Department of Trade and Industry on its 2014 Strategic Plan

Meeting Summary

The Department of Trade and Industry (dti) briefed the Committee on its Strategic Plan, Annual Performance Plan and budget for 2014/15. The seven programmes were briefly outlined. The importance of putting the South African economic situation in context to the world’s economies, and considering its trading partners, was stressed. There was fairly fast growth on the African Continent and this was a market for increasing focus. The quarterly figures showed volatility, but the dti economist stressed that the longer-term scenario showed more flexibility, with some major investments into the electronics, automotive and manufacturing sectors. Although in 2008/9 the country had experienced almost one million job losses, unemployment figures had since recovered slightly. The dti’s goals were linked to the National Development Plan (NDP), and this, together with the Industrial Policy Action Plan (IPAP) formed a central pillar of the dti’s work.
The main interventions and plans included the proclamation of at least three Special Economic Zones (SEZs), increasing localisation, through supplier development and ensuring local production, especially by supporting black industrial businesses, and development of markets, particularly to Africa. To address energy difficulties, it would be starting solar initiatives in the Northern Cape and in the Eastern Cape, would continue developments in the industrial areas. Various programmes were being run, including apprenticeships and industrial upgrading programmes.

Dti had a budget of around R9.8 billion billion, of which around 60% was allocated to private sector incentives and industrial financing, both with the ultimate aim of increasing employment, and a breakdown was given of some sectors on which there was a focus, stressing that although many of these were urban-based, dti would be extending its reach. It was particularly interested in broad-based black economic empowerment, through partnerships and mentoring. In relation to regulation, there were a number of legislative drafts awaiting Ministerial sign-off, and because the provinces had concurrent jurisdiction with the provinces within, for instance, the gambling and liquor frameworks, the NCOP would be engaged with these.

Some of the programme targets were outlined. Dti hoped to bring down its vacancy rate to under 10%. It urged that suppliers be paid within 30 days by government, held workshops, was promoting its own offerings and communicating on events, but some of the interventions for small businesses would be transferred to the new Department dealing with Small Businesses. The largest constraint to industrial development at the moment was shortage of electricity supply, but the volatile exchange rate needed also to be stabilised. The country’s geographical location offered a prime opportunity for export in the continent.

Members asked if the dti had capacity to monitor major projects, and asked for more information on those in rural areas and specific provinces, also asking whether the incentives extended to areas that had formed a focus prior to 1994. More details were requested on the aqua-culture initiatives, and how the private sector would be involved. Members asked about the budget and spending and how the dti would engage with other departments on the challenges. It was clarified that the provinces themselves must identify likely SEZs. More comment was requested on what steps could be taken to revitalise South Africa within the Southern African Customs Union, the relationship between parties in the Union, revitalisation of areas and how local capacity would be developed, and what direct foreign investment would seek to achieve. More detail was requested on the extent and scope of its monitoring and evaluations, but one Member wondered if the training and monitoring programmes were visible enough. Dti was asked to furnish specific statistics on the various provinces, and whether the targets were in line with the Economic Development Department’s schedule. The movement of incentives was questioned, as well as the bursaries and whether students remained in South Africa, working in local industries. They urged that modernisation and updating of foreign direct investment be considered. Further questions related to plans for the logistics corridors, agro-processing and improvements to food security.
 

Meeting report

Department of Trade and Industry Strategic and Annual Performance Plan 2014 briefings
Mr Lionel October, Director-General, Department of Trade and Industry, introduced the vision, mission, an outline of the strategic goals and key interventions of the Department of Trade and Industry (dti or the Department) for the 2014/15 financial year. Dti had seven programmes, with Deputy Director-Generals in each division. He noted that the core programmes handled the programme were probably those on Industrial Development, Trade and Investment and exports, Broadening participation, and the programme that handled regulations and overall administration. Other programmes were International trade and Economic Development, Consumer and Corporate regulation, and Incentive Development and Administration.

Mr October stressed that in order to understand the South African economy, it was necessary firstly to understand the world economy. South Africa exported to the world’s biggest economy – the United States of America (USA) - and this has brought positive developments. There was also recovery in China, which was the second biggest world economy, and growth in the continent of Africa was also amongst the fastest rates of growth.

He noted volatile growth in the first quarter of this financial year, with gold as a major mining commodity which impacted on the economy. Overall, there was fluctuation in the country’s growth, on a quarterly basis. During the major recession, in 2008/09, the Department saw almost 1 million job losses, but since then unemployment figures had recovered slightly, despite the contraction in the first quarter.

The Department’s Strategic Plans were linked to the National Development Plan (NDP) and the Medium Term Strategic Framework (MTSF). The Industrial Policy Action Plan (IPAP) was the central pillar of the dti’s work, and brought coherence across government and to the NDP.

There were 21 MTSF interventions noted for the dti over the five years. Key priorities included dti proclaiming a minimum of three Special Economic Zones (SEZs), and increasing localisation, with the target being 75%. This would be done through supplier development and ensuring local production, especially by supporting black industrial businesses. Dti also planned to develop African export markets and tripartite free trade agreements, by involving regions like the South African Development Community (SADC), East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA). Last year Parliament and the National Council of Provinces (NCOP) finalised the legislation for the SEZs and the Department hoped that all the provinces would be covered.

Mr October also highlighted that dti hoped to start up solar energy initiatives in the Northern Cape and in the Eastern Cape and would keep the NCOP updated on the progress in the provinces. The Department would also launch a major truck plant (see attached presentation for full details).

Dti would continue developments in the industrial areas and this in turn should promote development in the whole continent.

He noted that dti was currently running a tool making apprentice programme, and an industrial upgrading programme which assisted companies with doing market research and breaking into the big markets.

Speaking to the budget allocations, Mr October said that over 60% of the budget went to the private sector incentives and industrial financing. Projects supported included Automotive incentive schemes (AIS), Business Process services (BPS), film and television, the Critical Infrastructure Programme (CIP) and Manufacturing Competitiveness Enhancement Programme (MCEP). The bulk of these were to support the private sector for a smooth transition to new processes, and all incentives mostly led to increasing employment. Many of the budget allocations were still going to the three major metropolitan areas of Johannesburg, Durban and Cape Town, but the initiatives would soon spread out to other regions in the country.

Dti’s interventions into trade, investment and exports included the African continent and the SADC region. Key features in the Broadening Participation programmes were to establish Broad Based Black Economic Empowerment (B-BBEE) and incubator programmes, on a 50-50 basis, working with the private sector to give the small business owners space to locate key areas and to allow for mentoring. The Aquaculture Development Programme supported fish farming.

Dealing with the regulatory aspects, Mr October noted that the NCOP was a major player, because provinces often had concurrent jurisdiction. He cited, as an example, the legislative policy frameworks on liquor and gambling, which were coupled with provincial regulations. He noted that six bills had recently been developed at dti, still awaiting approval by the Minister, relating to the  Promotion and Protection of Investment, Copyright Amendment Bill, Liquor Amendment Bill, Companies Amendment Bill, Gambling Amendment Bill and legislation on the Licensing of Businesses.

The key intervention in relation to the Administration Programme was to bring down the vacancy rate to under 10%. Dti had over 1 500 employees. Noting that many small businesses relied on government for payments, he said that the dti was consistently urging the government to make all supplier payments within 30 days. Women and people with disability would also receive more focus. The Department had held workshops across different areas and had launched a ‘DTI to the People Programme’ where it created public awareness about events. Some of these projects would, however, be transferred soon to the Department of Small Business.
 
Mr October noted that Dti had a three year budget plan, with the allocation at present being slightly over R9.8 billion, and it was hoped to raise this by another R1 billion in the next year. A key part of the increased allocations would relate to the SEZs. The bulk of the budget went to the programmes relating to the private sector inclusion, Administration and Industrial development. R7 billion went to incentives and another R1 billion went to the 15 agencies supported by the Department (see attached presentation for full details).

Concluding with an outline of the challenges facing dti, Mr October said that the largest constraint to industrial development was the shortage of electricity. Dti would continue to work on the exchange rate volatility. There were concerns about the strength of the South African currency, and it was necessary to try to stabilise the exchange rate so that companies could plan properly. The country had also attracted Foreign Direct Investment (FDI) from Proctor and Gamble, Unilever and Hisense. The amount of FDI doubled to R8 billion dollars in 2013. Dti would soon launch projects in conjunction with Sansui, which makes electronic equipment. The Automotive sector had been turned around and was attracting a high rate of investment, with cars such as the Mercedes Benz C class, BMW E-series and Toyota Quest being assembled in the country.

He concluded that there was a need to take advantage of the country’s geographical location and expand the value of exports to the Continent.

He reiterated that some of the functions, such as Small Enterprise Development  Agency (SEDA), Small Technology Programme (STP), Cooperatives Development Agency (CDA) and the informal sector, youth and gender would be transferred to the Small Businesses Department (SBD).

Discussion
Mr L Suka (ANC, Eastern Cape) expressed appreciation for the presentation and asked whether the Department had the capacity to monitor the major projects. He asked if he could get information on the projects taking place in the rural areas, as well as outlying areas of Port Elizabeth, and in the former Transkei area, and asked what the Department had done to revitalise growth in these areas.

Mr October said that the dti was working in the declining former industrial areas and there were initiatives to develop the Wild Coast areas into Special Economic Zones, due to their tourist and agricultural potential. The Department needed young people and managers to identify these areas. He mentioned Mthatha and said there was a plan to develop the industrial area here, and also revive the old Imbaza area. There were also three sets of activities which were the incubators for the small level and medium level industrial parks, and industrial areas.

Dr Y Vawda (EFF, Mpumalanga) asked for clarity on the budget, and more details in regard to his own constituency. He also wanted more detail on the aqua-culture programme, and the worrying issue about electricity demand. He wanted to know where this featured also in the plans for the private sector and how the Department would engage other departments.

Mr October replied that the Department had reduced its expenditure but was determined to spend its budget to the full. As detailed in the budget, the dti had set aside R5.5 billion for incentives and R600 million for SEZs. As it had done with the former industrial development zones, dti had put in place a project team to look at the SEZs, and it would leave it to the provinces themselves to identify likely SEZs. It would develop job specifications and allocate money for feasibility studies. In relation to the electricity challenges, he noted that there were initiatives for solar and wind energy.

Mr L Mokoena (EFF, Free State) asked about the economic development issue in the Free State and whether the Department had identified the diversification need in these areas, as there were industries dying there. He also wanted more detail on the South African Customs Union and the relationships between South Africa and Lesotho saying that there seemed to be a growing distance between the two countries. He sought clarity on what Mr October had meant by saying the department would “strengthen these relations, especially from a business perspective”. He asked if the R1.9 billion related to the payment of specific incentives or if it represented money in cash going to the industry, and what jobs the 1.9 billion could potentially create.

Mr October replied that dti had advanced quite well on plans, and development and agro processing would be a major logistics exercise in Free State. Although there was no detailed plan yet, the team would look into revitalising the mining areas, such as copper. The relationships within SACU had been, in the past, largely dependent on South Africa which had been distributing revenue. The Department was now working to create a proper common industrial area for development, to create a viable Southern Africa. He agreed that the Department must develop local capability for better production and skills.

Mr B Nthebe (ANC, North West) asked for clarity as to what the investors would do in relation to the economy. He asked what form of zones or development the Department wanted to see the Northern Cape taking and what the modern day DFI sought to achieve, and if it still had an element of huge infrastructural development and job creation.

Mr October said he agreed on the need to diversify in the Northern Cape and the dti would develop an agricultural policy plan to revitalise the sector. The SEZs could offer better incentives, lower tax, lower rates and cheaper land but did not allow for exportation of labour. The economy was mostly dependent on those receiving low wages, which meant that there was under-performance. He said that the kinds of jobs were also short term in nature. The Department gave grants to companies for increasing their production in the country.

Mr Gareth Strachan, Deputy Director General: Industrial Development, dti said the Department had capacity and had a training programme running at the University of Witwatersrand in economic development. Provinces were also allowed to design tenders with strong localisation tendencies, to enhance development.
Ms Sarah Choane, Deputy Director General: Corporate Services, dti, confirmed that the Department did conduct regular assessments on the programmes and its Monitoring and Evaluation (M&E) unit attended to evaluation of the programmes and ongoing monitoring of the programmes.

Ms M Dikgale (ANC, Limpopo) commended the dti on its performance in uplifting peoples’ lives in her area. However, she had not seen the monitoring and evaluation process nor had she heard of training on how the people should take care of the projects. She asked how the one million jobs were lost. She asked if there was a group in her particular province, to monitor the projects.

Mr October said the M&E unit was new and the main focus was at the broad level of government departments and specific programmes. Dti supported the process and also conducted evaluations within the Department. Dti had supported over 1000 cooperatives and worked with a network of facilitators to ensure there was feedback.

A Committee Member asked about increasing localization, the current norms and whether this concept could be used for job creation. The Member also asked for numbers of investors per district and municipality, details, targets and time frames, to enable Member to go out to their constituencies and identify companies who might qualify for funding. He also asked for details on the time frames for fish farming projects, whether all 46 incubators were fully operational and what to extent they were functioning at the moment.

Ms E Van Lingen (DA, Eastern Cape) asked if there were plans in place to bring quick delivery programmes, and how many projects had been monitored, and whether this bore a correlation to the Economic Development Department’s schedule. She wanted to know if the students trained were still in South Africa, and, if so, if they were employed in the country’s industries. She asked if there was sufficient money for supporting black film groups, and whether bursaries for that would come from the Department of Arts and Culture or from dti. She asked if there was a policy framework that enabled public participation and if the budget would provide for that. She asked if incentives for procurement were going to Small and Medium Enterprises (SMEs) or staying within the Department, and whether pre-1994 projects like Middleburg were covered by such incentives also.

Mr October said dti was “at 0%” on some procurement, but that some products had been designated for local production. There were 52 approved incubators at the present,  and 60 in the offing, with an additional 90 in future. Dti had just received the latest monitoring and evaluation report on payments and support to small enterprises, and most departments were averaging a 50-day period in which to make their payments.

Mr Stephen Hanival, Chief Economist, dti, said the message and trend was that the FDI investors were investing for the medium term outlook. Quarterly data was volatile and the outlook for the South African economy was quite strong, with several large multi nationals having invested in the country. Auto sector investment levels were growing.

Dr Vawda mentioned that salary improvements would raise the market in the country, especially as the country had the resources, so reaching social stability was equally important.

Mr Nthebe asked if it was possible to create a modern day FDI, to bring about changeable rewards for social economic transformation. He asked that the Department must ensure that localisation was felt by ordinary citizens.

Mr October said modernisation was a good idea and that dti would be working on that. One of the problems was that historically, South Africa had many inequalities so inclusive growth was still a challenge

Mr Mokoena asked what plans the dti had for the two major corridors in the country and what particular plans there were for the N1 national road. He asked if it was possible to give more support to those growing food, to avoid importing a lot of food.

Mr October confirmed that dti was working on improving the agro-industries. It would be possible for South Africa to be self-sufficient in terms of food, but there was a need to grow the agricultural sector.

Mr Hanival added that the dti’s incentive scheme allocations showed R1.5 billion incentives into the agro processing sector.

Adoption of Committee Minutes
The minute of the last Committee meeting was adopted.

The meeting was adjourned.
 

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