Trade and Industry Budget Review and Recommendations Report

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Trade and Industry

22 October 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee met to consider the first draft of the Budgetary Review and Recommendation Report (BRRR). After the agenda for the day was adopted, the Committee moved on to consider the inputs from the Democratic Alliance (DA) on this particular Report. Largely, the DA was concerned about the energy crisis and the unreliable energy supply which was a major barrier to economic development and growth. This was linked to the price of energy which the DA thought prohibitive for energy. The Committee agreed that a reliable energy supply was paramount and that the cost of this energy should not be detrimental to industry. Other submissions of the DA was made on port charges which it said was prohibitive for industry, the carbon tax which would be a threat to industrialisation and labour relations which the party suggested was discouraging investment.  

Turning to the recommendations, the DA thought the promotion of SA exports was insufficient. The Committee agreed that better marketing was needed along with trained officials with expertise to promote SA and its products. The DA sought an investigation from the Department of Trade Industry (DTI) on the causes of SA’s exit from several auto-component manufactures. The Committee discussed that the DTI had already reported on this but it could be recommended that the Department report on further steps taken. It was also important to acknowledge the auto-motive industry in SA as a premier and successful one.

Localisation was a key point of debate in the recommendations of the Report with Members agreeing that localisation was to be regulated for public service and all spheres of government to commit to prioritising local suppliers. The Committee also recommended more funds be allocated to verification and standardisation because the matter of localisation was as serious as energy supply so the recommendation must be strongly worded. The Committee also recommended an investigation into the necessity of boards to run entities for cost concerns.

Meeting report

Mr Andre Hermans, Committee Secretary, noted the apologies included Mr F Shivambu (EFF) who was attending the Pan-African Parliament, Mr G Hill-Lewis (DA) who was attending to party political business and Mr A Alberts (FF+) for party and personal business.  Mr C Msimang (IFP) was also absent.

Adoption of Committee Agenda for the Day
The Chairperson clarified that the purpose of the meeting was to hear what each party wanted to add to the Report.

The Committee Agenda for the Day was adopted by Mr D Macpherson (DA) and seconded by Ms P Mantashe (ANC).

Members Input to the Draft Budgetary Review and Recommendations Report (BRRR)
The Chairperson said this was the first draft of the Report and the Committee would consider substantive inputs from parties at this stage.

Democratic Alliance (DA) input to BRRR Conclusions
Energy Crisis
The first input from the party was on the energy supply crisis which the party felt was still a major barrier to economic development and growth. The slow process of government on this process was lamentable and had profoundly negative implications for industrial policy.

Price of Energy
The DA felt the price of energy including the municipal surcharges and the prospected price of nuclear energy was prohibitive for the industry. It was recommended that the Department of Trade and Industry (DTI) put together a working group with Treasury and local government to look at different ways of funding local government that did not rely on the electricity surcharge.

Mr N Koornhof (ANC) thought the Committee Reports needed to show consensus. He did not like the wording of this input and thought it could be toned down somewhat. Everyone knew there was an electricity supply crisis in SA and to link this to the slow progress of government was a politically-loaded comment. There were other role-players not coming to the party. The wording should be amended to say “the slow progress of government remained a challenge”. He would be more comfortable with this.  He emphasised the need for consensus otherwise matters would have to go to vote and this was not ideal.

The Chairperson agreed that the ideal was to get consensus. Everyone agreed that energy was a challenge – this was not disputed and was even stated by the President in the State of the Nation Address (SONA). The difference in opinion was how this was said.

Mr Macpherson thought there needed to be a differentiation between supply and price – the country had a serious challenge around the supply and it was by government’s own admission that it had not been dealing with supply through the creation of new power stations from Eskom. The Committee needed to be responsible in outlining where there were problems and who was responsible for dealing with them. Everyone knew there was a supply problem and the Committee should say X and Y were dealing with it. The issue of supply had profound implications on industrialization. Supply and price should not be conflated. 

The Chairperson proposed this input be flagged for the moment.

Mr Koornhof asked if the Committee could acknowledge the energy supply crisis and consensual wording be found on it.

The Chairperson said the Content Advisor and Researcher would be doing so while the meeting was in progress.

Mr Macpherson suggested wording along the lines of:  “the energy supply crisis was still a major barrier to industrialisation and economic growth that government needs to make interventions to ensure that there were no negative implication for industrial policy”. It must be emphasised that government should be doing something.

The Chairperson repeated that the issue would be flagged.

Coming back to the issue, the Chairperson said there was an acknowledgment that municipal surcharges undermined the local economy. The whole pricing structure was not an incentive to business. The reality was that many companies were going under as a direct result and this could not be afforded in the country.

Mr Koornhof suggested “the prospected price of nuclear energy was prohibitive for the industry” be removed – nuclear energy was still being debated.

The Chairperson added that nuclear energy was not even operational yet. The Report was dealing with current energy pricing in municipalities which was currently excessive for businesses. Reference to nuclear energy would then be removed.

Mr Mkongi agreed and felt the Report should also highlight that the Committee welcomed the establishment of the Inter-Ministerial Committee on Energy in SA.

The Chairperson agreed but the Report should indicate the Committee asked for this Inter-Ministerial Committee to happen and it called on the group to expedite their actions and move a lot faster.

Mr Macpherson said the President had pronounced on the matter and it was something for the Committee to keep its eye on so that whatever happened did not affect industrialization.

The Chairperson suggested it might be useful to have a broad statement on energy to address a number of problems – this statement would acknowledge supply and pricing problems on the different forms of energy with the Committee particularly concerned about the cost of nuclear energy because they were not known definitely. While the President may have signed agreements on nuclear energy it was not know how long it would take to become operational. For example, the nuclear pebble beds were not yet in operation and they were spoken about years ago.

Mr Koornhof thought the price of energy overall should be acknowledged in the Report – ten years from now, nuclear would probably be the way to go.

The Chairperson proposed that the Committee acknowledge the energy supply problem and welcome government’s efforts to pursue all types of energy. The Committee acknowledged that without a reliable energy supply, SA would be unable to implement industrialisation effectively.
Mr Macpherson said it went without saying that industry wanted a reliable energy supply but it could not be at a cost that was detrimental to the ability of the country to industrialise, develop and create jobs on a large scale. The fundamental thrust of the issue was that a reliable energy supply could not come at a cost that was totally unaffordable. The emphasis was on cost effective types of energy for the country to industrialise.
Mr Mkongi proposed wording for this point on energy supply.
The Chairperson thought this would capture the key issue that all forms of energy were to be explored. The emphasis was not to have a source of energy that was so prohibitive that it reduced socio-economic allocations which would then cause further unrest. To balance this, it was noted during the Committee’s colloquium that the private sector would be prepared to pay a bit more for electricity if it got a reliable supply. The point was for electricity supply to be regular, reliable and consistent. 
Ms Mantashe proposed that the term “energy crisis” be replaced with “energy challenge”.
The Chairperson said this would be looked at. She asked where the word “crisis” came from.
Mr Margot Herling, Committee Content Advisor, answered that it came from the DA’s submission.
Mr Macpherson responded that anyone who thought it was not a crisis was not admitting reality – industry was actually being paid not to work. How was this not a crisis?
The Chairperson thought consensus had more or less been achieved and she would work on the Report further in her office with the Committee staff. Members would be sent the edited Report while in the House.

Port Charges
 The DA added that port charges were still prohibitively high and the efficiency and speed in SA’s ports was below global standards.

With regard to port charges, the Chairperson said the Report should point out the reality that the export of manufactured goods had dropped significantly. The Committee needed to acknowledge this. The Committee welcomed the reduction of port charges but it was not sufficient.

Mr Macpherson explained that charges and efficiency were separate issues but intrinsically interlinked. He lived in Durban and saw all the ships in port, which was good and indicated trade relations, but ships were taking too long to move in and out of ports.

The Chairperson did not disagree – the issue had come up in the Committee before. The Report needed to be balanced to indicate that the port charges were welcomed but was not sufficient. She suggested the Report also address the efficiency of ports to expedite in terms of off-loading and on-loading..The Content Advisor would work on suitable wording. 

Carbon Tax
The DA considered the possible imposition of a carbon tax as a significant threat to industrialisation 

The Chairperson said the carbon tax matter was again not a new issue. The Committee had repeatedly said, and it was reflected in the Legacy Report, that carbon tax would be a serious impediment. Carbon tax would have to be factored and phased in and not an imposition.

Mr Koornhof said the matter was before the Finance Committee in the Fourth Parliament but there was huge resistance from all parties when it was presented.

The Chairperson added there was sub-text to carbon tax which could not be ignored and it was similar to the citrus black spot issue. The carbon tax had too often been used as a non-tariff barrier to developed economies. At the same, it was not ideal to promote the idea that SA was not aware of climate change and the need to account for that. There needed to be a balance between taking responsibility for climate change matters and the acceptance that SA was not one of the big defaulters in carbon tax and therefore this imposition should not be considered. A cautionary note should be placed here that a carbon tax would be a further impediment or pressure on industrialization. It would be found that government and industry had the same view on this. 

Labour Relations Environment
The DA believed that SA’s labour relations environment continued to discourage investment and destablised the economy. This was a profound threat to successful industrialization.

The Chairperson thought the statement that “SA’s labour relations environment continued to discourage investment” was filled with political content.

Mr Macpherson responded saying that the thrust of the input was that SA did not have a stable labour economy and labour relations were probably at its worst in 20 years or certainly since 1994. This did not bode well for an economy that needed to industrialise and gear quickly into employing people. This was the thrust and concern of the DA in making this point because without a stable labour market it became very difficult to industrialise rapidly when strikes in the mining sector went on for five months or 15% wage increases. SA needed a stable labour market that assisted the industrialisation of SA.

Ms Mantashe was a bit concerned about this statement. SA was labelled the country with the best Labour Relations Act. The country could not be measured against the unfortunate situation of Marikana. The DA’s statement was loaded.

Mr Koornhof agreed adding the Labour Relations Act was a very good piece of legislation and there was no doubt about this. Unfortunately the role-players did not make use of this Act and this caused labour unrest. It would not be inappropriate to note SA had a labour relations environment, not the legislation, which remained a challenge for real investment and this was impacting on economic growth.

The Chairperson agreed.

Dr Z Luyenge (ANC) agreed that the issue of stakeholders not making sufficient use of the Labour Relations Act needed to be emphasised.

The Chairperson asked that Mr Mkongi take into account the issues raised in the National Economic Development and Labour Council (NEDLAC) where, in principle, the private sector agreed was a problem.

Mr B Mkongi (ANC) suggested amended wording for this input.

Mr Macpherson said the DA’s input was not addressing the Act but relations – relations covered all stakeholders. A balanced view needed to be looked at and the crux was for relations not to affect the desire to see direct investment and industrialisation to lead to job creation. He did not want companies or specific stakeholders to be singled out.

The Chairperson thought there needed to be more of an emphasis on wages as there was a significant gap. The idea of what was a fair wage differed from person to person so the correct terminology would be to say “decent wage”.

Ms Mantashe pleaded with the Committee to not only include wages but include the social conditions of workers.

The Chairperson agreed that a socio-economic challenge was being faced and both sides had to come to the party. She was concerned that it was not simply social or external conditions but the working conditions themselves which were often unsafe. She appealed that this be reflected in the Report. As an aside, unions were established to focus on workers and they may have, in some cases, lost a bit of direction.

Mr Mkongi suggested the inclusion too of “decent work”.

The Chairperson did not want too many new concepts introduced in the Report but it would be considered.     

DA’s Submission on the Recommendations 
The DA thought the DTI made insufficient investment in the promotion of SA exports abroad. Currently SA spent half on export promotion than on the admin of the Department. 

The Chairperson said funds should be considered when making recommendations. Also with the admin of Departments, some Department’s had higher admin expenditure than others, for example, the Department of Basic or Higher Education. It should be factored in that the DTI was highly regulatory by nature.

Mr Koornhof thought money could not be thrown at export promotion - if people did not want a product they would not buy it.

Mr Macpherson said the reality was that if different results wanted to be seen then things needed to be done differently. Putting the matter into context, Taiwan focused heavily on the promotion of exports and for a relatively small country, Taiwan had a relatively high export budget. To get SA products into the hands of consumers, better marketing needed to be encouraged.

The Chairperson agreed that more training was needed along with officials with more expertise to sell South Africa – having an official which could sell the country was worth more than a billion. She recommended the wording propose increasing the allocation to Trade and Investment SA (TISA) although this was budget dependant. The presence of trained officials would also be recommended.

DA Submission on the Recommendations
The DA said the DTI must investigate and report to the Committee on the causes of the exit of several auto-component manufactures from SA.

The Chairperson said this had already been investigated and the DTI had reported on it, twice – one from the Minister verbally and from the Department in writing. 

Mr Macpherson responded he was concerned about incentives and how to better understand the particular issue.

Mr Koornhof suggested alternative wording on this recommendation for the DTI to report to the Committee on further steps taken.

The Chairperson agreed and thought the recommendation should be prefaced with a statement that the auto-motive industry was a premier and successful one in SA. It was important this was acknowledged and it showed where the Committee’s concern was coming from.

DA Submission in the Recommendations
With regards to the Companies and Intellectual Property Commission (CIPC) the Chairperson thought the website was acknowledged as a problem.

Mr Koornhof thought the call centre was also a problem – this should be acknowledged and the recommendation would be to call CIPC back to the Committee to report on what went wrong and what was needed.

The Chairperson responded that one need had already been communicated to the Committee which was that additional resources were needed to deal with the problem of the website.  Whether it was like or not, ratings agencies had an impact on the country’s economy. The Report did need to acknowledge the problem with the website of CIPC and recommend the DTI review the allocation to CIPC to address the website and IT issues. It was also all very well to have online services but South Africans also needed to option of walk-in centres. She asked if Members agreed with this.

Ms Mantashe could not agree more.

The Chairperson reiterated that walk-in centres were important but the ideal was to eventually have a paperless system but this would take some time and the systems would run parallel.

DA’s Submission on the Recommendations
On the issue of localisation, the Chairperson felt the issue needed to be regulated. Public service needed to preference local suppliers yet government was not doing this. The President spoke of a 75% commitment but the country was nowhere near there.
Mr Macpherson said it also involved the coordination of different spheres of government.

The Chairperson reminded Members that localisation was a priority in the SONA to create jobs.

Dr Luyenge noted the issue of localisation had only recently been pronounced on by the President with the 75% commitment. The emphasis should be on regulation and to apply to all spheres of government because in fact regulations were law. 

The Chairperson said this was important.

Mr Mkongi agreed with regulation being used as an instrument.

Mr Macpherson agreed with the need for a mechanism to enforce this on all spheres of government. There should be a disclosure in the Auditor-General’s Report as to what localisation was used in all spheres of government. This would allow for a mechanism of accountability.

The Chairperson said this was a positive turning around of the AG’s report and was not just about keeping records and balancing the books – it was actually purposed to being about better governance in order to provide better quality services to the public. Localisation had gone in the wrong direction – it was being ignored. She had recently referred three cases to the Minister personally – the one was to do with smart meters and another was components in solar panels. The priorities of DTI needed to be considered – these priorities included industrialisation at a rapid rate, broadening black participation from the rural areas and identifying black industrialists and the instrument of regulation. More funds were also needed for verification and standardisation which was in the control of the Standards Bureau of SA (SABS) – laws could not be made to implement on an empty pocket. When laws were passed, the impact on finances needed to be considered. Localisation needed to be emphasised. The issue was as serious as the energy crisis - what was the use of a reliable energy supply if all goods were imported? Localisation was as important as energy so the recommendation needed to be worded strongly. This was likewise for SABS. Statements also needed to be made about the boards of entities.

Mr Macpherson thought the issue of boards of entities needed to be investigated.

Mr Koornhof suggested that the DTI be asked to investigate the boards of all its entities as he thought boards were becoming a problem from a cost point of view.

The Chairperson highlighted the previous Committee called for the rationalisation of boards.

Mr Macpherson knew the Minister used the concept of “rationalisation of boards” but the Committee needed to understand what he meant by this concept exactly. The Committee needed to call for an investigation/debate on the necessity for boards to run entities purely based on cost factors.  

The Chairperson agreed with the need for an investigation because a serious study on the matter had never been conducted and these boards had just mushroomed – people looked for seats on a board for money now and this was nonsense because it was not the purpose of these boards.

Looking again at labour relations, the Chairperson felt the recommendation needed to be worded strongly in this regard. Marikana was a great lesson for all and the recommendation should cover workers, management, conditions, wages etc.

The ANC had raised its issues with the Chairperson which was largely related to priorities, an inclusive economy and what was meant by radical transformation.

Closing Comments
The Chairperson alerted Members that she had revised the agenda for Friday. The BRRR needed to be finished so the status of gambling reports would be deferred but Sasol could not be postponed again.

The meeting was adjourned.


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