Committee Report on Department of Trade and Industry 2014 Budget

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Trade and Industry

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

The Portfolio Committee met for the consideration and adoption of the Draft Report on Budget Vote 36 of the Department of Trade and Industry (DTI).   The Committee interrogated the report page by page, making comments in terms of its substantive content.  Members noted challenges of coordination, not only in all three spheres of government, but within different departments in the national government itself.

Areas of concern included decentralizing the establishment of small mills, the consumer and the regulatory bodies having insufficient funds to deal with expanded mandates, and lack of support from South Africa’s international missions for export trade initiatives.

The EFF was critical of the DTI’s industrial development strategy, and refused to support the Budget Vote because it felt it would not bring about a radical transformation of the economy. It would write a written submission in that regard.

The report on the budget vote would be finalized at tomorrow’s meeting, when all the comments from the different parties were consolidated.

Meeting report

The Chairperson said that the purpose of the meeting was to consider and adopt of the Draft Report on Budget Vote 36 of the Department of Trade and Industry.

Mr Andre Hermans, the Committee Secretary, read out an apology from Dr M Oriani-Ambrosini, whose absence was due to medical reasons.

Ms M Tsopo (ANC) said that Mr B Mkongi (ANC) was attending a Small Business meeting, but was on his way to that meeting.

Mr D Macpherson (DA) proposed the adoption of the agenda, and Ms P Mantashe (ANC) seconded.

Department of Trade and Industry Draft Budget Report
Mr Hermans said that tabled in front of Members was a copy of the report that had been distributed, a copy of the amendments written in red from the Chairperson and the ANC, a copy of concluding comments from the ANC, and a copy of concluding comments and recommendations from the DA. No documents had been received from the Freedom Front Plus or the Economic Freedom Fighters

The Chairperson said the document should not be delayed any longer, and what they saw written in red on page one of the report indicated changes made on the part of the ANC. The black and white paragraph was what had been prepared by the secretary as an introduction, so that everyone knew what they were talking about. Therefore, they would start with the document that had two pages, one was red and the other was black.

The Chairperson welcomed Ms Jodi Scholtz, Group Chief Operating Officer, DTI, who would be assisting the Committee in terms of the report. All those who had been present in the previous term would remember that at that time, the Minister of Finance had made it clear that costs would be cut in every department, cars would be reduced to a particular standard, and travel would be cut quite dramatically in order to reduce the army of delegates from the Department, as this was no longer affordable by Government. There were therefore currently much fewer delegates from the Department – only two representatives at this meeting.  This was in line with the decision that was passed last year, and most departments were respecting that decision in its entirety.

The Chairperson said that they should start with the red document, paragraph by paragraph. Committee Members should raise their hands at the end of the paragraph if they found something with which they did not agree.

Mr G Hill-Lewis (DA) said challenges existed not only with respect to the coordination of the three spheres of government, but also around coordination within the national sphere of government, within the different departments.

The Chairperson agreed that this had been noted at the last meeting, and would be noted again in the report.

Mr C Mathale (ANC) suggested that it would be appropriate if they could use more than one example of small mills being established, because the report was about the country as a whole, not about one province.

The Chairperson asked Ms Scholtz whether there were other examples of small mills that had been established.

Ms Scholtz said the DTI could find other examples to substantiate the point.

The Chairperson said that she knew that in small milling, decentralization meant three mills, but what Mr Mathale was saying was that they should go beyond milling.

Mr Mathale said that small mills should be established not only in KwaZulu-Natal, and the focus should rather be on their establishment in other provinces as well, looking at a national perspective.

The Chairperson said it should be remembered that decentralization was the issue there, so that jobs were created in that local area.

Mr Macpherson said that one could decentralize only if there was infrastructure to support it.  One could not stick a factory in a field where there was nothing around to support economic development.  This was one of the challenges facing the DTI, specifically in the industrial development zones (IDZs), which were designed to support economic growth.   However, there needed to be engagement with the local and provincial governments to ensure there was adequate infrastructure to develop the community. What the Committee did not want to see was people being given the opportunities, only to set them up for failure because there was no supporting infrastructure.

The Chairperson said that it would be important to put that point on paper, and for the DTI to give them a few more examples.

Mr Macpherson said that the DTI should e-mail the Committee Secretary some of the points and examples.

The Chairperson said that there was no problem with that, because the Committee was still in the consideration stage of the report.

Ms Mantashe said Committee should add that it welcomed the establishment of the ministerial team to deal with the challenges which the current energy supply posed to economic growth.

Mr Macpherson said that it was one thing to decrease budgets for the sake of saving money, and it was another thing to do it if they were looking to streamline the operations of a particular department.  However, they needed to ensure that money was reinvested into productive and working departments. He was concerned at the allocation of a nominal amount of 1.92% to the Consumer and Corporate Regulatory Body. These bodies were expected to do large amounts of work, but it would seem they received new mandates on a continuous basis, and their budget allocations were simply not able to keep up with the increased work expected of them.  This was particularly the National Regulator for Compulsory Specifications (NRCS) which now had a further mandate and was receiving more money to do its work.

Mr Macpherson said he was also interested in the Trade and Investment South Africa (TISA) budget, because it seemed they were getting bigger increases in percentage terms according to the table in the document. However, the international missions were actually receiving a decrease in their budgets.  So it would seem that the increase in the budget TISA received was more for staff and less for the work it was supposed to be doing.  This was concerning, because if they were going to do more work they needed more staff -- they could not be doing less work and employing more staff.  

The Chairperson said she was not sure whether the comment by Mr Macpherson on “more staff, less work” applied to the DTI or whether it applied rather to TISA, because he had linked the two.   When she looked the DA’s comments, it had separated the two. Therefore, with respect to Mr Macpherson’s point 3, would he say there were more staff and less work?

Mr Macpherson said that on point 3, they were saying that the work the consumer and regulatory bodies had to do was increasing, as they being were given further mandates fulfil, but the funds that were being allocated to them were not sufficient in his opinion.  That was a different position from that of TISA.

Ms Scholtz said that in order to shed light on the overall budget, the DTI had been told by National Treasury that they had to work within the existing budget. The only increases that had been budgeted for staff were the nominal normal cost of living increases. There had been a number of requests from the Portfolio Committee with regard to the National Consumer Commission (NCC) and the Export Credit Insurance Corporation (ECIC), which involved the recapitalisation of a particular fund, but the National Treasury had come back saying there were no funds for recapitalisation.

Ms Scholtz said that in respect of the TISA budget, the total amount for that programme had stayed the same. They had had to reshuffle money to assist ECIC. Therefore, the baseline had stayed the same , and 6.8% had gone to ECIC.

The Chairperson said that the Committee had requested an increase in the allocation because the work was expanding. However, they had been told that previously there had been considerable ineffiency for two years running, and the Auditor-General’s report would attest to that.  It was a very important point to take into account. Notwithstanding that, they believed that more funds should be considered for that entity.

The Chairperson said that with regard to TISA, they had requested the support for recapitalization. The Department could do that, but in the final analysis if there was not enough money, the Treasury would look at the “whole cake.”  In that regard, the Committee’s position was that the issue of an increase should be reviewed. A Member of the Committee had felt very strongly that South Africa’s international missions did not provide sufficient support on economic or trade issues, and if TISA were not allocated the necessary funds, there should at least be an assurance that people deployed at the missions were equipped to deal with the situation.  The Committee had been given an assurance that issue would be taken into account, but it was not sure whether this had been implemented or not.   It would receive that information only in the annual report of the DTI, when they engaged with them.

Mr Hill-Lewis added that the reason he didn’t find that satisfying was that the precise sub-programme that dealt with their presents of international missions was the one that got 6.3% decline in real terms. So, he heard what the Chairperson was saying that they need to wait for the annual report of the DTI to report on what happened on that sub-programme but it was not encouraging when the precise weakness they’ve identified last year was getting 6.3% in real decline.

Ms Scholtz said that it looked like it was a decrease but in fact it was not because additional funds had been shifted on the overall TISA budget because it had been topped up when they were reviewing the budgetary structure.

Mr Hill-Lewis said that he understood the point made by Ms Scholtz.   It had been explained in the report as an exchange rate problem. However, the point made was that even if the nominal amount stayed the same, what was needed was an actual real increase to expand capacity, which was currently weak.

Mr F Shivambu (EFF) said that he did not want to be involved in the editorial process of the report but rather to make a substantial input on the whole budget vote in terms of what the Committee’s observations and recommendations would be moving forward.

The Chairperson said that she would allow Mr Shivambu to make his inputs at the end of that process.

Mr Hill-Lewis asked whether the 5.5% increase for compensation of employees was a cost of living increase, or because of an increase in the total number of staff.

Ms Scholtz said that she had to get the right figures, but they had had an increase of staff in the industrial development division, as well as the Consumer Corporate Regulation (CCRD), and would forward a breakdown of those to the Committee.

Ms Mantashe said that in point 6.6 of the report, the changes the ANC wanted to make was that the resolution of that constraint required effective coordination. The rest of the other wording in that point should be removed.

Mr Shivambu said that in the red document, he did not know why radical economic transformation was included in the report, because what was there did not represent anything different to what had happened before. 

He said he did not know why the ANC had removed part of the sentence in point 6.6 which read: “the resolution of these would require effective coordination among the relevant departments to develop cohesive policies in of support industrialization”. He did not know why that part of the sentence was being removed, because that was exactly what was supposed to happen -- and not only with regard to electricity and energy, but most importantly, with regard to the implementation and rollout of industrial policy.  An example had been made of the Recycling and Economic Development Initiative of South Africa (REDISA), which was supposed to be an Industrial Development programme but was coordinated under Environmental Affairs, and there had been no progress. There was money which had been levied from importers, and so on. There was no coherent DTI strategy in this regard.  When the Deputy Director-General of the DTI had been asked about the set top boxes for digital migration, he had responded that it was “on the radar.”  There was no concrete detail as to where were the set top boxes were going to come from while they did the digital migration.   There were many other industrial activities that were going to be engaged in by various components of government, but there was no clear industrial development strategy.  Therefore the Committee needed to take note of areas where there was potential for industrialization.

Mr Shivambu said that another issue was that the ANC, including the Ministers, that they could beneficiate minerals within the current legislative framework, which was not possible. The reason there was such a belief was because the government had not paid much attention to a very huge phenomenon – that of transfer pricing and profit shifting. It was a reality which had risen to most possibly 25% of the GDP, because the majority of the mineral resources companies made lots of money by selling goods they had produced themselves much lower prices than they would sell them in South Africa.  When materials had to be bought in South Africa for industrial purposes there were import parity prices, and they had to go to court for a very long time about steel, iron and so on because there was no proper directive on how to deal with this issue. Currently, there was still an idea that there should be negotiation for the platinum prices to go down.  The EFF but would write its issues down and forward those inputs to the Committee.

The Chairperson said that transfer pricing was something they should deal with. The other issue was import parity pricing, about which there were disagreements in terms of policy.

Mr Shivambu said that based on the observations made by the Committee, it should be noted that the EFF did not agree with Budget Vote 36 because it did not bring about radical transformation of the economy.  The EFF would write a written submission in that regard.

The Chairperson said that written submissions should reach the Committee before 08h00 the following day.  Because the Committee did not have all the comments, and the report had not been consolidated as yet, they should meet tomorrow at 08h30. Since they had made a lot of comments, they should all be present tomorrow to finalize the budget vote.

The meeting was adjourned.
 

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