The Minister of Trade and Industry elaborated on the Nine Point Plan to accelerate economic growth as first raised by the President in his State of the Nation Address. He also provided details about trade policy and in particular the potential renewal of the African Growth and Opportunity Act (AGOA). The Director General presented the Strategic Plan, the Annual Performance Plan for 2015/16 and its progress during the third quarter of October to December 2014. Members asked wide-ranging questions, especially focusing on growing the number of black industrialists and the constraints caused by the energy crisis.
DTI spoke about progress in the plastics sector and the representative body, Plastics SA, spoke about the fact that insufficient plastic waste was being recycled and some high value plastic waste was even being exported to the detriment of South Africa. Members were concerned about ownership transformation in the plastics sector and statisitics were not available. The lack of R&D in the plastics sector was also highlighted.
Chairpersons Opening Remarks
The Chairperson welcomed the Minister, Dr Rob Davies, Mr Lionel October, the Director General (DG) and the rest of the delegates from the Department of Trade and Industry (DTI).
The Minister said his presentation will address the nine point programme that the President alluded to in the State of the Nation Address (SONA) and focus on matters relevant to the DTI. He will speak about trade policy challenges and other challenges that face the Department. Other issues would be addressed by the Director General in his presentation on DTI's concretized Strategic Plan and Annual Performance Plan (APP).
Dr Rob Davies emphasized the priority of achieving a higher level economic growth in South Africa. If the DTI is to deliver on the National Development Plan, they must of necessity aim at achieving 5% growth by the end of this term in 2019. There is also the requirement to make this growth inclusive and not just the quantity of economic growth. It must be a growth that creates job, reduces poverty and inequality.
Looking back at the last 84 quarters, to sometime around 1993, the Minister said that it is only in 16 of the 84 quarters has this government achieved a growth rate of 5%. The implication is that shortly before the global economic crisis, the country had the longest run of economic growth since the Second World War. What drove the growth at that time were two main drivers: firstly a consumption driven boom where the country had consumption driven sectors like wholesale and retail trade and financial sector driving the growth rate and the productive sector as a whole. The second component is mineral commodity super cycles up until 2012 where the country had very high prices for minerals driven largely by industrialization taken place in China which was commodity intensive. South Africa was a major supplier of commodity materials into China. Unfortunately, looking at the world and South Africa today, neither of those two drivers of growth are going to be able to drive 5% growth into the future.
He further analyzed the situation thus: Firstly consumption driven growth is structurally not a sound method as it is import intensive with a number of factors are dependent on this. These include the balance of trade deficit and current account deficit. Apart from this, the sectors growing at that stage are actually quite vulnerable. If the currency depreciates, imports become less accessible, and the fortunes of those sectors will be affected. He gave the example of the performance of retail in South Africa which is quite volatile. Secondly, there is the commodity super-cycle. The oil price reduction is showing every country in Africa that has relied on exports as a primary product that such reliance should not be placed on a primary commodity. Oil products were exempted from the general trend but now they are also part of it. Mineral prices are volatile and the reality is that China is on a different growth path. It is moving up the chain and actually becoming less mineral intensive and the demand for mineral commodities is dissipating leading to lower commodity prices. Thus these two factors no longer exist as drivers.
The Minister was emphatic that structural changes need to be taken. There is the necessity to boost South Africa’s productive sectors. The country’s productive sector needs to move up the chain. This is the common objective of the African continent. There are serious income losses from being located as producers of primary products. For instance, KPMG says Africa produces R6 billion exports of coffee. South Africa does not contribute to that; however those same coffees are contributing to income outside of the continent with a $100 billion profit. The value lies in the value addition. More than 60 to 70% of international trade is into intermediate goods. The worst thing to do is to produce primary products for export and import finished goods. So South Africa needs to move up in the value chain and industrialize. A lot of drivers of industrialization have been identified; one of these is the infrastructure build programme. There is the urge to address infrastructure deficiencies. Apart from this, the country is facing challenges in energy, coupled with the fact that there must be an improvement in infrastructure performance. It is important not only to improve the performance of the productive sectors but also the infrastructure that is built can be a driver of that industrialization.
There is also the need to create a regional market as our national population is too small to sustain industrial growth. As a national economy, there are just two strong market bases to sustain industrialization. As a country, we need to look at what the successfully industrialized countries are doing today. Countries like China, India, Brazil and Indonesia have sizeable domestic market bases which is now becoming a significant driver of industrial development. A very good reason for this is due to the fact that there is no reason to supply never ending quantities of manufactured goods into the developed world. Europe is still caught in the web of recession. The United States is recovering but US is actually developing its own manufacturing base and they have a very strong localization programme. Much of the infrastructure such as railways shows that they have a strong localization programmes in place. This domestic market becomes important and in the case of Africa, it is the regional market.
South Africa has two binding constraints in its own domestic programmes. These binding constraints are essentially the infrastructure deficit (with energy as the very hard part of that) and the introduction of a less conflictual industrial relations model which is also part of the nine point programme. South Africa needs to transform the economy in the sense of making it an inclusive economy accelerating and finding a new bases for Black Economic Empowerment (BEE). This constitutes a broad based BEE with a strong focus on development of productive sectors and creation of opportunities for black people to participate and that is why DTI is leading a programme of supporting black industrialists.
Turning to the role of DTI in the nine point agenda outlined in the State of the Nation Address, the Minister said that the DTI is involved in many, many of those and has a critical role to play in ehe nine points of the agenda to increase economic growth
▪ The first task is resolving the energy challenge. DTI is not the lead on that but it does participate in the war room. The Inter-Ministerial Committee (IMC) led by the Deputy President oversees the wok of the war room. DTI has however made a contribution to the general discussion. The focus is to ensure that the Department recognizes the importance of supplying power to the productive sectors of the economy. Sometimes the slogan: ‘keep the lights on’ is not the right slogan. This is to keep the lights on, we tell the factories to stop using power. That has a cost to the economy and is one of the major factors in the performance of the manufacturing sector as seen by the quarterly results. There was poor performance because of the impact of the energy crisis. It shows that if we solve the energy crisis and aim for less conflict in industrial relations, we can make significant progress in manufacturing.
▪ The second task is revitalizing agriculture and the agro processing value chain. Employment in agriculture shows that this sector occupies six percent of total employment. South Africa looks like a developed economy but actually it is not. The country has underperformed in terms of creating employment in agriculture. He believes there is the possibility of a number of quick wins in agriculture. The DTI comes in in the agro processing value chain and he has seen a number of examples where this value chain can actually drive agriculture. Firstly when agro processing is introduced, there is more value add to our economy. For example, the DTI has been introducing these small maize mills. The mills have an advantage of bringing maize mills to the local community. This maize milling gives the opportunity to produce high quality locally and to cut out the transport costs. It also creates more value for the farmers and lower prices for the consumers. Another example is the investment by multinational companies in agro processing here. He emphasized the fact that agro processing and agriculture can drive each other. More concretely the Department of Agriculture and Fisheries just got the approval in Cabinet of its APAT (Agriculture Policy Action Plan) to upscale the support for agriculture. DTI has reiterated the desire to produce more value-added agricultural products locally. The current market is around fifteen percent. The Department is working with the province so as to get a higher input of agricultural products.
▪ The next agenda is advancing added value to our mineral wealth. The significance and importance of this cannot be underestimated. There are ongoing discussions about what is in the toolbox to add to that. There have been a number of very significant projects such as fuel cell technology. There is scientific work by the private sector in more power stations using platinum as a catalyst in hydrogen fuel cells. That could potentially be a major contributor to solving the country’s energy situation.
DTI has already identified the mineral value chains; iron, steel, platinum groups and polymers.
The next Industrial Policy Action Plan (IPAP) is an attempt to step up and this will be launched next month. IPAP is an action plan. It is not a policy document or revision document. The policy framework is there, the Department only needs to add to it each time. It is fundamentally an implementation plan. DTI will be identifying drivers of industrial development which is mineral driven and infrastructure driven. SADC is holding a special summit next month to discuss industrial development. He noted the challenge of repositioning the country in the African continent as other countries begin to embrace industrial development. The country has innovation and advanced manufacturing capabilities. He gave the example of fuel cell technology. Another innovation is the full body scanner which is a South African machine. The machine came out of the mining industry as regulators wanted to ensure people were not swallowing diamonds. This is being adapted for medical technology. He noted that South Africa had won on open tender the manufacturing of some components for the Airbus A400M.
▪ On encouraging private sector investment, the Minister said DTI wanted a dedicated analysis of the investment climate in South Africa. A steady stream of investment pipelines is being held up. This boils down to the fact that there are challenges. The Ministry has to set up a stronger investment promotion agency, more of a standalone as it is now. They are taking trade and investment out of each other’s space. That would relate to other government departments too and it would operate as a one stop shop addressing problems that investors are confronted with. This is what is being done in the area of private sector investment. The Department will continue to engage and interact with business people and manufacturers, but also with different levels of the business community in general. The Department will also continue to promote South Africa as an attractive investment destination notwithstanding the policy choices which the Department has to make from time to time. The Department will continue to build on its strengths and have an agency that addresses concerns and issues.
▪ The sixth agenda is moderating workplace conflict. The Deputy President is leading a process taking place in Nedlac. There was already a declaration and then an agreed process of interaction between the parties. The aim is to replace workplace conflict but there is also a recognition of the need to address issues of inequality and the question of vulnerable workers. He is on the ministerial component but the leader is the Deputy President.
▪ Another crucial point is unlocking the potential of SMMEs, coops, township and rural enterprises. The Department of Small Business Development is driving this. The key decision here is that we will be moving towards a 30% procurement from SMEs and coops by government. The relevant agencies are jacking up the support programmes to SMEs and coops including the financial and non-financial components. The work which started in the informal business upliftment programme will be taken further. The President has already announced the list of places where the pilot projects for the business upliftment programme are going to be rolled up. This is essentially infrastructure to support informal business trading. The next phase is moving towards providing incentives to informal businesses with a vision towards their becoming formalized, but not insisting on that as a precondition for the support programme.
▪ There will be state reforms in state owned companies and major decisions taken on ICT infrastructure and broadband rollout as announced by the President. There are also issues of water and sanitation and transport infrastructure.
▪ Operation Phakisa is intended to cover quite a number of issues. It is building on the Malaysian example of big fast results. It began with the oceans economy which DTI was involved in. One of the outcomes was the decision taken to invest in a dedicated infrastructure terminal for the oil and gas sector in Saldahna. The broader picture is that the Department can triple the contribution to the GDP coming from the oceans economy.
On trade policy and the role of DTI, Africa and African integration become critical to South Africa. The integration in Africa we support is development integration. This combines trade integration with infrastructure development and also cooperation to promote industrial development and diversification. The goal of the Department is to create a large regional market that reaches beyond SADC. Of all the regional configurations, SADC is the most advanced in work towards this and there will be a special SADC summit. In about June there will be the launch of the tripartite and SA will have advanced very far in its agreements on trade with exchange of offers with the East Africa community. South Africa is a bit behind with Egypt due to the politics there. The architecture is that we are not reopening the SADC or East Africa agreements but focusing on building trade relations with those parts of the big architecture that do not have relations with each other. Simultaneously, the Department will be launching the work on a continental free trade area which would bring in West Africa. So we are moving on those.
There is momentum now to try to conclude work on the World Trade Organization (WTO) Doha round. This follows the Bali Ministerial Meeting and the outcome of the Bali Ministerial. Presently, there is an effort to move on the rest and at least define the modalities before the next Ministerial Meeting scheduled to be held this December in Nairobi, Kenya. Discussions so far are that this will only be possible on the basis of “recalibration of the level of ambition that there was in 2008” which means the lowering the level of ambition. The text of the instruments developed in 2008 but not agreed on, would have been a costly deal for South Africa. We could have secured one market access advantage in agriculture in Japan for instance but would have paid heavily with the application of the Swiss formula in industrial tariffs. There is a possibility now that the obligations on South Africa now will be much more moderated which is the only basis on which we would agree to an outcome. Ministerial engagements will continue in Geneva. The Minister said he would be participating in some of them.
The Economic Partnership Agreement negotiations which has been reported on already as an agreement initialed by the Department’s negotiators. The Agreement is due to go through legal scrubbing; it takes a long time for this to be accomplished.
Minister Davies said the African Growth and Opportunity Act (AGOA) is topical. The Department is following the matter very closely. The Minister has made quite regular phone calls with the US Ambassador and has been speaking to the Senators directly concerned with the matter as well as US trade representatives. We have sent a delegation. There is no certainty as to when this Act will come before Congress. It is linked to the Trans Pacific Partnership (TPP) at the moment which is the agreement that has been linked with the EU. TPP is being negotiated with a number of Asia countries. It is linked to fast track authority that is been sought from the US Trade representative there. It is not a forgone conclusion that it will all go smoothly. It could be very soon or in the more distant future.
Most Senators who support AGOA come from poultry states. One Senator is from Delaware and the other from Georgia. They have been reporting to their constituencies. The Department needs our South Africa poultry associations to agree on an agreement that will allow a quota of poultry products to come into South Africa market but that will also include a developmental package in which investment will hopefully train and support empowerment. The Poultry Associations have exchanged offers but the offers are wide apart at the moment but the process is ongoing and the Department continues to be seized with the matter because AGOA has value for South Africa and it has value on the poultry issue. The process of resolving issues regarding pork and beef is much closer.
AGOA is an ongoing issue at the moment and it is in the interest of South Africa that it stays in AGOA. It has a certain amount of value added product which slightly changes the profile of South Africa trade with the United States. There is certain amount of value added services coming in under AGOA which means South Africa is not providers of mineral products. If the country takes out the AGOA preferences, we will probably refer back to the supply of primary products into the US. There are also jobs that are created in the United States. US Secretary of State, John Kerry said at the AGOA forum that as a result of the forward engine project which is taking place in Port Elisabeth, there will be about 800 jobs created in one of the factories in the US. This underscores the win-win approach under the AGOA. If South Africa is to be excluded, this will dent the credibility of AGOA as a whole, simply due to the fact that South Africa is one of the few countries that uses it at all. In fact it is the only country that uses it more broadly especially in parallel clothing and textiles. It will have a bigger negative impact if South Africa were to be excluded. The Department will continue to work to do everything to ensure that South Africa remains a component of AGOA.
The Department informed the US that AGOA creates good will for the US in Africa more than the Export Promotion Offices (EPOs) has created for the EU and that what the country needs is a sustained collaborative effort. He assured Members that the US embassy and other stakeholders are working daily on this matter. The Minister informed the Committee that he will be travelling to US to bolster support for the partnership.
Concerning legislation, the Minster hinted that the Department is working to improve the audit outcome this year. There were small numbers of irregular expenditure last year. The Department is working to eliminate such discrepancies and there is hope. It has been obvious from the many indicators of the Group Systems and Support Services Division (GSSSD). These bottlenecks are retention rates, reductions in turnaround times in the Department’s agencies and entities. There is an effort to ensure that the train line is moving in the right direction. It may not be promising but trend must continue with constant improvement. Agency management is something the Department feels should be strengthened. This due to the fact that most of the challenges the Department has in terms of governance have been found in the agencies rather than in the Department.
The Chairperson thanked the Minister for an elaborate presentation on contextualizing the SONA. This is important before hearing the DTI strategic plan. This would enable everyone to be abreast of developments in the Department and prepare questions accordingly.
Director General (DG) report on the Strategic Plan, the APP and the third quarter progress
Mr Lionel October, the Director General, noted the strategic goals that emphasise the transformation of the structure of South Africa’s economy, to strengthen the industrial base, expand trade relations to promote industrial development, investment, competitiveness and employment creation as a top priority for the Department. The five strategic goals are based on five strengths which form the core programmes and clusters. The Departments programmes are centered on five key areas: Industrial Development, Trade, Investment and Exports, Broadening Participation, Regulation and Administration. DTI is one of the lead economic departments and thus plans of the Department must be situated within the global economy. The US has re-industrialized. There is positive growth in the US, but not that positive in Europe and in China or Asia. There is a twin track growth process globally – one positive and one negative. The global context for our exports is still subdued. In South Africa, we must not focus on quarterly results but look at overall trend lines in the quarterly report.
He stated that over the past 18 months, there is definitely a progress moving back into consistent growth. The trend is clearly moving in the right direction. In sectoral contributions, though SA is not yet there, there is a trend shifting from 2007. The emphasis is slowly shifting towards the production sector, manufacturing, mining and agriculture. A lot still needs to be done.
On employment, there was new growth in the formal sector. On trade, the DG said as at the fourth quarter of 2014, South Africa’s total exports recorded an increase of 3.2% reaching almost R260 billion following an increase of 6.8% in the previous quarter. The trade deficit narrowed to R19 billion in the fourth quarter of 2014 from R26 billion in the third quarter. He noted that South Africa’s imports still exceeds exports.
Turning to priorities in terms of the strategic plan, it is a five year overall long term strategic plan mainly drawn on government outcomes. Speaking on Outcome 4 Decent Employment through Inclusive Growth, the Department must proclaim three Special Economic Zones (SEZs). The Industrial Development Cooperation (IDC) is to fund two higher level beneficiation projects and develop a Mineral Beneficiation Action Plan (MBAP) and incorporate this into IPAP. He said localisation must be increased to a target to 75%.
Outcome 7 (Vibrant, equitable, sustainable rural communities contributing towards food security for all): the priorities are basically to ensure five investors per district municipality and develop the Black Business Supplier Development Programme (BBSDP) for procurement. Outcome 11 (Create a better South Africa and a better world): that means improving our international relations. To do this the Export Council is to develop African Export Markets, there will be an injection into the Foreign Direct Investment (FDI) investment pipeline of R50 billion. He also mentioned the SADC Regional Indicative Strategic Development Plan (RISDP) and the Tripartite Free Trade Agreement (TFTA).
Annual Performance Plan (APP)
The core strategic objective is to grow the manufacturing sector. To ensure the protection of intellectual property, the Department seeks to improve the conditions for consumers, artists and opening up of markets for new patents as well as strengthening capacity to deliver on the DTI mandate. These objectives are reflected in the key programmes under the Industrial Development programme.
On broadening participation, the Department has approved 110 incubators for the Incubator Support Programme (ISP) incentive. Small business will be independent from the DTI. The Department will proceed with the broad based operationalisation of the Broad-Based Black Economic Empowerment (B-BBEE) Commission. There is a target to produce 20 black industrialists in key sectors.
Under regulations, there are 8 regulatory impact assessments. Most time will be spent on Intellectual Property (IP) (Trade Marks Act, Designs Act, Merchandise Act, Unauthorized Use of Emblems Act, Counterfeit Goods Acts, Patents Act and Performers Protection Act, National Credit Act (exemptions). Four regulations on Liquor, Gambling, Copyright and Licensing of Businesses will developed for approval. The Department seeks to improve all the time the reduction in the vacancy rate to 5% with a reduction of the staff turnover rate to 6.8%, Employment of people with disability is set at 3.0%, with 50 % women employed in senior management.
The main risk to the DTI’s work and industrialization drive is the global economy especially low demand for SA exports. The negative impact of the downturn in the global economic environment on South Africa's economic growth and employment potential was caused by the stalled global economic recovery. There is prioritisation of the African continent as a major source of demand.
Third quarter 2014/15 report
The third quarter 2014/15 cumulative report shows the achievements of the Department. These achievements include finalizing the Medium Heavy Commercial Vehicles (MHCV) approved for implementation. The main area the Department is strengthened is the BEE programme which must be taken into account. Hence a level 4 requirement is being introduced in the Code of Good Practice. He noted that DTI has been struggling to recreate the White Goods sector and this has resulted in the refrigerator production facility in East London worth more than R120 million in November 2014. The policy is moving into the local content verification of bus bodies. The compliance certificates were handed over to Parliament in November 2014.
There is big risk to aluminum smelting companies as a result of the energy crisis. The Aluminum Task Team succeeded in halting the closure of BHP Billiton’s Bayside smelter which was acquired by Hulamin/Isizinda Aluminium (BEE consortium). DTI launched the Tooling Centre of Excellence in partnership with the National Tooling Initiative (NTI) at the SA Nuclear Energy Corporation (Necsa) in November 2014.
Looking at trade, a draft offer was exchanged with the East African Community (EAC). The Department also participated in the inaugural meeting of the SA-Chile Joint Trade and Investment Commission (JTIC) in Chile in 2014 where both countries agreed on a draft short and medium term work plan. The Joint Trade Committee (JTC) with Kenya held in November 2014, formulated an action plan to assist the two countries to exploit new trade, investment and technical cooperation for mutual benefit. The Department also finalized the Nedlac engagement process on the draft Promotion and Protection of Investment Act with the report being adopted. Government has now reached a working consensus and it is currently with the state law advisers.
The South African pavilion was awarded the first prize at the India International Trade Fair in November 2014. The State President has proclaimed the B-BBEE Amendment Act for implementation. A letter has been sent to the Minister of Finance to concur on the establishment of the B-BBEE Commission. The Special Economic Zones (SEZs) and Cluster Skills Hub Workshop was held in November 2014 to develop an implementation platform for skills development in existing and proposed SEZs and Clusters.
On regulation, the Department has concluded the Second Draft Liquor Amendment Bill and Policy Framework which incorporates policy council input to improve liquor regulation. The Second Draft Gambling Amendment Bill and Policy Framework have been produced. This Bill incorporates policy council input and aims to give policy direction on gambling modes and technological developments. The final regulations on the National Credit Amendment Act was produced for publication with public comments received and analyzed. Consultative meetings with stakeholders were also held.
On the administration and coordination, the Department achieved as at December 2014 a vacancy rate of 7%. Our target for year end is five percent. The department has employed 46% of women in Senior Management Service (SMS) positions and 2.9% people with disability. The target is 50% for women; work is ongoing to meet this target.
Departmental expenditure versus budget is as explicitly stated in the presentation (see document). The variances indicate that there is nothing to worry about as at December on issues of overspending and underspending. There was over expenditure on the payment of employees due to a salary adjustment but this did not affect the overall budget. There has been some underspending in goods and services.
On the interventions to address the audit findings, steps are being taken to prevent irregular expenditure. These include implementing regular information sessions for all staff on the requirements for procurement; including communication via financial circulars, Checklists are in place to assist officials with procurement requirements to be followed before payment is effected. Each division has a divisional financial advisor which amongst others provides advice on procurement of goods and services. To detect any irregularity, irregular expenditure is being monitored monthly. An independent exercise is also performed on all expenditure to ensure completeness of reporting of irregular expenditure. Quarterly meetings are taking place with divisions to discuss reported cases.
Mr G Hill-Lewis (DA) sought clarifications from the DG. In one of the reports, the DG talked about creating 20 black industrialists per annum. He was of the opinion that the bid to create industrialists must come from entrepreneurs. It is not possible to take someone off the street and call such person an industrialist. He wanted to know if there is a process for DTI to identify these entrepreneurs. In other words, is the Department linking up with these industrialists? And are they emerging through SMEs, small business or rather that the successful ones are pushed to become the industrialists.
He requested an explanation on the way DTI is dealing with the audit report outcomes. It seems the Department has got high standards to deal with it but does DTI have similar processes when they are doing monitoring of its entities? Does the Department keep these high standards throughout or are the problems transferred to the entities.
Adv A Alberts (FF+) referred to the 48 000 jobs created. He wanted to know if there is any investigation why trade has created the most jobs and why that seems to be the more successful part of the economy at the moment. On the exchange rate, he asked for the Department’s exchange rate for trade in South Africa and for the rest of the world? There is a list of regulations and new legislation; some of them have been through a regulatory impact analysis (RIA). He asked the reason for not conducting RIA on the BEE Amendment Act as well as the BBBEE Regulations that are now up for scrutiny by the public.
Mr N Koornhof (ANC) said that some of South Africa’s neighbours have more economic growth than South Africa. He sought the Minister’s assessment, why South African neighbours are growing more than South Africa.
Ms P Mantashe (ANC) remarked on the huge successes in trying to resolve the energy crisis. The contributions so far are bearing fruit. The energy crisis is the worst bad driver in our quest to try and develop industries.
The Chairperson asked if the key planned interventions are for 2015/16 alone. This is because R45 billion is listed for investment facilitation - how is that moving in that regard? The other issue was current measures and their link to the Committee’s oversight. South Africa National accreditation is doing verification with BBBEE. She noted that it was clear that there is the need for the amendment of the Auditing Professions Act. There is an amendment before the Finance Committee but it does not appear to be BBBEE. She wondered if the DG is aware of some of the requirements to complete that process and on terms of verification. What was the status in that regard?
She said that related to that is the interventions taken. The yearning of the Committee is that not only DTI take this up but other Departments too and she hopes DTI shares its experience in this regard with its colleagues. The Department had an amount allocated and in most categories the amount of potential jobs that could be created. However, she wondered why that did not show that in their presentation.
On industrialization, she noted there was a reference about interventions to pursue one thing or another but there are certain constraints in this regard and there was reference to the agro industry and the need for the Committee to support it strongly because of job creation. This is a very fertile environment for job creation. She asked if these issues could be expanded upon.
The Minister responded that for the black industrialist, the thrust of the amendment to the Code was to support the emergence of people within productive economy. Another area is supply to score minimum points. DTI have seen that manufacturing is the sector to focus on if it is to make any progress with industrialization in the value chain. Incentives have been provided but there are low levels of productivity. What it does require is focused attention. There will be a conference on black industrialists that is targeting the creation of 100 black industrialists. They will be people who are small manufacturers some of them are clients to small business institutions, people should become real practitioners and operators in the industry they are in. The Department envisages that it will come up with a dedicated incentive and support programme for black manufacturers.
On DTI's approach to its entities, some of them have audits that are not qualified. DTI applies the same standards for all entities and tries to monitor what goes on in the entities. There is a regular meeting with the Auditor-General's team that works with the DTI. There is an attempt to address the problems identified as well as move towards improving the picture with regards to all the entities not just DTI. The major problem with entities is to improve agency management. When it comes to entities, there is really no simple "handing out" of funding, there might be case report.
On the jobs created by trade, the pictures given shows those jobs are very volatile. Retail is the most profitable and lucrative, in creating employment. As the retail sector was also supplying imports, there is a balance of trade deficit. With the change in the exchange rate, the fortunes of the retail sector changed. If the service sectors are rooted in an economy that is diversified and the productive base is growing, they are stronger and more secure. The retail sector is very volatile and the fortunes are not as good as they were a few years ago. We cannot expect to have growth in the retail sector based on imports and that is going to drive five percent growth, that will not happen. The Minister further said that the problem with the exchange rate is that it does not sit at a kind of fair value. It overshoots and undershoots making it volatile. Thus Outcome 4 in the presentation is one of the options to produce a more stable and competitive exchange rate. What is driving the exchange rate at the moment is nothing in South Africa. It has got everything to do with growth rate in the US versus other emerging economies as a whole. When the exchange rate is overvalued, it is harder for our exports to go into other markets and it is easier for imports to come into this market. This created a huge deficits.
The Minister further said DTI did an assessment of the impact of BEEE in the Advisory Council. The impact and study was made about what has happened to the economy since BEEE and the conclusion was impact on the private sector was moderate. The average level was 6 which was pretty low performance but most of the things that happened then were equity deals of one sort or another. Except for equity equivalence, there were availability of score cards for broader participation and engendering of productive ability.
Within the equity deals, there was a fair amount of fronting. It was actually fraud. People were presenting themselves as what they were not in order to get something from government. The common law definition of fraud was too difficult to deal with hence the new legislation. By May 2015, the new Codes will be in force.
The Minister drew a distinction between growth rate and economic growth rate which is also the discussion around inclusive growth. The concept of inclusive growth started in the ILO and found itself in United Nations Conference on Trade and Development (UNCTAD) and it recently resurfaced with the World Economic Forum (WEF) embracing the concept. The WEF developed a matrix to measure other things other than growth. The growth rate measures performance whether one is dynamic or not. It depends on the base and performance. He compared the distinction with the case of countries that went to war and recovered. All of a sudden their growth rate is something tremendous. Iraq went from one ladder to another. South Sudan was the leading country for growth rate on the African continent. The other thing it measures is capacity. If the economy has a certain capacity and the country is way below that capacity. If such country moves up above the capacity, it will have a huge and rapid growth rate. He remarked that something within 15% growth is not within achievable range of South Africa but we are below what is our potential. South Africa needs to raise its growth rate and the target is 5% sustainable growth but this is also inclusive growth by the end of the term.
The growth rate of other countries is based on the fact that some of them are producers. Some of the oil producing countries like Nigeria says most of the growth came outside of the oil, this may not be true. Angola on the other hand claimed that its growth rate is tied to its huge sovereign wealth funds. Angola is affected by the reduced oil price.
South Africa is dragged down because its growth is lower. Some say this also drags down the growth of the African continent. That is not true because South Africa is the largest investor in the African continent. The country’s investments are pulling growth on the continent. The country’s trade with the continent is contributing in the areas of the infrastructure programme on the African continent. South Africa is a champion of the BRICS Development Bank.
Every serious leader in the African continent is talking about industrialization. That means South Africa is making a contribution to that. Taking the average growth, South Africa’s potential has not been as high as some of them. The country’s potential is never going to be what South Sudan growth rate was which went down after some time.
On the energy crisis, the real question was the need for Eskom to have a proper preventative maintenance programme in place. That was the fundamental issue. So there would be planned outages and not non-planned outages. There will be a degree of stabilization. Some of the independent power producers (IPPs) which have all been negotiated and re-negotiated are also to address some of the issues of diesel for some agencies. DTI is trying to canvass gas to be introduced into the energy mix.
There is the need to save energy in this country. The Minister enjoined everybody to support manufacturers who are intensive energy users. People must use their energy efficiently. The Department tried to encourage some incentives that would support the energy efficient manufacturing drive. The pipeline monitored by Trade and Investment South Africa (TISA) in its investment division is a good indicator of investments that are in various stages of materializing. South Africa is pivotal to the African continent.
The Minister said that DTI took the South African National Accreditation System (SANAS) out of verification from the Bill. SANAS does not involve the BEEE verification. It was the wrong institution. It should not have been there. There is the need to audit professions, to regulate the verification agencies in the part of the Bill.
The Minister remarked that an innovation from the new Codes is the removal of the red tape that was there. A small black enterprise will be benefitting from supply and development. Such person will be asked by an officer of the agency or the person he is supplying whether his entity is100% black. This is done because they are looking to get points from working with them. The entrepreneurs are then asked to visit the verification agency. If it is a small black company, it would pay someone between R30 000 to R40 000 to come along and claim that his entity is 100% black owned. If an entity is 100% black owned, anybody will have to accept an affidavit, if there is a lie or deceit, such person goes to the Commissioner.
The DG in his response said that the regulatory impact assessment (RIA) with regards to liquor and other regulations was done in accordance with the law. When the BEEE Act was amended about two years ago, a full regulatory impact assessment was done and it was shared with the Portfolio Committee. Before any legislation is passed, a regulatory impact assessment is included.
The DG noted that coal generation by the paper and sugar industry is one of the measures to remedy the energy crisis. Coal can bring on board about 1 000MW. Through the activities of the war room, the contracts will be signed with the coal generators. There are thousands of jobs the Department is taking up with regard to energy.
On BEE verification, there are too many interventions. One is to take away the unregulated verification fly-by-night industry and to replace it with a properly regulated industry. National Treasury is responsible for legislation relating to auditors and the audit profession. There is no need to create a new industry around auditing because BEE verification is an audit process.
The film industry is one that the ILO calls atypical employment. They make a movie for 4 weeks in South Africa. This is atypical employment, although it contributes to job addition.
On the investment pipeline, the targets DTI saved are commendable. In the UN, for 2013 the FDI doubled. There is investment in the oil and gas industry. Some strong investments are coming from Limpopo. The pipeline is looking bright and the highlights are realistic targets.
The Minister added that the latest movie in circulation is called Chappie. Johannesburg was the setting and filming took nine weeks. The film is a commercial quality sci fi movie that is going to be a commercial success. Two locations were considered for this film. One in the US and the other in Johannesburg. There were quite a significant number of people on the film crew. DTI has quadrupled the number of films it has been supporting in the last five years compared to the first phase of the film rebate.
The Chairperson affirmed that the film industry does have a high employment rate but it could be casual, temporal or permanent.
A DTI delegate added that in terms of the incentive, the Department is more concerned with investment in South Africa. Movie makers are given the opportunity to come and make their movies in South Africa and there are incentives for them to spend money in South Africa.
In the light of the sci-fi film, Chappie, Adv Alberts commented that the industrialists will eventually start using robots and humans will stop having problems generally associated with humans. Problems would then be between humans and robots in the future. He asked whether the 20 black industrialists identified refer to black individuals or black companies and how many jobs are envisaged to be created by this programme.
On strategic risks, he asked how skills development programmes are able to mitigate the risks that are on ground. In particular, he wanted more clarity on the skills development programme.
Mr G Hill-Lewis disagreed with the Minister's argument about growth rate. He reiterated the Minister's position that the country’s maximum growth rate is determined outside of anything it does and disconnected from any policy that is pursued in South Africa. He concluded that this is far from the truth. Mr Hill-Lewis noted that a country bound to the previous century starts to rebuild its economy. There is a special need for doing that. Generally speaking, maximum potential growth rate is determined by policy decisions and economic position over time.
He sought for clarification on the current status of the disagreement between the DTI and the Department of Mineral Resources on metal prices. The Minister of Mineral Resources has said publicly he wants to launch a Bill. The Bill has not been tabled back in the House. It is not before the Committee. He asked for the current status of the Bill with particular reference to clause 26B.
On the exchange rate, Mr Hill-Lewis asked the Minister at what stage of the discussions is he presently. Concerning National Industrial Participation (NIP) policy, he remarked that if government applies the policies unevenly, then it is actually South African companies that suffers. The presentation on the NIPS policy cited an example of the Eastern Cape, where there was an enormous tender (about R8 billion), which went in large part to an Indian company who had previously won a massive tender from the South African government and did not comply with its requirements. He concluded that there could be a situation where South African owned companies are complying with their requirements and are competing against international companies who are not complying with South Africa’s requirements. He affirmed that well-meaning South African policies punish South African companies. He asked what the Department is doing to improve its NIPS compliance.
Ms P Mantashe (ANC) sought clarification on those who contest the policies that Minister is implementing. She expressed concern about investors decreasing their intention to invest in shale gas projects. What implications will this have on South Africa? The reasons these investors give is that government is not coming forward with the legislation. She enquired about the particular Bill or legislation that is coming before Parliament. Which of them is going to make it an offence that the private sector is not bringing the huge sums with them in trying to create inclusive economic growth?
Mr A Williams (ANC) referred to national expenditure which talks about the budget for consultancy professionals and contractors. These budgets are dropping by 52%. With such a large drop in consultancy professionals and contractors, who is going to do the work these people are doing and how is that going to work? He asked why the Department is spending so much on advertising. Are the adverts projecting South Africa oversees? On the budget for training and development, he noted that the budget does not change that much over the projected three years. The budget on internal catering does go up. He asked why DTI was spending on food more and more but not spending money on training and development.
The Chairperson made reference to minerals beneficiation and the focus on higher value downstream. Reference was also made to the agro processing, and how that could be used in increasing high value addition. It is very clear that funding has been made available for the Minerals Beneficiation process, but given the preference for agro processing, she wondered what relationship is there in that regard.
She noted that there are entities that have serious governance problems. She also wanted explanations on issues with salaries. IDZ works under different legislation but in one's collegiate engagement in the Cabinet, she asked if there is no way that these can be addressed and for such entities to say to one another: we have a deficit. She noted that their fattened salaries have no relationship with the current economy.
The Minister replied and clarified that the film related to the robot taking over the function of the police in delivering good results. He asked for more time to give details on skills development programmes. There are corporate entities and individuals who are in the manufacturing industrial space. The Minister acknowledged the fact that the country was below potential. When growth is looked at, one can imagine that South Africa should be able to hit and surpass South Sudan. The drivers of growth no longer are available to us and South Africa has to make structural changes. These are not easy to bring about.
The IPAP is not at a stage where it is fundamentally leading the process of radical economic transformation meaning that the country can move up the value chain. What the Department has shown now means industrial policy works. If the scope is expanded, more can be achieved. DTI will be having series of engagement with the Department of Mineral Resources (DMR) on ensuring there is a competitive advantage for beneficiation and the defined areas of priority. The Department supports creating competitive advantage for mineral products use.
He reiterated the fact that DTI is not responsible for exchange rate policy. This is the conundrum the country has found itself in. There is an overshoot which has nothing to do with factors internal to South Africa. It bothers more in the relationship of dollar to emerging markets. South Africa is overvalued. Everything had to do with euro to the dollar.
He said he was not aware of the Eastern Cape example given by Mr Hill-Lewis. He promised to look into the matter if further details are supplied. He noted that local production is not about the company, it is whether the company is domiciled in South Africa. If there is an Indian company and it invested in manufacturing they will count for the purpose of localization. As far as localization is concerned, DTI is about to designate 11 items coming out of the infrastructure programme, that is the next stage of waiver programme.
The Minister said there is no alternative for constructing a new basis for growth and for inclusive growth in this country based on the productive sector. This is what the nine point agenda is trying to address.
The Minister remarked that the problem with shale gas has to do with the change in the global environment. What is driving the oil price down has to do with a strategic decision taken by OPEC with a view to smashing the shale gas industry in the US. The shale gas industry in the US is struggling because of the reduction of the oil price. The Department is trying to get more investment from domestic manufacturers. It will in turn provide a serious incentive package. Investments will be in the area of upgrading capacity and raising competiveness. There will be incentive for every investment. The programme runs out in 2017. The Minister emphasized the importance of getting quid pro quo for what is been done. DPME is monitoring some of the Department's incentives and seeing that it is getting full value for that. They are particularly monitoring the programme on Business Process Services (BPS).
The question on consultants was one of the general concerns of government and the message has gone around to everyone in government. The instruction is to look carefully how consultants are used and endeavor to in-source the services.
On advertising, the Minister asserted that some of the advertisement budget is aimed at projecting DTI services to people. Besides, for any appointment made by the Department, the position has to be advertised in the newspapers. The whole idea is to communicate real service and real products to the market place. On catering, the Department does not make use of a hotel for any of its function. All activities are done inside.
The Minister said there is no let up on training and development. The Department has invested quite a lot on training and skills development for industrial projects. From his personal interactions, the Minister noted that in South Africa, there are no courses on industrial policy for practitioners of industrial development policy. Most people did courses in their university days on industrial policy, many people had not. The Department has invested in its own training.
Mr Lionel October, DTI DG, also responded on a number of questions. He said that the issues surrounding the black industrialists will be dealt with after a summit held the following week. A clear plan will be developed afterwards. However, the intention is creating black owned company but also creating it in new and emerging sectors.
For the advertising budget, the context of the budget is that the Department is not accessible and not known to some agencies. Hence there is the need to increase public awareness through adverts. Other areas the Department has increased its role in is FDI. There is a negative narrative not only in South Africa but our own media in UK and other places.
The DG informed Committee Members that the budget for DTI on catering is presently zero. The Department has completely stopped any internal catering. The only catering is for events, dialogue, summits, and foreign guests.
On professional consultants, the DG reiterated that all the major work is done internally. All the programmes that are usually outsourced have been brought back. So there can be an innovation programme. Consultants are primarily used for technical work. Besides when there is a trade mission, for example, the Department took 100 companies to China in a year.
The practice of the Department is that once a project has been approved and contractor selected, payment is not done immediately until the machinery has been installed in the premises (project site). There must also be evidence that the machine is working and operating. Some people will go and hire machine for the inspectors to see. They return the machines the following day. There is a group of internal inspectors to verify this process. The Department is also using outside audit firms to do those checks on some of the Department's programmes. Consultants are only used for specified projects.
On the Special Economic Zones (SEZs), the division of work given to provinces is to deal with operational expenses, staffing bonuses, board meetings. The Department only comes in when there is the need to provide financing for infrastructure and top structure. There is a marked demarcation between what DTI covers and what the provinces cover, so there will not be excessive payments to the board in form of bonuses. The SEZs are taking off; they cannot be derailed by poor governance.
The Chief Financial Officer, Mr Shabeer Khan, responded on the goods and services budget. He said that the consultants and other expenditure is a direct correlation between that and the cost containment measure introduced by government last year. To appoint a consultant, you have to do a complete gap analysis business plan. This is against the straight forward appointment done in the past. Treasury has regulated the consultant cost. Thus consultants cannot come in and charge whatever fees they wish. It is all regulated.
The changes in the Auditing Profession Act are to change the qualifying or the entrance criteria to be registered as an auditor. The stumbling block was that graduates do not pass the qualifying exams hence the number of auditors qualifying has been very low. What they propose now is a robust candidate programme.
The Chairperson congratulated the department on the configuration of its human resources. She noted a marked improvement in the last seven years. There have been fewer acting positions and gender provision has been made, and for the first time in recent years, people with disabilities were given the opportunity of employment.
The Chairperson informed Members that they requested Plastics|SA to return for a briefing because the issue of local content and designation had come up during a previous colloquium.
Mr Garth Strachan, the Deputy Director General (DDG), Industrial Development Division of the DTI informed the Committee that the Chief Director, Plastics at the DTI Ms Claudy Steyn will give the presentation.
Progress of the South African Plastics Sector
In her presentation, Ms Claudy Steyn, DTI Chief Director of Chemicals, said plastics is an important sector in the South African economy. This is because it cuts into various sectors of the economy. The South African Plastics industry covers the entire plastics value chain from upstream to downstream beneficiation and produces input materials and value added products for both local demand and export markets. Presently, the South African plastics market grew by about 2% that contributed about R50.4 billion to the economy in 2013, representing about 1.6% of GDP and approximately 14.3% of the manufacturing sector. The last three years in the chart (see slide 4) shows a consistent growth in the plastic industry. The plastics industry employs around 60 000 (both formal and informal) people in excess of 1 800 companies through the plastics supply chain. Plastics conversion plants are generally small to medium-sized, family owned businesses.
An overview of the plastics industry shows that incentives have been associated with investments, accounting for a large proportion of industry’s investments in 2012 and 2013. Plastic consumption in the domestic market was 1.6 million tons. Packaging is the largest consumer of plastics (53%; about 820 000 tones), followed by the construction (11%) and the automotive (7%) sectors. Plastic packaging is low value, high volume application that is price sensitive; however demand is expected to increase over the next 5 years. The use of recycled material in plastics conversion has been increasing over the last couple of years due to the cheaper price of plastic waste as raw material.
On plastic recycling in South Africa, Ms Steyn said that since 2001, South Africa has been importing more plastic products than it exports, resulting in a negative trade balance. Some of the plastics sub-sectors have been experiencing a profound downturn in demand as they struggle to adjust to changes in the market for their products and against an increase of imports. From 2003 to 2012, import penetration increased from 13% to 30% which is quite significant. Packaging was relatively less traded and the advantage is that you produce close to the product to be packaged due to the high transport costs. In the past five years, SADC imports of plastic products from South Africa have grown by 62% in nominal US$ terms. Export opportunities in South Africa include growing regional demand in construction and mining for example in the plastic pipes sector. In the past five years, SADC imports of plastic products from South Africa have grown by 62% in nominal US$ terms. Over the same period, SADC (excluding South Africa) imports of plastic products from China have grown by 203% - which is a lost opportunity for South Africa. The key areas of opportunity for growing the sector include automotive interior and exterior products; food packaging, medical products.
The constraints in the sector indicate that there is a relatively small local and regional market; South Africa’s geographic location and resultant logistics costs; insufficient R&D and innovation (specifically in the short term); electricity supply constraints and especially shutdowns has a negative impact on plastics manufacturers. Increased electricity costs increase production costs (from 5 to 10% of total production costs). There is also the issue of limited availability of local skills and lack of new technology absorption for plastic conversion and volatile exchange rates for plastic polymers reduces competitiveness for converted plastics.
Key interventions have been made by DTI to promote industrial development. These include the Plastic Sector desk and TISA has embarked on an outreach programme to promote investment in plastics. Some of the investment commitments in 2014 included: BOPP project from India (R2.5 billion); PMMA from South Africa (R7.5 million); P&G from United States (R1.9 billion); and Lension/Bio-packaging (JV Malaysia, Spain, Italy) (R150 million). Tade policy measures that have been implemented by ITAC, SARS and Plastics SA include a number of measures (see document).
The Plastics strategy has been completed and is in implementation stage. A Task Team between the dti and SASOL has been formed to address challenges and opportunities in the sector. The sector desk is also promoting awareness of the DTI’s financial and non-financial support programmes and policies through ‘taking the dti to factories.’
The Chairperson referred to slide 21 of the DTI presentation and asked when the new tariff headings under Chapter 39 to eliminate the use of wrong codes or hidden under tariff headings, came into effect. The DDG replied that the work started last year but the changes were implemented in January this year.
Progress of the Plastics|SA operations
Mr Anton Hanekom, Executive Director: Plastics|SA, said that the not-for-profit company is cross cutting among many sectors and exists to serve the industry.
The focus area is zero plastics to land fill by 2030. This is aspirational. It is a vision the company wants to focus on which will hopefully help the consumers to engage with them well. It deals with packaging. A waste tax is proposed which will mean the current system that is operational might cease in the years to come. Plastics|SA intends to develop an economic and financial model for separation at source. There is shortage of plastic waste. Through the Department of Environment, Plastics|SA has begun a separation at source initiative where households take responsibility for recycling their recyclables. In this process, it is hoped that employment will be created as well as small businesses that will be involved with the process of collecting the waste.
Plastics|SA is also looking at technology for problematic waste; there are some plastics that are difficult to recycle. The focus is to keep the recycled materials in the production process and rather use it for other plastic products.
Another focus area is to export replacement of import products. The idea here is to export within Africa and our neighbours. Plastic is difficult to export and transport. If you export the bottle, you export air, the truck is full, but the weight of the truck is half of what it should be but you are still required to pay for the full truck load.
An initiative coming up is innovation and skills development. For the first time there is a truck that will set up a machine for production. Plastics|SA has applied for a plastic initiative on behalf of the industry. The idea is to train 120 learners to complete the programme and help the shortages that exist in the industry. There are 1800 companies in the industry, 85% are SMEs. There is no capacity to give R&D.
Another focal area deals with partnership with the government and it borders on IPAP, beneficiation and preferred procurement. This also includes township economies and agro processing technologies and cross cutting clusters such as foodware. He said that the industry is commodity driven.
The Chairperson asked what were the key impediments to the work of Plastics|SA.
Mr Anton Hanekom responded that the trade issue is one of the concerns. He said that the entity began trade negotiations with India which is very competitive. Another impediment is incentives. There are difficulties in finding more money for technology development. Beneficiation and procurement is not currently working for the industry. The entity procures water from government but not the bottle. Where the bottle is coming from is a secondary issue which is not considered by government.
The entity also needs support for research. They have identified some areas such as recycling of materials and the new pricing strategy which will be centrally monitored and controlled.
Mr Hill-Lewis raised concerns about the work of DTI as it affects load shedding. As a parliamentarian, he has been confronted on many occasions, since the beginning of load shedding, with unplanned Eskom shut downs in the plastic sector. The plastic industry complains that Eskom says it will be load shedding at 10am and they plan towards that time but the electricity does not go off but will go off at 2pm instead. This has disastrous implications for plastic manufacturing. He asked what steps DTI is taking to ensure that Eskom communicates with large plastic customers. This is important to ensure that Eskom sticks to load shedding schedule with no unplanned outages and that as far as possible the impact of load shedding is minimized for the sector.
Mr Williams referred to the DTI slide on import parity pricing of polymers where the Competition Tribunal has found SASOL guilty of excessive pricing of propylene and polypropylene but SASOL has appealed this decision. He wanted to know why this did not appear in the Plastics|SAs presentation as a serious concern. He asked whether Plastics|SA have a relationship with SASOL. He asked if SASOL contributes to Plastics|SA’s funding and whether Plastics|SA is lobbying for SASOL's position in Parliament. He asked how many companies are 100% black owned and controlled of all the companies it represents in the Plastics industry.
Ms Mantashe commended Plastics|SA project for the training of youths in the municipality. He asked them to extend the project to cover as many youths as possible.
Adv Alberts asked if the entity has done any research on trade obligations in order to keep tariffs as high as possible in the area of plastic imports. He also asked what the entity is doing to protect South Africa’s internal market.
The Chairperson commended Plastics|SA for working with DTI and being able to address one or two areas. She wanted to know whether exports of plastics are suffering the same fate as the export of scrap metal. She noted that export of plastics waste has also increased.
In his response, Mr Garth Strachan, DTI Deputy Director-General: Industrial Development Policy, noted that in plastic extraction molding, when there is a shut down in the middle of operations, the company has to shut down for two weeks to clean up. Everything has been done to ensure load shedding planning and execution is not detrimental to manufacturing companies, especially plastic manufacturers. The Department is aware of the problem and has intervened as much as they possibly as they can.
Mr Strachan said the issue of the plastics fund is a regulatory issue and should be dealt with as such. The Department is trying to fashion a new working relationship with SASOL. That engagement is going well. As an observation, he commented that plastics work over the last 10 years leaves something to be desired for government. However, in a closer association with Plastics|SA and manufacturers and as the Department strengthens its capabilities, work can progress.
The location of any composite would not influence the extent to which the R&D works. The location should not influence the way companies across the country are assisted. The area tDTI needs to improve is the extent to which the R&D incentives and support, operated by the Department of Science and Technology, more strongly supports Plastics|SA and the plastic companies and how this particular initiative is received.
With respect to tariffs, Mr Strachan said they must exercise extreme caution and he warned Members to be careful when dealing with the issue. It requires a lot of discussion where tariff experts should be made to contribute as well. Tariffs are a shield and a sword. Any industrial policy has to be an industrial policy system. Tariff is a complicated issue. In the absence of a comprehensive industrial policy instrument, tariff has negative and unintended consequences including protecting non-competitive domestic manufacturers. The Department is not opposed to tariff increases, they have to be done carefully and abide by WTO rules.
The Department is aware of the export of plastic recyclable materials in the same way as scrap metals. He queried how one can secure do-able concrete action apart from the fact that exports tax or the banning of metals or plastic exports is very difficult to achieve in South Africa.
Mr Anton Hanekom said the entity needs to follow up on the tariffs. It is essential to evaluate the issue concretely. Currently it is across the board and it is not helping the industry. There are certain areas that need support for the industry to recover. In terms of SASOL, the whole industry is Plastics|SA members. The entity needs to focus on a specific sector and build on an integrated approach.
The entity focuses on automotive and aviation and green cycle. There is an approach to involve the youth more. There is a lot of outreach and planning for community recycling and sorting. On the plastic waste going out, Mr Hanekom noted that the export percentage has grown from the previous year to the extent that there is an escalation of 50%. The main country that it has been exported to was China. However, China has changed their waste policy. There is much restriction in terms of quality. The high value waste leaving the country should be of concern. The country is sitting on a shortage of waste.
Mr Williams reminded Mr Hanekom about the question on the percentage of black owned companies within Plastics|SA. He wanted to know the exact figure. If the figure is not available, the DTI and Plastics|SA could send a report to the Committee to give it an exact figure so that its transformation can be better appreciated.
The Chairperson responded that the issue of black ownership can be traced to a colloquium held recently where she raised the same issue but never got any response. It is becoming important because the Committee does not desire that any company closes down. On the other hand there should be progress. There should be a business plan indicating when such family owned businesses are going to be able to open up for business. The DTI was supposed to consider these moves but there has been no response from the DTI.
Mr Hanekom responded that he did not have the statistics for the concerns raised. However, most of the companies operating in the regions show that 30% are black workers, while most of them are Indian owners. There are quite a number of foreign investors in the country as well. Plastics|SA has not been monitoring that issue; hence they cannot give an exact number.
The Chairperson enjoined Mr Hanekom to persuade his members to do a business plan. She said that when there is a business plan, conversation can commence but with no plan, there will be a problem. She had other concerns but due to time constraints, they will not be covered.
The meeting was adjourned.