Roles of entites in relation to industrial development and incentive schemes: briefing by Department & stakeholders

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Trade and Industry

07 July 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry made a presentation on industrial development, which covered the roles of entities in relation to industrial development and incentive schemes. Underlying principles and drivers of the Industrial Policy Action Plan (IPAP) were set out, with emphasis on key transversal interventions and threats. Key challenges and drivers of IPAP 2014-2017 were the depressed demand from South Africa’s traditional trading partners and the negative balance on the current account. To meet challenges, there would be strong emphasis on domestic demand and participation in BRICS and African regional integration/industrialisation to expand export markets and drive up competitiveness. The presentation dealt with incentive development and administration. Emphasis was on product development and investment in infrastructure, manufacturing, services and competitiveness.

Technical infrastructure partner institutions were asked by the Chairperson to provide brief summaries of their roles. These were the National Metrology Institute of South Africa (NMISA); the National Regulator for Compulsory Specifications (NRCS); the South African Bureau of Standards (SABS); and the South African National Accreditation System (SANAS).

In discussion, there was concern about shale gas, and questions about research and planning to prevent contamination. There was a question about the role of Denel Systems in aerospace. A Member remarked that the DTI stuck to historical areas and neglected rural areas. Several Members commented on the need for stronger alignment of industrial issues, and intragovernmental cooperation.  

A Member placed the presenter under pressure about the DTI’s silence on labour relations volatility, which had nevertheless been identified as a threat. The presenter insisted that the question be put to the Minister. Illegal imports aroused interest, as well as a possible need for import substitution, to help achieve export led industrial expansion. The high cost of industrial financing caused concern. There were questions about the government considering export taxes. There was a question about recent developments around the BRICS bank, linked to whether South Africa was funding infrastructure in other countries through the bank. There were questions about de-industrialisation and re-industrialisation, and digital migration. Centralised procurement was also discussed.

 

Meeting report

Briefing on Industrial Development Division and Incentive Development and Administrative Division
Mr Garth Strachan, Deputy Director-General: Industrial Policy, dti, set out the underlying principles and drivers of the Industrial Policy Action Plan, and overviewed the Industrial Development Division (IDD) and the Incentive and Administration Division (IDAD).

The IPAP was aligned with the vision of the National Development Plan (NDP), with the focus on reversing the threat of de-industrialisation, and a shift of focus towards the historically disadvantaged. IPAP provided targeted and conditional support to industry.  Key challenges and drivers of IPAP 2014-2017 were the depressed demand from SA’s traditional trading partners and the negative balance on the current account. Challenges would be addressed through the re-balancing of growth drivers, with strong emphasis on domestic demand and participation in BRICS and African regional integration/industrialisation to expand export markets and drive up competitiveness.

Key areas of transversal intervention included procurement, developmental trade policy, competition policy, regulation and intellectual property, and innovation and technology. Immediate opportunities included industrial policy, infrastructure development, beneficiation, and medium to long prospects related to natural and shale gas. Threats included electricity supply, security of municipal water supply and shutdowns, skills deficits and mismatches across the economy, and continuing labour relations volatility.

Ms Tsepiso Makgothi, Deputy Director General, dealt with incentive development and administration.  Emphasis was on product development, investment in infrastructure, manufacturing, services and competitiveness investment, and broadening participation. Programmes devoted to incentives were set out.

The Chairperson asked the technical infrastructure partner institutions to summarise their goals and activities.

Remarks by South African National Accreditation System (SANAS)
Mr Ron Josias, CEO, SANCAS, said that the entity provided formal recognition to certification bodies for trading partners. There was regional integration to ensure similar structures in Africa. SANAS chaired the African Accreditation Corporation. There was engagement with the African Standards Organisation (ASO) to develop similar structures in trade partner countries. The quality of imports and exports was monitored. For 2014, the focus was on agricultural production and other priority sectors of the IPAP.

Remarks by South African Bureau of Standards (SABS)
Mr Bahle Sibisi, Board Chairperson, SABS, said that the Bureau provided certification and training where there was no conformity. Funding was from a Parliamentary grant. The SABS was responsible for certification, standards production and management assistance. There was conformity assessment. There was engagement with the IDAD green economy, and automotive conformity and testing, among others.

Remarks by National Metrology Institute of South Africa (NMISA)
Mr Ndwakhulu Mukhufhi, CEO, NMISA, said that the Institute was concerned with environmental health. It provided measurements according to international standards. NMISA dealt with radioactivity during environment monitoring. It supported green and energy-saving industries. Cross cutting measurements were required by agriculture and business, among others.  NMISA was involved with the Square Kilometer Array (SKA) telescope project.

Remarks by National Regulator for Compulsory Specifications (NRCS)
Mr Asogan Moodley, CEO, NRCS, noted that the Regulator provided consumer protection. It produced technical regulations and worked with institutions to develop standards. Market enforcement was achieved by seeing that foods that entered the country complied with standards. That was especially relevant for fish products. The quality of automobile tyres made in South Africa for export, was monitored. The NRCS worked with SARS and the Departments of Agriculture and Health to keep out non-compliant products.  Metrology instruments were monitored.

Discussion

The Chairperson remarked that South Africa wanted to know what the standards, quality, accreditations and measurement (SQAMS) entities were doing. She asked that slides of what was said be sent to the Committee. The entities had to indicate how they fitted into the IPAP, and not as an afterthought.


Adv A Alberts (FF+) asked about shale gas moratoriums. What research had been done about safety, and who was looking at contamination dangers?

Mr Strachan replied that liquid natural gas and coalbed methane concerns cut across departments. The Departments of Minerals and Energy, and Environmental Affairs were also involved. There was a document for public comment on shale gas.  Treasury was involved with the gas utility master plan. The DTI looked specifically at upstream and downstream implications. Methane reserves in Botswana were among the biggest worldwide.  Licences had been granted for offshore exploration.  Rigorous and robust measures were in place.

Adv Alberts referred to the aerospace industry. He asked about Denel Systems’ involvement in aerospace industries.

Mr Strachan replied that an aerospace sector strategy had been developed with Denel Aerospace and others. The building of the Centurion aerospace village had created a cluster for companies in aerospace. Aerospace companies were supported.  The Centurion village provided additional instruments to support the sector.

Adv Alberts asked about mitigation of market failure.

Mr Strachan replied that there was, for example, a shortage of investment in brick and mortar manufacture. There were low allowances for development finance institutions.  The DTI could not address the matter on its own.  Brick and mortar manufacture was not doing well, relative to competitors. The cost of industrial financing was high. There were increased risks for brick and mortar financing. The DTI tried to mitigate this through research into market financing.

Ms P Mantashe (ANC) referred to special economic zones and rural areas. The DTI was sticking to historical areas. In the Eastern Cape, people farmed and ploughed fields. They bought cattle “raw off the hoof.”  Jobs had to be created there.

Mr B Mkongi (ANC) referred to the reversal of de-industrialisation. There had to be a stronger alignment of industrial issues. He asked about an overarching industrial policy in South Africa. There had to be policy harmonisation.

Mr Strachan replied that the question about an overarching policy had to be put to the Minister. At the level of officials, the DTI tried for alignment, but it was hard to secure. The DTI policy review was also a project review.  Weaknesses of multi-tiers and direct investment flows from defence procurement had been overcome in the policy review.

Mr Mkongi referred to black industrialisation. He asked about the need for new laws to effect industrial legislation and brings about change.

Mr Strachan replied that what government had done had to be ramped up further. The DTI was all for black economic empowerment. There were successes in mining, services and banking, but no success in the manufacturing sector, which was the hardest of all. There had to be educational and financing support to black companies in manufacturing.

Mr D Macpherson (DA) remarked that the key challenge was the drivers mentioned on page 9. The economy could rebound, but there was a downward trajectory.

Mr Macpherson asked if local threat factors like strikes would be factored in. Mention had been made of internal market-related challenges, like labour volatility in manufacturing. The DTI was reluctant to engage with labour issues. The Labour Ministry had to be engaged.

Mr Strachan replied that questions about labour had to be put to the Minister. The DTI could only deal with its constitutional mandate.

Mr Macpherson referred to illegal imports. Customs and excise played a role. There had to be interdepartmental cooperation. Fabric from Mauritius was brought into the country duty free. SARS had to participate.

Mr Strachan replied that the customs division of SARS had been invited to assist. There were growing threats. There were (he hesitated to use the word) Chinese malls and shops that dealt only in imported products. Others gained an advantage over local manufacturing. There was monthly work with the SARS customs division. There was a reference pricing system that could signal a red alert to customs.  There had to be stronger emphasis on support from customs for the manufacturing sector. It was not simply a matter of facilitating trade.

Mr Macpherson asked how industrialists could be allowed access to cheaper finance. Rates were very high compared to the USA.

Mr Strachan replied that there was concessioning of companies to use infrastructure. There was a concession of R350 million for a floating dock in Durban. There had to be stronger alignment between players. The Portfolio Committee could help with that, with suggestions on how to secure greater alignment.

Mr Macpherson remarked that shale gas and oil exploration needed a focused department. The DTI had described it as a game changer, but there had to be a plan to get it right from day one. There could be immense damage to the Karoo if things went wrong.

Mr Strachan replied that “fly-by-nights” had got involved in the USA at the early stages of shale gas production, and there had been early environmental damage. There was no framework of compliance in the USA. With proper environmental compliance, shale gas could indeed be a game changer. It could lower power costs. South Africa had global competitive advantages. Sasol had moved in. Preparatory work had to be done early. An environmental study had to be in place. Mining licences would be granted. There had to be a utitlity plan from the Treasury. Opportunities were huge. But there would have to be a waiting period of ten years.  Mozambique used its huge gas resources for industrialisation.  There were benefits for South Africa.  

 

Opportunities were being missed for the building and maintenance of floating rigs. There were 150 rigs, and only five were refurbished at South African ports. The country had the engineering skill to build and refurbish, as well as a supply chain. Saldanha could be a central port in such ventures.

Mr G Hill-Lewis (DA) asked if the government was planning to institute export taxes. Such taxes would decrease exports. There already was a negative trade balance.

Mr Hill-Lewis referred to earlier statements by the DTI that other departments were hurting industry. He asked where carbon tax proposals by the National Treasury were. Other departments were hampering the DTI. There had to be intragovernmental cooperation.

Mr Strachan agreed that intragovernmental cooperation was essential.

Mr Hill-Lewis asked about the BRICS bank. Mention had been made of a hundred billion US dollars. He asked if South Africa was funding infrastructure in other countries.

Mr Hill-Lewis asked about the injection of chickens with brine.

Mr Moodley replied that there was a 15% limit, and 10% for carcasses.

Mr F Shivambu (EFF) remarked that it was not only the DTI that was involved with industrialisation. There had to be interdepartmental coordination.

Mr Shivambu asked who the local producers were that the State bought from. The State was supposed to buy from Shoprite Checkers, but apparently it did not.

He asked about compliance with parity prices, and remarked that for export-led industrial expansion to work, there had to be import susbstitution. Countries that came late to industrial expansion had made extensive use of import substitution.

Mr Strachan replied that companies in the domestic economy were supported, as were dynamic exporters. There was a negative balance on the trade account, which was an unsustainable macro economic indicator. Newly industrialising countries had to balance domestic demand and exports.

Ms Mantashe asked about de-industrialisation.

Mr Strachan replied that de-industrialisation in the clothing textile industry had to be stopped. Re-industrialisation had to happen in more than one sector. Industrial diversity was important. There had to be support for old and emerging sectors.

Mr Shivambu asked about digital migration and set top boxes.

Mr Strachan replied that digital migration was on the DTI radar screen. Local procurement of set top boxes was possible. The rollout of broadband was not only for localisation, but also for manufacturing. Small companies would be able to do three-dimensional printing.

Mr Shivambu asked about IPAP priorities.

Mr Strachan replied that the IPAP demanded skills initiatives with the Council for Scientific and Industrial Research (CSIR). There was work being done with foundries, and tooling programmes for artisans.

The Chairperson proposed that the Minister should give a written response on policy questions.

Mr C Mathale (ANC) asked about centralised procurement.

Mr Strachan replied that Treasury had led the national review of procurement. It dealt with a range of issues. Policy instruments included centralised procurement. The Treasury could speak for itself. All policy perspectives were on the table. There were transversals that cut across departments. There was not only procurement for the public sector. Private sector procurement was valuable elsewhere. The DTI reported on the automotive industry, for instance. It was important that work done was measured.

Dr Z Luyenge (ANC) referred to the measurability of objectives. A wide range had been covered that could not be quantified. There had been pronouncements by the President and the Minister about prioritisation of areas like the Eastern Cape, and clothing and textiles.

Ms M Tsopo (ANC) told the DTI not to just name threats, but also to say how they could be addressed. She asked about the skills deficit.

Mr Macpherson returned to the matter of labour unrest. Mr Strachan had said that it was not in the DTI mandate, but he responded to customs threats. The DTI had to identify threats, and if labour unrest was a threat, there had to be recommendations.

Mr Strachan replied frankly that he was going to duck the question about labour unrest. He reiterated that the question had to be put to the Minister.  A very real threat was electrical supply to industry. The input of the electricity process into manufacture had been studied. There were challenges where electricity was supplied by municipalities. It was not a DTI function to monitor shutdowns, but the Department pointed out challenges.  Shutdowns severely compromised manufacture. If the electricity supply to plastics manufacture was interrupted, moulds could be spoiled, and this was difficult to rectify.

Mr Hill-Lewis said that his earlier question about BRICS was not a policy question. He only wanted to know how the country could get a fair deal.

Mr Hill-Lewis asked about a supply chain for local digital boxes. He asked about a time frame for the set top box project.

Mr Strachan replied that digital migration was a community function. Set top boxes were designated for local procurement.

The Chairperson noted that the BRICS question had been addressed by the Minister, but the issue of labour unrest had not.  Labour issues were cross-cutting. The DA sentiments on the matter would be noted. A response would be sought through the public relations officer.

Mr Hill-Lewis noted that there were recent developments around the BRICS bank that the Minister had not yet commented on.

The Chairperson said that the Minister had undertaken to respond about the BRICS bank. The Portfolio Committee could ask for a written response. Written responses by the Department and the Minister had to be in on the following day (Wednesday, 8 July). The Minister had to comment on labour unrest. The budget would be dealt with on Thursday evening.  A first draft of the  budget report would be made available to Members on the following day. There would be no Committee meetings during the Extended Public Committee (EPC) process. A Committee meeting could be factored in on the following Thursday. There was the option of meeting from 16h30 to 19h00, or 16h00 to 18h30.

Members opted for 16h00 to 18h30.

The Chairperson asked that Members forward their recommendations to the Secretary.  

Mr Macpherson asked about the deadline for recommendations.

The Chairperson replied that in terms of the rules, recommendations could be submitted until adoption.

Mr Macpherson asked when, at the latest, an electronic copy of the budget would be available.

The Chairperson replied that it would be at 8h30 the next day. She asked that the DA submit recommendations as a party, and not as individuals.

Mr Hill-Lewis asked if the EPC for Economic Development and Small Business Development would be merged with that of Trade and Industry.  Ms N Bhengu, Chairperson of the Small Business Development Portfolio Committee, had said that Small Business Development was in the Trade and Industry vote.

The Chairperson replied that this was indeed so. Small Business Development would be in the Trade and Industry vote.

The Chairperson adjourned the meeting.

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