Trade Policy & Strategy Framework: Ministerial briefing, Ndalo Luxury ventures loan: Minister & National Empowerment Fund briefing, SADC Protocol on Trade in Services: Adoption proposal

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Trade and Industry

22 August 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Chairperson of the Portfolio Committee opened the meeting by stressing the important role played by the media, and urging it to be cautious and mindful of its power when reporting. She welcomed the Minister of Trade and Industry and other delegates.

The National Empowerment Fund (NEF) gave a background presentation on its mandate, the strategic planning framework, a listing of the objectives as spelt out in the National Empowerment Fund Act, the Codes of Good Practice and government priorities. This was done to contextualise the questions and concerns related to NEF’s funding of Ndalo Luxury Ventures, to the tune of R34 million. NEF set out what criteria it considered, according to its Code of Good Practice, when granting of funding, and made it clear that a number of aspects of ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development were taken into consideration. The assessment of the impact was based not only on financial returns but by measurement of the empowerment dividend, which in turn looked to broad based black economic ownership, management control, employment equity, women empowerment, job creation, growth sectors, geographic spread and investment return. The merits and conditions of the funding to Ndalo Luxury Ventures (NLV) were then given. It was clear that NLV was a BBBEE company, which was particularly important given the general lack of transformation in the retail sector. The application had been fully tested against the Code and the various results against each of the criteria were set out.  NLV was 100% owned by black women, including staff and rural women, was 100% managed by women, 81% of whom were black, had 51 employees, with 91% representation of women and youth, and enhanced training of local designers and clothing manufacturers, as well as training of rural women on marketing, investments and business management. 81% of the NEF’s funding was used for localisation purposes, and the arts and craft were procured from local women, with ten rural cooperatives being involved, given equity, training and access to markets. The company created jobs in rural areas and enhanced economic development. A loan of R34.1 million was awarded over five years, and R15 million equity was provided by black women to the transaction. Over 70% of the investment had remained in South Africa to support the local economy, contrary to what the media had suggested. The Minister of Trade and Industry explained that whilst the Department of Trade and Industry (dti) did not take decisions on, nor become involved in transactions at the NEF, he had been satisfied that this transaction adhered to all policy and legal requirements, and put it in the context that, whilst the loan was large, it represented only 1% of all NEF transactions. The dti was clarifying its directives on support to local industry and the productive sectors. Members indicated their satisfaction with the briefing, which had cleared up the misunderstandings created by press reports, and emphasised that it was the ANC who had called for clarity. They called for support for the recapitalisation of the NEF, and questioned its sources of income, the amount of funding provided, and jobs created.

The dti briefed the Committee on the SADC Protocol on Trade in Services, noting that although President Zuma had not managed to sign, a legal opinion suggested that Parliament could in the meantime ratify it, as it was deemed to come into operation, and in order to speed up the negotiations process. Currently, there was no agreement on trade in services in the SADC, although one had been contemplated for some time. The background, general obligations specific obligations and economic benefits of the Protocol were outlined. In particular, it would offer liberalisation of services, leading to deeper integration of the SADC, support regional markets, promote healthy competition of quality services, enhance South Africa’s services sector and its access to other markets and create the basis for wider markets under the Tripartite Free Trade Agreements for the future. Members sought clarity why agriculture was not a priority in the Protocol, asked if infrastructure developments were complementary to it, and how cooperation with other economies would be achieved.

The Minister of Trade and Industry briefed the Committee on South Africa’s Trade Policy and Strategy Framework (TPSF), which was the outcome of a three year process of extensive review and consultation with stakeholders. The Framework noted how trade policy could contribute to Government’s economic development objectives. Trade policy was an instrument of industrial policy, and it was important for the country to support industrial development and upgrading, employment growth and increased value-added exports. The Committee was updated on the state of affairs of  the Bali Ministerial and the Doha Round, the Tripartite Free Trade Agreement, the SACU-India Preferential Trade Agreement, the Economic Partnership Agreement negotiations and the Africa Growth and Opportunity Act. The Minister further outlined the key trade promotion activities, the number and location of trade missions and investment promotion and facilitation. During discussion, a Member suggested that the point must be stressed that the export of unfinished goods from South Africa to America actually promoted the latter’s opportunity to obtain cheaper goods and support jobs in that country. It was also noted that a Congress member had suggested that a bi-partisan approach would be useful, and the DA offered to participate.

Meeting report

Chairperson’s introductory remarks
The Chairperson welcomed the Members of the Committee to this important meeting. She expressed the hope that more media would be present at other times, when very critical pieces of legislation were being worked on. Whilst she had a healthy respect for the media, she cautioned it to bear in mind that it was a very powerful institution in the South Africa and therefore should be cautious that it exercised this power responsibly and properly.

The Chairperson also welcomed the Minister of Trade and Industry, and other delegates from eh Department of Trade and Industry (dti or the Department) and the National Empowerment Fund (NEF).

National Empowerment Fund (NEF) briefing
Ms Philisiwe Mthethwa, Chief Executive Officer, National Empowerment Fund, noted that the Committee had invited the NEF to respond on certain issues raised by the Committee and the public. Many of the questions asked had related to interpretation of the mandate of the NEF. For this reason, she thought it critical for the mandate of the NEF to be presented, and for the Committee to consider and give feedback on whether it was indeed operating within its mandate, and how the issues raised tied in to that mandate.

The NEF was created to be a driver and a thought-leader in promoting and facilitating black economic participation, through the provision of financial and non-financial support to black-empowered businesses. It was further intended to promote a culture of savings and investment among black people.

Ms Mthethwa then outlined the strategic planning framework of the NEF, listing the objectives as spelt out in the NEF Act, the Codes of Good Practice and government priorities. The successful implementation of the black economic empowerment (BEE) strategy must be evaluated against a substantial increase in the number of black people who had ownership and control of existing and new enterprises, including those owning or controlling enterprises in the priority sectors of the economy, and a significant increase overall in the numbers of new black enterprises, black-empowered enterprises and black-engendered enterprises. After outlining the evaluation measures of the success of the implementation of the BEE strategy (see attached presentation for full details), Ms Mthethwa presented the Committee with the details of the funding solutions provided by the NEF, and its positioning as a B-BBEE funder. According to the Code of Good Practice, the NEF, when granting funding, considered criteria that included ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. The assessment of the impact was not based only on financial returns, but on measurement against the Empowerment Dividend, which was made up of B-BBEE ownership, management control, employment equity, black women empowerment, job creation, growth sectors, geographic spread, and investment return. Ms Mthethwa outlined the criteria by which each and every funding application was assessed. Besides black empowerment, the criteria were aligned to the NEF investment governance framework.

Achievements in driving BBBEE
Ms Mthethwa told the Committee that the NEF had delivered on government’s promise to drive broad-based black economic empowerment (BBBEE), as it had evolved steadily into a leading, distinctive and effective development finance institution (DFI) that had approved almost R5 billion into BBBEE transactions. It had financed and nurtured 391 black South African ventures, of which 55% were women-owned. The NEF had facilitated 87 000 black South Africans to become owners of MTN, through NEF's R1.3 billion Asonge Share Scheme. 200 000 black South Africans had been enabled to become owners of Sasol through Sasol’s R5.8 billion BEE scheme. The NEF had developed a team of 168 experienced, mostly black, South African investment and business professionals, who operated in all nine provinces of the country.

In addition, the NEF, which was well managed, had built its own asset base from R171 million to almost R6 billion.

Ms Mthethwa informed the Committee that just when South Africa demanded faster and deeper impact, other funding institutions had exited the arena. Despite the NEF’s diverse achievements since 1998, many black South Africans still remained locked out of the economic mainstream. The Industrial Development Corporation (IDC), Development Bank of South Africa (DBSA), and Public Investment Corporation (PIC) were no longer significant financiers of BBBEE, so the NEF was now the only major DFI that was positioned to finance aspirant black South African entrepreneurs. 

Merits of NEF Funding of Ndalo Luxury Ventures (Luminance)
Ms Mthethwa then provided an overview of the South African retail sector, indicating that it was a mature sector, with increasing sales levels resulting from the growing black middle-class and upper-income clients. The industry was valued at R110.6 billion in 2010, and was the fastest growing sector in the economy. South Africa’s GDP was estimated at R814 billion in 2013, of which 14% was contributed by the retail sector. However, smaller shops often struggled to find suitable shop space at affordable rent. The retail sector was still dominated by a small number of large white-owned retail groups, such as Edcon, Truworths, Mr Price Group, Woolworths and Pepkor.

Ndalo Luxury Ventures (NLV) had applied for funding, and the NEF had established that NLV was a BBBEE company. Its application for funding was tested against the Codes of Good Practice. NLV was 100% owned by black women, including staff and rural women. Its management structure indicated 100% management by women, 81% of whom were black. In relation to employment equity, it had 51 employees, with 91% of the staff comprising women and youth. On the skills development side, the company enhanced the training of local designers and clothing manufacturers by accomplished international practitioners, and offered training of the rural women on craft marketing, investments and business management. In relation to preferential procurement, 81% of the funding applied for from the NEF was to be used for localisation purposes, and arts and craft was going to be procured from local women. Enterprise development would be supported through ten rural co-operatives who were to be provided with equity, business training and access to international markets. The company also met the requirements of socio-economic development, in that it created jobs in rural areas and enhanced economic development.

Ms Mthethwa provided a further background to NLV’s offerings, citing its black female ownership, the ambitious and upwardly-mobile clientele, the global appeal and the different levels of affordability of the products.

She then described the funding transaction. The NEF Board Investment Committee approved the transaction in August 2012,and the NEF advanced a R34.1 million loan to NLV over a 5 year term. The black women shareholders contributed a R15 million equity to the transaction, which ranked as the highest ever paid to the NEF. Over 70% of the total investment had remained in South Africa to support the domestic economy. All transaction imperatives were adhered to, in terms of alignment to the mandate of the NEF, the need to transform white and foreign dominated retail sector, economic empowerment of black women and rural women, the creation of jobs and the commercial merits of the proposed business.

She also outlined the localisation elements of the deal and some of the NEF’s pre-conditions to NLV. Some of these preconditions included:
-Increasing the shareholding of rural women from the original 2% to the current 10%;
-Promoting meaningful local manufacturing capacity;
-Actively creating access to international markets for locally produced labels, arts and crafts;
-Promoting skills transfer for the benefit of local designers and clothing manufacturers;
-Requiring meaningful financial contribution by the primary shareholders;
-New ventures products, allowing a maximum of 10 years to repay, with NLV given 5 years to repay
-Approval of the loan, at a commercially competitive 14.5% internal rate of return. 

Ms Mthethwa explained to the Committee that, contrary to the wrong perceptions created by the media reports, the NEF was not “empowering the empowered”. The presentation document given to the Committee contained other details about investees to whom the NEF had provided funding, and photographs of designs, art and craft from the Luminance Department Store.

The Chairperson thanked Ms Mthethwa and called on the Minister to make a comment.

Statement by the Minister of Trade and Industry
Dr Rob Davies, Minister of Trade and Industry, asked the Committee to take note of the overall progress of the NEF in becoming a DFI of significance. Its exclusive mandate to support BEE was not in question. He did not think that this particular transaction with NLV could be seen as the touchstone or emblem of the NEF’s operations, and he emphasised that this transaction, at less than 1% of the total transactions of the NEF, had to be put into context. He was pleased that the NEF had firstly made the presentation to the Committee, because the Department of Trade and Industry (dti) did not take decisions about any individual transaction at the NEF, and did not get involved in any particular deals or disbursement of funds. The role of the dti was rather to set the framework within which its agencies could take responsible decisions. In this particular case, the NEF operated under its own Act. Its strategic plan and annual reports were presented to Parliament.

It was important to look at this transaction when considering whether there was a need to make any adjustments to the mandate of the NEF, or, more broadly, of other dti agencies. Section 22(1) of the NEF Act stated that the Minister could, with the consent of other Ministers in charge, issue implementation directives relating to economic empowerment to the trustees. This was the framework within which the current directive that he was going to issue must be seen. There was no presumption that any sector was excluded. The fact that the retail sector, in particular, was traditionally dominated by whites and that there was little space for black people meant that there was a legitimate reason to support a retail activity by blacks.

Looking at the NLV transaction details, and in line with the conclusion that the dti had drawn, he noted that there were many features of the transaction which were perfectly well in line with the prescribed norms. It was also important to emphasise that the work of the NEF was to improve the transaction. According to the dti, that objective was achieved.

However, the Ministry and the dti were of the opinion that there was a need to introduce a new directive, bearing in mind all of the policy thrusts towards localisation, supporting local manufacturing and value addition. This new directive, in the form of a Shareholder Instruction (which he read out, and whose full details are set out in the document Shareholder Instruction: Support to Local Industry and the Productive Sectors of the Economy) was being sent to all dti agencies. There may be need for more work to be done in terms of particular legislation.

The Minister emphasised that the “dti family” was learning as it moved along and there was a need to strengthen the spirit of the directives. He reiterated that the particular NLV transaction had been a very small part of the work of the NEF, that most of the work of the NEF was without doubt moving in the right direction and in this matter too the intervention of the NEF was aimed at improving the transaction. The dti would be continuing to support the NEF and work it on the significant challenges of securing an adequate capital base so that it could expand the good work which was currently being done.

Discussion
The Chairperson remarked that it was that Whip of the Committee, Mr B Radebe (ANC), who had raised the issue in the Committee, and the Committee was pleased to have heard the full explanation from the NEF, although she was aware that there were time constraints. She was also happy to learn that 71% of the transaction was dedicated to local manufacturing.

Mr Radebe welcomed the presentation from the NEF and the briefing by the Minister. He, like the Chairperson, highlighted the importance of objectivity, and need for caution when the press was reporting on matters of national interest. The New Age newspaper had reported that it was at the instance of the opposition parties that the NEF was being asked to report on the loan to NLV, but that was untrue because he himself, as an ANC MP, had raised the issue in the Portfolio Committee, which could be confirmed from its records. He was aware that the NEF provided funding from R250 000 up to R75 million, so the funding of R34 million to NLV was within the permitted range. He had raised the issue to give NEF the opportunity to clarify the press reports, and he reiterated his request that the media be more honest and objective in their reporting. The NEF’s report indicated that there was no inconsistency in processes followed, that the decision was in line with previous policy positions and frameworks for funding.

Mr Radebe commented that it was interesting to note that the retail sector was still not transformed, and, that being the case, it was the duty of the dti and its agencies to ensure transformation. There was indeed a misunderstanding created that the majority of the funding would be used for imported goods, but this presentation clarified that this was not the case. The presentation clearly indicated that the NEF was doing precisely what it was supposed to do by facilitating economic empowerment for the historically disadvantaged. It was important that the recapitalisation of the NEF to be done urgently, and it must be supported to continue the transformation process. He further commented that nothing was said when support was given for the manufacture of luxury vehicles, but there had been so much interest when support was given to a woman from a disadvantaged background. He had been satisfied with the explanation from the NEF. 

Dr W James (DA) said that he hoped that Luminance would one day be cited by Schools of Business as an example of a successful company. Luminance was run by some fabulous people and he wished it success. However, from the presentation, he wanted to ask questions not about Luminance, but the NEF. He asked what were the NEF’s sources of revenue, and what its funding records showed in terms of the  quantum and size of investments. He emphasised the importance of taking care of medium and small companies. The true success of the NEF, in his view, was the extent to which it was able to support sustainable Small, Medium and Micro Enterprises (SMMES). He also asked how many of the ventures supported by the NEF were still operational, and how many jobs had been created in total. 

Ms Mthethwa firstly dealt with the sources of revenue of NEF, saying that it was important to remember that the NEF had been self-financing since 2009. It received its first allocation in 2006, of R2 billion, from the dti. This R2 billion was supposed to be on a draw-down basis, but the last draw-down made was in 2009. Since then, the NEF had 1.5% which it owned in MTN and was now valued at about R3 billion. The NEF had taken a small portion of the 1.5% and sold it to the 87 000 beneficiaries of the MTN Asonge Share Scheme, leaving it with about R1.4 billion. The proceeds from the sale of shares were included on the NEF balance sheet. The NEF also had interest payments from loans and dividends being received from the loan portfolio, and there was a little bit of cash in the bank on which it was earning interest. These were the main sources of the NEF revenue. The NEF had also developed an Enterprise Development Fund, which resulted from the decision that established businesses in South Africa should be expected to make a small contribution towards enterprise development initiatives. This amount was 3% of the net profit of the established businesses after tax.

Answering on the quantum of investments, Ms Mthethwa said that the NEF started from R500 000 and it went up to R50 million. There were exceptional instances where it could go up to R75 million, but this always required the approval of the board. The NEF started the National Strategic Fund about three years ago, which was established with the aim of allowing black entrepreneurs to get involved in new industries.

In relation to the number of existing enterprises supported by the NEF, the current impairment rate was at about 18%. The jobs that had been created and maintained stood at about 44 000.

Mr G McIntosh (COPE) agreed with the previous speakers that the Luminance story was very exciting and he was delighted about it. He said that he was sure that his friend, Oscar Dhlomo, who had grown into a wealthy man, and was the father of the two women who owned Luminance, was very proud of his two daughters.

Mr McIntosh said that the use of the term “locked out”, when describing the position of black people in the economic mainstream, was very strong, and asked for further clarity on that, pointing out that there were many immigrants who came into South Africa and made their way in the economy, not being “locked out”, but rather “pushing their way”  through.

Ms Mthethwa clarified that her statement was not intended to imply that black South Africans were physically locked out of opportunities, but she was referring instead to exclusion by structural constraints of the economy and market failures. This included lack of access to markets, lack of financing, very low bargaining power, and many other complex issues. The phrase “locked out” was used to describe the challenges faced by black entrepreneurs when venturing into business. If the Johannesburg Stock Exchange was used as a measurement of the success of the implementation of the BEE strategy, it would be clear that only about 3.9% of the economy was in black hands. The BEE policies were more than ten years old, but only about 3.9% of economic activity was black-owned.

Mr McIntosh asked what return in interest was expected by the NEF on its investments.

Mr McIntosh said that it was interesting that the Ministerial directives on local productivity were presented to the Committee on the same day as the presentation on the SADC Protocol on Trading Services. he wondered what the SADC countries would think about the Minister’s statement, in terms of the impact on regional trade.

Mr X Mabasa (ANC) acknowledged that there were huge challenges in growing SMMEs in South Africa. It was positive that SMMEs and co-operatives were also benefiting from the work of the NEF. He appreciated the work that the NEF was doing in the Orlando East Industrial Park. However, he wanted more detail on any strategies that the NEF might have for mentoring the SMMEs and co-operatives. He also asked what the NEF was doing about empowering people with disabilities.

The Chairperson said that it was unfortunate that there was not enough time for the NEF to present all its work and performance to the Committee. She asked how much investment in NLV was productive investment. However, noting the shortage of time, she asked that the Minister should give some concluding comments.

Minister Davies thanked the Committee for the support offered to the NEF with regards to the recapitalisation of the fund so that it could fulfill its core mandate. This was going to require a lot of creative thinking, but the support from Parliament was going to be very helpful.

It seemed that most members of the Committee were satisfied that the transaction described was in alignment to the set policies and frameworks.

Minister Davies commented on Mr McIntosh’s question around promoting local manufacturing while presenting the SADC Trade in Services Protocol, and said that there was no conflict between the two, as the directive was not prohibiting imports and was not banning SADC service providers from operating in South Africa. It was simply encouraging local manufacturers so that they could find a place in the ever-growing economy. Imports were allowed in most countries, but there was no country where incentives were put in place to support imports. The fundamental objectives were to promote local manufacturing.

The Chairperson noted that the Committee, in 2009, had been very concerned about the NEF, as noted in one of the written reports. All parties shared a general concern that Members were not very sure where all the money was going, how many jobs were created and what the performance and success level was. However, over the years, the NEF had developed into one of the better performing entities. The Committee had been concerned about this particular transaction, as no one understood the extent and the details, so it considered it prudent to call for an explanation of the dynamics from NEF itself. It was enlightening and pleasing to note that the transaction paid attention to SMMEs, rural development, co-operatives and local manufacturing. The Committee unequivocally welcomed the transformation of the retail sector. On the other hand, the Committee had always been concerned about the support for productive investment.

Mr Radebe said that the importance and the value of the presentation from the NEF in clearing up the misunderstandings could not be overemphasized. The photographs at the end of the presentation displayed outfits of unique quality, and any woman would be proud to wear them. He quipped that perhaps, as part of the corporate social responsibility, NEF and Luminance should provide the ladies in the Committee with such dresses.

The Chairperson said that the transaction was definitely going to add “some luminance” to the retail sector.

Dr James emphasised that one of the most important points made was that under 4% of JSE companies were owned by black South Africans. It had taken over 150 years for whites to attain their current position and South Africa’s future was bleak if it maintained such a low rate of transformation. The efforts of NEF to alter that number were very important, and that was why the Committee was willing to monitor very carefully what the NEF was doing, as well as supporting it.

Mr McIntosh remarked that the NEF was doing a great job and encouraged the Fund to continue supporting capitalists who were making a success out of their businesses, whilst the Committee and dti should continue to support NEF. He also stated that the figure of 3.9% had to be treated with utmost care. It was similar to the 13%: 87% issue on land transformation. He suggested that the NEF should do more research and confirm that number, as he did not believe that figure, and he thought that the use of this figure out of context could be very crude and blunt.

Southern African Development Community (SADC) Protocol on Trade in Services (SADC PTS): Department of Trade and Industry briefing
The Chairperson called on the Minister and the dti to be very brief and straight forward, in view of the shortage of time to present.

Minister Davies explained that the SADC Protocol was concerned with defining a set of ambitions for a trade-in-services agreement within the SADC. There was currently no agreement on trade in services, and there was thus a need to define the areas of operation and processes of negotiations. The President had not, however, signed the Protocol as yet, because he was due to do so on the day that the Marikana incident erupted. However, there was a legal opinion to the effect that the fact that the majority of the members had signed meant that it came into effect when members ratified. For this reason, he noted that South Africa could ratify, even though it had not yet signed it.

Mr Xavier Carim, Deputy Director General: International Trade and Economic Development, Department of Trade and Industry, set out further details. By way of background, he noted that the Protocol on Trade in Services (PTS) was already envisioned in the 1996 SADC Treaty and the SADC Trade Protocol. The overall objective was to promote regional integration in SADC by creating a single market for trade in services. The Protocol set out the legal framework for trade in services. Ratification by two-thirds of the SADC members would be needed before it came into force. This Protocol was based on the World Trade Organisation (WTO) General Agreement on Trade in Services (GATS), which allowed for preferential services trade agreements amongst members.

General Obligations
Mr Carim told the Committee that the Protocol defined the modes of services supply. and established “most favoured nation” treatment, which meant that a country must treat all SADC members according to the best treatment it accorded to any one of them for trade in services. The PTS also provided guidelines for domestic regulation affecting services trade to be administered in a reasonable, objective, transparent and impartial manner. Amongst many other obligations, the PTS allowed for mutual recognition of other countries’ licenses, qualifications and regulations, and did not prevent Members from using subsidies to support development. 

Specific Obligations
In terms of market access, the PTS advocated for no limitations on number, value, persons or commercial presence for provision of services, unless stipulated in specific commitments. On national treatment, foreign services providers had to be treated the same as domestic service providers, unless stipulated otherwise in specific commitments. With regard to progressive trade liberalisation, there had to be successive rounds of negotiations within three years of completion of previous rounds, taking into account differences in economic development.

Economic Benefits
Mr Carim noted that the economic benefits of the PTS included the following:
-Services liberalization, which represented a key step in the deeper integration of SADC;
-Establishment of a regional market that would support emergence and development of regional firms to provide services to a larger regional market;
-Competitive availability of quality services underpinning enhanced economic activity in countries where there was a shortage of quality and efficiency priced services.
-An efficient services trade could support industrial and infrastructural development across the SADC region;
-Enhancement of South Africa’s services sector, which was well developed in SADC and in Africa;
-Enhancement of access for South African services providers;
-Creation of a basis for a wider services market under the Tripartite Free Trade Agreements (TFTA) in future.

Discussion
Dr James asked why agriculture was not one of the priority areas of the PTS.

Mr Carim replied that agriculture did not fall under services. It was under the trade in goods agreement which was already in force, so it had been covered. However, services related to agriculture could be covered in some respects.

Mr Mabasa commented that the progress was quite admirable, considering the recent past. He asked if the infrastructure was developing in line with the objectives of the PTS. If there was no alignment between the infrastructure development and the objectives of the PTS, then there would be confusion in the development.

Mr Carim said that quite extensive work had been done to align infrastructure and PTS objectives. This included Southern African work on infrastructure under the North-South corridor, and the existence of many cross border programmes, although these were not directly linked to the trade in services protocol. The critical issue was that negotiations included regulations in countries, so that where specific country limitations were identified, such as limited ability to establish equity and licensing requirement, those negotiations would handle such issues. An approach would be followed that looked at the legal and regulatory frameworks in the SADC countries, and the identification of the limitations.

Ms S van der Merwe (ANC) commended the effort, saying that it was a great step in the integration process. She noticed that South Africa had a lot to gain from the PTS and it would be interesting to know how the dti envisaged the negotiations unfolding, given the relative size and strength of the South African economy in relation to the other economies. She hoped the negotiations were not going to take very long. She asked how the dti planned to enhance the cooperation with the other economies in the region.

Mr McIntosh said that the President brought credit to South Africa by leaving the SADC to come to Marikana.

Mr Carim further explained the signature and ratification process. He noted that all Heads of State should have signed in August 2012. The President of South Africa was not the only one who was not in a position to sign, as only eight Presidents had managed to sign, so there was a process under way by SADC to take the Protocol to the various outstanding countries for Heads of State to sign, and it was expected to be brought to President Zuma for signature shortly. It was a procedural and not a substantive issue. The legal opinion obtained stated that the failure of some Heads of State to sign did not prevent the movement towards ratification. That was desirable in order to ensure progress in the negotiations.

The Chairperson, having obtained confirmation from Members that they were satisfied with the briefing and the response, read out, and Members adopted, the Committee Report, noting its recommendation to the House that it adopt the SADC Protocol, in terms of Section 231(2) of the Constitution.

South Africa’s Trade Policy and Strategy Framework (TPSF): Ministerial briefing
Minister Rob Davies stated that the Trade Policy and Strategy Framework (TPSF) was completed in 2010 and revised in 2012, on both occasions with approval from Cabinet. It was the outcome of a three year review process that included extensive consultations with all stakeholders, including Parliament. It set out how trade policy could contribute to Government’s economic development objectives outlined in various industrial policies as well as the New Growth Path (NGP) and National Development Plan (NDP). Minister Davies reminded the Committee that trade policy was an instrument of industrial policy, and it was important for the nation to support industrial development and upgrading, employment growth and increased value-added exports.

Setting out the background, the Minister told the Committee that South Africa had a relatively high ratio of merchandise trade to GDP, ranging between 50% and 60%, and it was a relatively open economy, only “moderately” protected by tariffs. It had a simple average most favoured nation applied tariff of 7.7%, which had reduced down from 23% in the 1990s. Compared to South Africa’s trading partners, the tariff regime was transparent and not overly complex. South Africa’s WTO Services commitments were on par with OECD countries, and it had a very permissive and Foreign Direct Investment (FDI) enabling environment.

Minister Davies traced South Africa’s trade reform experience, and its approach to tariff reform. On the new trade narrative and global value-chains (GVCs), the Committee was told that South Africa was growing the debate on trade policy implications of global value-chains (GVCs) as the observation had been made that 60% of world trade was in intermediate products, and countries should aspire to participate in GVCs. GVCs offered new methodology to calculate trade and included contribution of services. However, the prescriptive was to liberalise tariffs and services, reduce non-trade barriers, and introduce trade facilitation measures. South Africa and Africa were already integrated into GVCs, generally at low end, except for the auto and chemicals industries. Moving up the value chain required deliberate industrial policy and policy space to do so.

Negotiations with major players involved demands that closed off policy space for industrial development. Minister Davies said that South Africa had a strong services sector in terms of communication, transport, tourism, construction and finance and there was need to focus on building regional services trade.

Minister Davies updated the Committee on the state of affairs relating to the Bali Ministerial and the Doha Round, the Tripartite Free Trade Agreement between SADC, the East Africa Community and the Common Market for Eastern and Southern Africa (COMESA), the SACU-India Preferential Trade Agreement, the Economic Partnership Agreement negotiations and the Africa Growth and Opportunity Act (AGOA). He further outlined the key trade promotion activities, the number and location of trade missions and investment promotion and facilitation.

Discussions
The Chairperson said that on the one hand she wished the Minister were back at a University sharing all the knowledge he had with the young brains in the field, but swiftly added that the Committee would jealously guard the deployment of the Minister exactly where he was. This briefing had given context to many of the issue which the Committee had been raising during the year.

Mr G Hill-Lewis (DA) thought that there was a point which had been missing from the AGOA debates, or perhaps had been made privately by the dti. Owing to the fact that the majority of South Africa’s exports under AGOA were unfinished products, most were imports into the manufacturing processes in America, with the result that America was getting cheaper imports and thus supporting its own jobs. There was a strong argument that this was not only beneficial to the good will between the countries, but was also directly supporting American aspirations, as nothing was more persuasive in an argument that job creation in one’s state.

Minister Davies agreed with Mr Hill-Lewis and that he had raised a very good point. This argument was being made, but more emphasis was needed, as the Member had suggested. Recent figures showed that there were 100 000 jobs created in the USA as a result of AGOA as a whole. The point was being made and was going to be continually made.

Mr James said that he was good friends with a high ranking Democrat in the USA Congress, and she had suggested that a bi-partisan approach to this issue would be very good, involving the official opposition and the ANC. He, on behalf of the DA, would be happy to participate in such an approach to the Congress.

Minister Davies personally welcomed the proposal by Dr James, although he was not sure how that could be organised. These kinds of arrangements were made at Parliament rather than at the Department. However, he hoped that the media would get the message that it was not just the government and the ANC, but also other people across the whole spectrum, that were asking for this. The dti had been talking quite extensively to business, and there was a delegation from the American Chamber of Commerce going out with a similar message. There was a need to mobilise everything possible on this particular issue.

The Chairperson noted that many of the issues would be addressed during the upcoming trade report session.

The meeting was adjourned.
 

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