relatively quickly but the focus appeared to be on nuclear energy, which was of a long term nature.

The Chairperson understood that Saldanha Bay would be developed to cater for the gas industry.

Mr October advised that separate briefings on the SEZ’s and the incentive schemes could be presented to the Committee.  The NYDA had a broad mandate and the DTI’s contribution was specifically focused on the development of youth entrepreneurship.  The plans included a system of collaboration with other stakeholders to avoid duplicated effort and the opportunity for “double-dipping”.  The entire market was under-resourced and the unemployment rate amongst the youth was currently 50%.  The DTI youth development programme included the establishment of incubators and hubs.  The DTI had adequate resources to monitor the agencies.  The Group Chief Operations Officer had established a dedicated section to manage the 16 agencies and representatives from the Department served on the agency committees.

The Cabinet and all Government departments were committed to the NDP and IPAP.  The DTI industrial policy was entirely aligned with the national objectives.  The focus was on the core objectives of an inclusive economy and the expansion of the manufacturing, agricultural and mining productive sectors.  He undertook to review the plans for the awareness campaign to ensure that previously neglected areas were included.  The Minister attended Parliamentary briefings whenever possible but had to attend the Cabinet meetings on Wednesdays.

The DTI interventions were aimed at widening the spread of economic activity.  If left to the private sector, economic activity would gravitate to those areas where the best market opportunities were located and where there was access to a labour force.  The Department’s approach was to allow the private sector to develop where the economic activity was healthy and viable.  However, it was necessary to create new zones and development opportunities to attract private investors.  The development of Coega took some time but had eventually been successful.  The experienced gained in programmes such as Coega was useful in the establishment of new SEZ’s. 

The feasibility study for the Saldanha Bay oil, gas and repair facility had been completed.  The public participation process was under way and the Minister would shortly issue the declaration to establish the Saldanha SEZ.  Saldanha Bay was ideally situated to take advantage of off-shore oil and gas exploration activity.  The DTI was engaged in developing the regulatory framework for fracking.  The intention is to frack for gas reserves without causing environmental damage.  The plans included the extraction of methane gas from coal deposits.

The Department conducted research to establish if local capability was available before new projects were introduced.  This approached had been successful in the clothing and locomotive projects.  South Africa was a late arrival in the renewable energy field.  Countries such as Germany and China were far ahead in the solar and wind energy generation sectors.  The lack of local capability was acknowledged but the basis was being laid to establish a local manufacturing industry.

Mr October admitted that SACU was a major challenge.  Member countries regarded the tariffs from South Africa as revenue but the money was not spent on industrial development.  The Limpopo SEZ was on the cards and other projects in the province were being implemented.  Platinum beneficiation projects could be implemented within a short period of time.  There was strong growth in the mining sector in Limpopo but a more detailed briefing could be provided later in the year.  The Isivande Women’s Fund was a capacity-building programme aimed at enterprises and co-operatives owned by women.  The initiative provided training and equipment.

Mr October said that the B-BBEE legislation was intended to promote wider participation in the economy by including previously disadvantaged sectors in economic activity.  It was not about who was classified as “black” as South Africans comprised many race groups.  He agreed that the SEZ programme required substantially more funding than was currently provided.  The available funds were sufficient to complete the feasibility studies but more funds would be required to provide the necessary infrastructure.  The Department was discussing the need for additional funding for the incentive schemes with the National Treasury.

Approximately 98% of the global platinum reserves were in South Africa and Zimbabwe.  Both countries would benefit substantially from adding value to the raw material.  South Africa had entered into bilateral agreements with Zimbabwe and Nigeria.  It was important that both countries benefited from the agreement.  Inter-industry trade should be complementary rather than competitive.  For example, Nigeria had a population of 160 million but had no automotive industry.  Second-hand vehicles and parts were important from Japan.  There was a lot of potential and the DTI was currently considering a project that would provide components for a vehicle assembly plant planned in Nigeria.

The DTI focused on development programmes that were linked to job creation, for example the on-the-job training of call centre operators.  A similar model would be used for the youth development projects.  Not all municipalities regulated the operations of the informal sector.  The intention was not to duplicate current local government regulations but to establish national norms and standards for the small and informal business sector.  A number of incentive schemes were available to SMME’s but the sector remained under-funded.  More than one Government entity needed to provide support for the sector.  The DTI programme was aimed at encouraging big business to support the SMME and informal enterprises and assist them to access new markets for their products.

Mr October said that the importance of manufacturing and the development of local enterprise was accepted by all.  The fact was that 99% of the manufacturing sector was privately-owned and it was essential that economic policy was based on production.  South Africa had attracted R53.5 billion in direct foreign investment during the previous year.  He listed several major international companies that had invested in the country.  The agriculture sector had the greatest potential for job creation.  The DTI was paying more attention to agriculture and agro-processing.  He admitted that the sector had been neglected in the past and had suffered from the withdrawal of Government support.

Mr Stephen Hanival, Chief Economist, DTI, provided more information on the initiatives being considered for the agricultural sector and the agro-processing projects under consideration.  A more detailed briefing could be provided in due course.

Ms Sarah Choane, Deputy Director-General: Corporate Services, DTI, explained that the vacancy rate fluctuated as a matter of course.  More posts were created as the Department expanded operations.  The profiling of officials revealed that many were in their thirties and this age group tended to be highly mobile.  The vacancy rate had been reduced from 18% to 8% and retention strategies had been put in place.  258 new employees were appointed during 2012.  She was satisfied with the management of the vacant positions in the DTI.

The Chairperson remarked that research had indicated that persons with disabilities tended to stay in their jobs.

Ms Zodwa Ntuli, Deputy Director-General: Consumer and Corporate Regulation Division (CCRD), DTI, advised that the DTI had worked with the provincial authorities in the development of the national norms and standards and the proposed amendments to the Liquor Act.  The Department had consulted widely with stakeholders on the Bill and did not anticipate major problems when the legislation was introduced to Parliament.  She acknowledged that the actual implementation of the legislation was another matter.  The business sector had welcomed the proposed business licensing legislation and the introduction of consistent national norms and standards.  The Department would consider the availability of resources to re-prioritise the amendments to the Gambling Act.

Ms Ntuli acknowledged that outreach programmes in the rural areas were challenging.  The DTI had consulted with CONTRALESA and traditional leaders on the issue of access to these areas.  An operational plan was currently being developed for the outreach programme.  One hundred field workers would be based in rural areas and would assist with improving access to the DTI by remote communities.

Ms Jodi Scholtz, Group Chief Operating Officer, DTI, explained that the DTI currently operated in a tight budgetary environment.  Consideration was being given to establish mobile units, which would be more flexible and provide increased accessibility.  The Department rotated the areas visited when planning campaigns and would gladly consider any areas suggested by the Committee.  The needs of the relevant area were assessed and the most appropriate medium to publicise the campaign was determined before advertisements were placed.  Local radio stations and newspapers were used to advertise the campaign and a call-centre made follow- up calls to participants to get feedback on the event.  With regard to the governance of subordinate entities, the DTI had ongoing interaction with the agencies; the responsible Deputy Directors-General had regular contact with the agencies; the Minister regularly met with the agencies; the operational plans of the agencies were coordinated with those of the Department and the Department provided assistance to the agencies when necessary.

Mr Xavier Carim, Deputy Director-General: International Trade & Economic Development, DTI, advised that negotiations with the WTO on international trade agreements had taken place over a period of twelve years.  The negotiations were complex as 158 countries were members of the WTO. The issue of EU subsidies had been problematic.  Steady progress was made during the period 2001 to 2008. After 2008 an imbalance developed as the developed countries made more onerous demands on the undeveloped countries to open their markets but were reluctant to grant concessions in turn. The situation was compounded by the economic downturn in 2008, which further slowed down negotiations. South Africa remained committed to the process and continued its efforts to find solutions. The focus had recently shifted from attempting to negotiate large agreements to dealing with smaller, more achievable targets.

SACU was established in 1910 and was the oldest treaty-based customs union in the world. The manner in which SACU functioned was being questioned.  In terms of the treaty, all member countries were involved in tariff adjustments and shared the revenue pool.  In practice, most of the revenue went to Swaziland and Lesotho.  The size of the economy and the stage of development of member countries varied.  The intention was to spread the development of industrial capacity across the region and to facilitate the movement of goods and services between the five member countries.  The National Treasury was reviewing the revenue-sharing formula in an attempt to ensure that the funds were used for industrial development instead of being used for other purposes.

Bilateral agreements with other African countries were important for South Africa.  Africa was a growing market and had the potential to off-set the declining trade with the EU. The DTI was involved in discussions with most countries on the continent as assisted with resolving trade barriers, infrastructure projects, capacity building, investment and trade promotion initiatives.

Mr Shabeer Khan, Chief Financial Officer, DTI responded to questions on the use of consultants. The DTI was mindful of the expense and had changed procedures to force line managers to consider alternatives before engaging external consultants.  The Director-General approved the appointment of external consultants and the process was closely monitored.  More effort was made to ensure that skills transfer took place.  The bulk of the expenditure was for the feasibility studies for the SEZ’s and for legal advice on the Bills.

Mr Tumelo Chipfupa. Deputy Director-General: The Enterprise Organisation (TEO), DTI agreed that the available funding for the SEZ’s was insufficient.  Provision had been made to establish the SEZ Fund and negotiations were underway with the National Treasury for additional funding.  The DTI would approach the provincial authorities and the private sector for contributions to the SEZ’s.  Saldanha Bay would be developed for the oil and gas industry.  Public hearings had been held and no objections were received from local communities.  The Minister planned to make the declaration shortly.  The SEZ Bill had been tabled in Parliament and the processing of the Bill by the National Assembly would commence the following week.  The DTI planned to publish a booklet on the incentive schemes and publicise where applications could be submitted.

Mr October said that external consultants where used to provide expertise on a short-term basis.  For example, the incentive programmes were aimed at specific industries and extensive technical knowledge was required to conduct the feasibility studies.  The process to appoint officials was lengthy and at times it was necessary to appoint an external service provider to ensure speedy service delivery.  External consultants and service providers were monitored to ensure that the expenditure was not wasted.

The Chairperson looked forward to the tabling of the four Bills in Parliament. He suggested that the DTI considered introducing uniformity in the Boards of the subordinate entities.

Mr Sinclair hoped that the recent appointment of a Brazilian as the Director-General of the WTO would enhance the agendas of developing member countries. The issue of fracking to extract shale gas was controversial.  Clear guidelines on beneficiation were required from the DTI. More clarity was required on the involvement of local government authorities on renewable energy generation and the localisation of the renewable energy sector.

The Chairperson hoped that progress on the WTO agreements would be made. He thanked the Department for the briefing and complimented the staff on the high standard of work delivered and on the efforts to increase accessibility. He noted that the Auditor-General met with the Minister on a quarterly basis.

The meeting was adjourned.