The Department of Trade and Industry briefed the Committee on its Strategic Plan for 2015-2020 and Annual Performance Plan. The presentation was first placed within the context of dti’s mission and vision, as well as the global economy. Dti highlighted industrial development and inclusive growth as the main objectives of the Department, and these were a theme throughout the presentation. The budget and human resources would be structured around the five core programmes. A detailed outlook was given of the economic situation. Although South Africa had not completed recovered from the global recession, there was some positive growth in the foreign markets with whom South Africa traded. Within South Africa, agriculture and services both grew, mining shrank and manufacturing remained stable. There was also a positive trajectory of employment in its domestic economy. However, the positive movement was not at the rate necessary to sufficiently improve upon its employment problem. The dti was also working towards bettering the trade balance, or increase exports. Electricity shortages had exacerbated many issues.
All of the dti’s goals were linked with the National Development Plan. Dti was directly responsible for 21 of the government outcomes, and some elaboration was given on a few. Within these outcomes, the dti was working on Special Economic Zones, the new Industrial Policy Action Plan and the Mineral Beneficiation Action Plan, and facilitating and implementing Broad based Black Economic Empowerment. Another priority was developing an export council for Africa, which would promote intra-Africa trade, which had been low on the Continent to date. A tripartite Free Trade Area would be launched soon, including the SADC and Comesa, which would open South Africa up to a market of 600 million.
Other key points were that the Department had launched its latest Industrial Policy Action Plan and was working still on designation to help local procurement, which had shown very positive results, particularly in uniforms for various services and the SAA. Dti was hoping to put R2 billion into the Special Economic Zones. The automotive industry, the Business Process Service, and the Critical Infrastructures Programme were all key within the industrial development schemes. The Department had made some breakthroughs for the sugar and canning industries in the European Union. The Department would be looking at updating a number of regulations, including the Intellectual Property Act. There would also be a programme for 20 black industrialists in each of the next five years, and full financial plans for this would go to Cabinet in June. It would be supported by a number of other bodies in addition to the dti grant. The Export, Marketing and Investments Assistance programmes had also been successful. There was a dynamic and complementary relationship between state and market. Mr October maintained that all of South Africa’s industries, for example automotive and agriculture, were world class and competitive, because of incentives, and this demonstrated that the bulk of the money was going to the private sector. Transport was another very important sector.
To underpin all of this, the dti needed and was building an effective administration, which in part included reducing the vacancy and turnover rates, and increasing employment of disabled (already above target) and women in management positions.
The budget was outlined, and it was noted that the largest proportion went to the Incentive, Development and Administration programmes. The risks - globally, regionally, domestically and internally - were outlined, and mitigation plans were in place for all.
Members asked whether there were moves for the country to subsidise own manufacturers instead of importing cheaper products, and also what the relationship was with the USA and whether there was a trade agreement in place. Members asked for clarification on the seven investment and five trade projects. It was also asked what the sectors the 20 black industrialists would be in, and they asked if the Special Economic Zones should have money put into them as focal points. In terms of coal exports, a member asked whether new harbours would be built and what the short term plan was in that regard. The inclusiveness in its economy was questioned, and specifics were requested. A member asked if dti was working with the Department of Higher Education and Training to ensure universities conducted course that would lead to jobs which contributed to the economy. Clarification was requested regarding the budget numbers and graphs. Members stressed, and the dti agreed, that electricity was one of the major inhibiting factors, and the dti outlined that although this was not its main function, it served in the War Room that was constantly seeking solutions. Members asked about exports of iron ore, and the steel market, and expressed concern that some of the products produced in South Africa showed impurities that made them not attractive to importers. Members raised the point also that an oversight visit recently had revealed that the factories were able to import finished goods for less than buying the raw materials locally. Members asked about and received more details on AGOA and how this was different from other trade agreements. They asked about new harbours and costs of transport. They asked about the Northern Cape initiatives and stressed the need for transfer of skills in Upington solar projects.
Department of Trade and Industry Strategic and Annual Performance Plan briefings
The Chairperson noted a written apology from the Minister of Trade and Industry who was dealing with the budget, but who had stated that the strategic and annual plans of the Department of Trade and Industry (dti or the Department) were in line with the State of the Nation Address priorities, and that this Department played a critical role.
Mr Lionel October, Director-General, Department of Trade and Industry, outlined the vision and mission of the Department, stressing that it aimed to ensure a dynamic industrial, globally competitive South African economy, characterised by inclusive growth and development, decent employment and equity, built on the full potential of all citizens. He noted that the end destination of the Department was epitomised in two phrases. Firstly, "an industrial economy" implied that South Africa had to move away from just being an exporter of cheap raw materials. South Africa needed a balanced economy which would be built strongly on culture, manufacturing and mining. Secondly, "inclusive growth" meant that everyone must participate in the economy and benefit from it.
Breaking this down further, he explained that there was a need to transform the economy for industrial development, whist the expansion of exports meant there must be divisional, regional and global relationships - the trade aspect of the Department’s work. The inclusion aspect meant dti must facilitate broad-based black economic participation (BBBEE) under which all Special Economic Zones (SEZ) policies fell, To have a dynamic market economy South Africa needed a fair regulatory environment and to underpin this it needed an efficient and effective public service.
Five core clusters of work had been identified, with budget and human resources, as follows:
Industrial development- To promote different industries, for example auto, agro-processing and chemicals. It was very much at the heart of the programme.
Trade, Investment and Exports - Attracting investments both domestic and foreign and export promotion.
Mr October described the economic overview, noting that South Africa was still not completely out of the global economic recession which started in 2007/2008. However, some positive signs were that the global economy had grown 3.4%. The European Union, which takes 30% of South African exports (South Africa’s main trading partner), grew marginally by 0.9%. Africa showed marginally more growth,and Japan shrunk by 0.1%. Sub-Saharan Africa grew by 5%, which was good, and this could account for the growing share of manufacturing exports for South Africa. USA had started to recover quite well and grow, while China had slowed down. The global context was important, because South Africa is a small open economy, with about 50% of Gross Domestic Product (GDP) deriving from imports and exports.
There were some positive developments with the international oil price; consumers had more to spend so they spent it more on locally manufactured products. However, the disadvantage was a double-edged sword; the Continent had been growing because of the hike in prices, accounting for South African growth in exports, but neighbours, such as Angola, Mozambique and so forth, were now growing much slower and therefore were buying less from South Africa.
Turning to the domestic economy, there was modest growth in 2014. The economy grew by around 1.5%. There were major agriculture exports to the continent and they grew by 5.6% while services grew by 2.1%. Mining shrunk by 1.6% and manufacturing was mainly stable throughout the year. The manufacturing sector had lost over 200 000 jobs during the 2008/2009 period. However, South Africa's jobs were again growing and there was stabilisation in manufacturing.
Mining was going through probably one of its worst times. Commodity prices had fallen, many of them were below 50%. The price of iron ore, platinum and coal had all dropped. When the mines slowed down there was an impact on manufacturing because this supplied the equipment and machinery into the mining industry. If the mining industry suffered, the whole economy suffered. Strikes and the electricity shortages had further exacerbated the lower growth trajectory. Although there was positive growth, it was still not at a level that was needed to uplift the country's current conditions.
Mr October showed graphs that displayed a positive overall growth of employment for the economy. There had been a loss of almost a million jobs in 2009/2010, but from 2011 to 2014 there was a steady increase in employment, and although it was not at the rate needed to address employment problems but at least the numbers of people employed in the country was at over the 15 million mark. The trajectory was positive but the programme was meant to accelerate at least domestic production in order to create more domestic employment.
Slide 12 was very important as it went to the heart of the Department’s industrialisation programme, and showed exports and imports, and the trade balance (the difference between imports and exports). South Africa's trade balance had been moving into the negatives, but the dti aimed to have a balance between exports and imports, or to have exports exceed imports. Both were growing. Mr October explained that exports meant that the country was earning money. Because South Africans liked luxury vehicles, it was importing the Mercedes Benz E class, and selling the Mercedes Benz C class to the USA, which was why there was an imbalance.
He concluded that South Africa had to ensure that it gave greater levels of protection to its domestic industry, so that it could compete with imports, and also to enable it to export more.
Mr October reminded Members that the guiding star was the National Development Plan (NDP), and that was also the Department's goal for 2030, although it was implementing the five-year strategic framework and then an Annual Performance Plan (APP). The three-year and one-year plans were the main focus at present.
Mr October pointed out that in government's five-year outcomes, there were 21 areas where the dti had responsibility, and the primary one was Outcome 4: Decent employment through inclusive growth. The dti was the Chair of the group of Departments allocated for this area, along with National Treasury and Department of Economic Development. There were three key focus areas under this Outcome:
- Moving forward with the Special Economic Zones (SEZs)
- The Industrial Policy Action Plan (IPAP)
- Moving into a clear Mineral Beneficiation Action Plan (MBAP) and incorporate this into IPAP
Outcome 7 (Vibrant, equitable, sustainable rural communities contributing towards food security for all), was basically implementation of Broad based Economic Participation. The main programmes under this were:
- Attracting new investments into local municipalities
- The rural initiative
- Developing a supplier programme for local procurement.
Another important priorities was developing an export council for Africa. As previously mentioned, South Africa traditionally relied on Europe for its major export market, and although, because it comprised 500 million people, it was still counted as a major market, it was slowing down. The fastest growing area now was the continent of Africa, and exports here had overtaken those to Europe. For this reason, an export council was necessary.
Yet another was the tripartite Free Trade Area (FTA) that would be launched in the coming months. This was a free trade area which combined Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and the East African countries - in all, 26 countries with a market of 600 million people. Tariffs would be removed, and this would promote intra-Africa trade.
Africa was the lowest in terms of intra-trade statistics. In Europe, 80% of trade was between European countries and they only exported 20% to the rest of the world. In Asia, 60% was intra-Asian trade. In Africa, it was only 13%. This was the reason for the under-development because African countries, including South Africa, were trading with other continents with value-added products but did not tend to trade manufactured products amongst themselves. Hopefully this agreement that opened up almost half of the continent was a stepping stone and AU was working on, ie a grand free trade area for the whole continent. As could be seen there was a strategic shift in strategy to the continent as a driver for its growth.
The 2015 financial year
Mr October said he would be summarising key strategic objectives in the growth of the manufacturing industry and its multi-tiered effect on other sectors. The Department was doing a lot of work regarding intellectual property arrangements and helping local players and local artists.
Under the Industrial Development pillar, firstly, he mentioned the updating of dti’s annual industrial policy which was already completed. The Department launched the Industrial Policy Action Plan (IPAP)last week. The Department would also be continuing with designation. Its target was to ensure that 75% of its procurement budget went to local industry. The Department did the research for various products to discover if South Africa had the local capabilities, and dti would then go to the Minister, who would designate that area, which meant all government Departments, municipalities and SOEs must buy their products locally. This had given a major boost to the local textile and clothing industry, because all uniforms, for instance, from South African Airways to the police to the army must be made in South Africa.
The Department wanted to improve its industrial upgrading programme. The Department would be trying to get more of its companies to export, to boost competitiveness. It was hoping to assist 970 enterprises in the export market industry, and another 400 enterprises in terms of capital goods; machinery and equipment under the Exporting, Marketing and Investment Assistance Programme.
The Department was hoping to put in R2 billion into the Special Economic Zones (SEZ). He reminded Members that there had been some SEZ programmes already, in Coega, East London and Richards Bay. The Department also wanted to continue with its successful Film and Television programme and support 76 film and television productions and expand and adapt the programme to ensure more black film-makers were given an opportunity.
Industrial Development Schemes were set out on slide 23. For automotive industries, the Department wanted to support 25 projects and unlock R1.8 billion investments. Call centres and data processing centres which were linked to the Business Process Services (BPS) programme had been successful and the Department wanted to attract another 12 multi-national countries, to the value of R800 million. The 12I tax incentive was mainly for larger corporations to the value of R9 billion. There was also the Critical Infrastructure Programme (CIP). Mr October explained that if investors needed, for instance, a road, or assistance with bulk water, the dti could supply that as part of the programme. Within that programme the Department wanted to create 13 new projects to the value of R6 billion.
Under Trade, Investments and Exports, the Department was working with South Africa’s neighbours and there were a number of configurations emerging. South African’s immediate one was South African Customs Union (SACU), which includes South African’s immediate partners; Namibia, Swaziland, Botswana and Lesotho. This was its biggest market. The Department was also working in the SADC region and strengthening the free trade agreement that it currently had but also expanding it into the tripartite free trade area. That programme was in its final stages and would be launched shortly. Here, dti had made some big breakthroughs for the South African sugar industry and the canning industry in terms of improved market access to the European Union. The Export Marketing and Investment Assistance (EMIA) programme had also been successful; it helped companies with the marketing costs and the travelling costs to take their goods to trade fairs so they could display their goods.
Special Lesson Promotion Division hoped to have a pipeline of R45 billion in investments. The Department, in 2013/2014, attracted investment to the value of R80 billion into the economy, and although it did not yet have the final figures for 2014/2015, but the target was R45 billion.
The Department wanted to broaden participation and create inclusive growth. Incubators helped small businesses and emerging businesses to enter the industrial sector. The Department was constantly expanding and strengthening the BBBEE Act. It would be establishing the Commission and Codes of good practice.
There would be a programme for 20 black industrialists in key sectors (the reason for 20 being that the target for 5 years was 100 black industrialists, divided by the five years). This was only a target, hopefully more would be helped by the programme. By June dti would have a full plan and financial plan for Cabinet. This was a mix of work between the Department itself, which would put in around R1 billion into the programme, along with the Electoral Commission of South Africa (IEC), The Public Investment Corporation (PIC), Small Enterprise Financing Agency (SEFA) and the Land Bank who would all make major contributions. The IEC had committed R23 billion for the programme, and there was around R300 million from SEFA and there would be announcements soon from the PIC and the Land Bank. All of this money would be combined to go into a black industrialist programme.
The Department would also continue with its agricultural development programme.
The major work on regulations would be around intellectual property. These regulations needed to be updated, and the Trades Act and others also needed updating. The Department also wanted to do an impact assessment of the National Credit Act with regard to regulations. New bills in the pipeline included the amendments to the Companies Act and some areas of the Intellectual Property Act. Another area that would focused on was updating liquor and gambling legislation, to keep up to speed with the new forms of gambling, including online gambling. A new policy framework had been agreed upon with the provinces, which would be brought before the legislature.
The Department would continue with its programme of reducing its vacancy rate by 5%, and it wanted to retain staff and reduce the turnover rate to 3.6%. It was already above target on employment of disabled people and wanted to retain this. The number of women in senior management positions would be increased by 50%.
The Department would continue to ensure that all small business and creditors get paid within 30 days. Currently, the Department was paying suppliers within 15 days, and was assisting other Departments as well.
There were 20 multimedia programmes to create awareness and ensure that everyone was committed to this goal of industrialisation, localisation and entrepreneurship.
Department’s budget for 2015/2016
Mr October noted that the dti had, in the Medium Term Expenditure Framework (MTEF), been allocated R9 593 715. The largest portion of the budget (around 60%, or R5 795 639) went towards the Incentive Development and Administration programme. This money would go directly to the private enterprises who were producing goods and services within its economy. There was a dynamic and complementary relationship between state and market. Mr October maintained that all of South Africa’s industries, for example automotive and agriculture, were world class and competitive, because of incentives, and this demonstrated that the bulk of the money was going to the private sector. Transport was another very important sector.
The allocations would move from R9.5 billion to R10.5 billion and then back again to R9.5 billion over the three years. The reason for this was that one of the programmes under the Incentive Development and Administration, the Manufacturing Competitiveness Enhancement Programme (MCEP) was introduced to support the manufacturing sector, and it would end its five-year term at the end of 2017. There were discussions whether it would be changed, or re-adapted after that.
Speaking to the division of work, Mr October explained that the bulk of the budget, R7 billion, was going towards Public Corporations and Private Enterprises. Other amounts (see attached presentation) went to the Department’s agencies, including the South African Bureau of Standards, and the Credit Regulator.
The Department had a strong governance system and part of this was to mitigate potential risks to the Department not achieving its objectives. South Africa’s major risk was that, as a small open economy, it relied heavily on exports of its products and if the economy was not growing it became difficult for it to continue. Another risk lay in attempting to stabilise its currency; if the USA stopped easing up on the interest rate it meant that money would flow back to the USA, moving out of emergency markets, so the currency could weaken. It also had domestic risks, currently being the shortages of electricity and the price increases. A war room had been established to deal with the shortages, because the biggest impact of the shortages was on the manufacturing sector. Finally, the Department faced internal risks; it was a large department with 1 516 agencies reporting to it, and it was constantly monitoring service delivery and ensuring that all ran smoothly.
The Department had its own Chief Economist section, which constantly monitored economic trends, to be able to respond proactively. He cited examples of how the Department had implemented the MCEP programme in 2008 to mitigate the huge risks when jobs were lost. The Department wanted to be more proactive in pre-empting these crises, but the Government also needed to come in to assist private sector when these difficulties arise.
The Department was very active on the energy front. It was not the Department’s mandate, but dti played a big role in that.
Finally, Mr October said that the Department had strengthened its oversight; the GCOO, and its Chief Financial Officers were working along with the Department’s entities.
The Chairperson clarified that this was the overall dti budget, and that agencies or entities would be dealt with in coming weeks.
Mr W Faber (DA, Northern Cape) supported the creation of jobs and creating a business environment for investors, but noted that South Africa had to be realistic and look at the electricity problems. He knew of a company that was due to be started in Cape Town developing solar panels. That company had now decided not to open here because of the electricity cuts, and has gone to somewhere in Europe, because its manufacturing business could not cope with energy interruptions. These were the kind of things that were killing the economy. No one could work well and become world competitors with this much uncertainty around electricity.
Mr Faber noted that Saldanha and other places were working on iron ore and exporting raw materials, but was worried that China and other places were not interested in importing iron ore from South Africa because there were too many impurities in it. South Africa needed to be able to give other countries a better-finished product, but again, could not do this without steady electricity supplies. South African systems were very outdated and had not been updated in the last 20 or 30 years.
Mr Faber said that the visit to Coega had been insightful. However, in the factory manufacturing towers for wind turbines, he had noted that metal rings used to connect each tower were manufactured and imported from South Korea. He had asked the manufacturer why he was importing the rings when South Africa had the raw material in the country. The manufacturer claimed that he did have the equipment to do it himself, but he could not get the raw materials for the same price as he could import a finished product from South Korea - because the South Korean manufacturers were being subsidised. Mr Faber said that South Africa should have equivalent regulation to protect its own people. He asked how South Africa could compete in terms of exports with these countries when they were subsidising their manufacturers.
Mr Faber asked if there was a trade agreement in place with the USA.
Mr B Nthebe (ANC, North West) asked for further details on Slide 18 (The Strategic Priorities for 2015-2020), specifically the seven investments and five trade promotion projects.
On slide 26 (Broadening Participation), in terms of the 20 black industrialists, he asked which sectors this would be implemented in, whether the Department was exploring the possibility of knowledge based sectors and whether the Department had considered the creation of secondary agencies.
Mr Nthebe enquired into the logic behind the funding being put into the SEZs, saying that he knew the platinum mines in North West had been declared an SEZ. He queried whether the SEZ should not be the focal point where it stimulated more SEZ promotion.
Mr Nthebe agreed with the Department assisting its entities in industrialising their governing structures.
Mr Nthebe raised the African Growth and Opportunity Act (AGOA), giving his view that South Africa was not deriving any additional benefit from this agreement, besides what it already had, and said that South Africa was on the back foot in negotiations. South Africa should not bend over backwards to accommodate the USA, whose prime purpose was to extract as much as possible from South Africa.
Mr Nthebe also referred to the Coega oversight visit, noting that it was said that 20 000 tons of manganese was going to be exported. The dti needed to zoom in on increasing jobs around in this area, to extract as much as possible from it (through manufacturing).
Mr Nthebe made reference to Mr October’s point on localising procurement. He cited a factory in Port Elizabeth that had been around since about 1975, which produced all the requirements for the South African Defence Force and the Police, but which had ceased operating, leaving its workers unemployed, and individuals there without any market penetration. He asked if dti could assist it in any way.
Mr Nthebe agreed that it was common cause that South Africa needed generation capacity to move the country forward. In addition, the infrastructural distribution channels needed to be corrected, which would complement the generation capacity. The country must continue to support the process and allay the fears of those who were thinking about investing in the country. Energy access must not be achieved for industry, however, at the expense of the individuals who did not yet have access.
Dr Y Vawda (EFF, Mpumalanga) spoke about the coal which was available in South Africa, and which was to be exported to West Africa, possibly the Ivory Coast, and commented that harbours were very small. He queried whether there would be new harbours built in the future, but also what the short term plans were.
He noted that inclusiveness in its economy was mentioned during the presentation, and requested specifics.
Dr Vawda also referred to the R2 million going into the SEZs and asked how people could access this support. He suggested two projects he knew of that may benefit, one of which was within a SEZ and was a black industrialist.
Dr Vawda referred to the points about Africa becoming more inclusive, and said that this was a chicken and egg situation. It had been suggested that Africa was poverty-stricken because of its lack of intra-African trade or participation. However, the buying power was not there. In South Africa, there was a need to give the people buying power, but for around 70% of them, their salaries simply did not allow for this. He suggested that more markets needed to be created that were not reliant on the outside.
Dr Vawda asked, with the two new universities being built in South Africa, what the dti was doing to engage with the Department of Higher Education and Training, to ensure that these universities created courses that allowed for jobs that would contribute to the development of the economy and contribute to the Department’s goals.
The Chairperson made an observation that the presentation was very clear, but the questions illustrated the importance of the issues. He told the dti that this Committee had taken Parliament to the People and had recently done oversight visits in Nelson Mandela Metropolitan Municipality and Coega, and everyone had a political responsibility to ensure that South Africa was a country that all could all be proud of.
He asked Mr October to discuss AGOA to the extent that he was allowed, in terms of the negotiations. The Chairperson also appealed to the Members to raise provincial issues, which might bring a different dynamic to the discourse, rather than the national focus in the National Assembly (NA). The Chairperson clarified that Members of this Committee also took reports from the Department of International Relations, and Members also served on the Select Committee on Economic Development.
The Chairperson asked about the budget figures on slide 33, requesting clarification on the numbers, which did not appear to add up.
The Chairperson asked for an indication of the percentages for regional trade, in the SADC and in South Africa, saying that there was a meeting in Windhoek on Monday that would touch on these issues.
Mr October firstly dealt with Mr Faber’s statement regarding impact of the energy shortages. At the beginning of his presentation he made reference to strikes in the mining industry and the electricity shortage and he said that the Department's Investment Promotion Unit had spent a lot of time recently dealing with the energy crisis. The Economic Cluster, at the beginning of this year, went to Cabinet to establish a five-point plan for the maintenance of the electricity generation plants. The plan was very comprehensive. The reason for its problem was that South Africa had made new investment regeneration capacity too low and there was inadequate maintenance of plants. The lack of sufficient new regeneration systems meant that people had to overrun their systems. The first point was that the emergency Eskom plan dealt with the maintenance of the plants. Secondly, Independent Power Producers would be asked to assist. Thirdly, The Minister of Energy also announced that the Department of Energy would be bringing on board new forms of renewable energy. The fourth point dealt with regeneration. The last point was demand management. There was currently excess of demand, but that could be reduced. This energy problem may persist for another few months but there was the war room in place, with people from many departments working full time .
Mr October noted that both Mr Faber and Dr Vawda had raised issues from the Coega visit, and this was really about the supply-demand dynamic. Many manufacturers had the capacity to produce much more but there was not a demand. Taking solar panels as an example, there were three or four established plants, but then demand was not there yet - so it was definitely a chicken and egg situation. In economics, supply and demand were vital, and one of the main problems in South Africa was that wages were still too low to raise demand, which reduced buying power. The market was also small - and there was no point in supplying more to the local market if there was not the demand there.
The industrialisation programme was aimed at correcting that chicken and egg situation. South Africa imported a lot but the Department wanted to replace those imports. However, more people needed to be employed for this, to create demand. Basically it was unlocking a dynamic. The South African market was still small, but all successful markets were big. Germany, for example, had 80 million people, whilst USA, India and China all had mass markets. They combined their markets. Europe was made up of many small countries who could never industrialise within their own small markets, but the EU combined produced a market of 500 million people. Germany could produce large amounts, not only for its own 80 million, but the other 500 million as well.
Mr October pointed out that cost was another vital factor. To achieve stable economies, it was necessary to produce at lower cost, and EU had achieved that. That was why the dti was pushing so hard to establish markets in South Africa, and was the reason behind the designations. South Africa had been importing 50% or 60% of goods for the clothing and textile industry, yet the designation was introduced only a few years ago. This should have been done much sooner, because now South Africa was seeing the benefit. That was why the dti had adopted an active industrial policy.
Mr October went on to contextualise AGOA. AGOA was a unilateral trade agreement. It gave preferences to the Continent, to be able to sell duty-free and not pay certain fees. The USA claimed that it was "a gift to Africa" to allow Africa to sell without fees. This was slightly different from the EU, where there was a reciprocal trade agreement, so that South Africa was given duty-free access and reduced tariffs, but had given the EU the same. Nobody could change anything without the other party agreeing to it. AGOA, being unilateral, meant that African countries did not have much say and USA decided the terms. It was true that South Africa did benefit nationally from it, because it was exporting a large amount to America. However, the USA was demanding more of a quid pro quo. USA had threatened to withdraw the benefits to South Africa as it was worried that South Africa was granting more benefits to EU under the FTA, but the dti and the Ministers negotiating had managed to renew it. It was currently before Parliament, for approval for another 10 years. The only downside to it was that USA wanted to put pressure on South Africa to open its market to US products, which was why this facility must be used to constantly review its participation, so if people had complaints they could report them. A review would be conducted within 30 days. Dti had achieved its goal of maintaining access to the market but the pressure was still on. South Africa was still negotiating on poultry products. America wanted to export over 100 000 tons of poultry, whereas the South African Poultry Association had offered around 40 000 tons. Negotiations were ongoing on this number.
Mr October answered the questions of Mr Nthebe, by saying that the investment and trade projects were broken down, to an annual basis, forming part of the five-year plan. For Year 1, there would be one trade project. Every year, dti would take people on trade promotions, such as 100 people being taken to China in the hope of introducing new or emerging exporters to new markets. Some of them were pure investment missions, while some were export promotion.
Mr October agreed that the North West platinum mines allocation may seem a little low, but the funding was made up of two parts. The first part was operational expenditure which came from the companies. The Department would come in to pay for infrastructure, and when investors come in, the Department would help with the top structures as well. Besides this, the incentive programmes were different.
Mr October noted the comment on manganese and on iron ore. Some iron ore was exported in raw state and some went to ArcelorMittal to make steel products. The profits from ArcelorMittal were not reinvested to upgrade infrastructure in the past, but this was happening now and upgrading was taking place. Coal was a particular problem because Richard's Bay, the port from which exports would leave, had had insufficient capacity for export. There were plans to expand Richard’s Bay port to handle the emerging coal exports in particular.
Mr October noted that under the Black Industrialists initiatives, there was going to be a very active, specific programme to help black owned and managed companies. The Department hoped to have a package ready on it in June, detailing how to create more black owned and managed companies in the economy. It would be a mixed initiative. The dti would give some grant funding for investment and equipment, and did not need to be paid back. The other part of it was a coordinating mechanism between dti, IEC, PIC, SEFA and the Land Bank, who would contribute as a body. IEC announced it would be giving R3 billion. This would be a permanent co-op chaired by the Department. There would also be low interest rate loans offered to black owned and managed companies.
There were ten new SEZs planned over the next five to ten years. Many of them were in previously disadvantaged areas; with one or two per province. There were SEZs in the North West for platinum and agri-business. There would be SEZs in Limpopo, Mthatha, Wild Coast and other previously marginalised areas of the country. The Department helped with infrastructure and helped to build the top structures.
Mr October noted that in relation to skills, there were a number of programmes that the Department wanted to expand. The Department worked with the Department of Higher Education and Training already, and worked also with the call centres and BPOs. Thousands of young people were getting experience and training in these centres, and a large proportion, around 90%, would get permanent jobs at these centres thereafter. The Department managed the programme but got the money out of the National Skills Fund, in a collaborative partnership between the dti and the Department of Higher Education and Training. The Department was also running training programmes, as part of a Public Service enterprise for Saldhana and Upington. Saldanha was starting a major oil, gas and ship industry, and 100 young people were being trained in a collaboration between the Department and Sector Education Training Authority (SETA).
Mr Shabeer Khan, Chief Financial Officer, Department of Trade and Industry, clarified the numbers on the graph on slide 33 for the Chairperson. He noted that the numbers below the R8 billion made up the sub components, and that all the individual components of the graph did not add up to the 9 billion at the bottom of the graph.
Another member of the Department’s delegation spoke further about the ports. All those involved in the ports had brought in an international expert to work closely with the Transnet National Port Authority (TNPA). TNPA had committed to a R7 billion infrastructure programme to support marine manufacturing at Richard’s Bay, Saldhana, Durban and Ngqura, The TNPA, with the Department’s support, was trying to leverage its private sector investments in infrastructure. Existing exports of Manganese would be transported to the Ngqura port. There was also further research into the existing capacities and capabilities of Richard’s Bay, including for exports of coal. This work was ongoing.
In relation to steel there was a multi-pronged approach which included working closely with ArcelorMittal to develop a stronger relationship, and looking at pricing regimes of steel for the local market. The company in question used its global supply chain to stop production of certain steel products in South Africa, and focused on lower value added products. However, South Africa needed higher value-added products like the mininequipment and so on, so the Department was in discussion with ArcelorMittal. The Department was also involved in talks with a number of other steel companies to try and secure investment in the steel industry to create competition and lower prices.
The Department was also working closely with Transnet Rail. The transport costs by road from Saldhana to Gauteng, where manufacturing occurred, were too high and the dti hoped that moving transport back to rail would result in lowering of costs. Steel made up about 70% of manufactured products, but prices remained high and there were shortages. He pointed out that there was currently a glut in the global steel market for a host of reasons, not discussed here but it was recognised that this would not last, and South Africa needed to be well positioned when demand picked up, ensuring that it could offer quality and a range of products to give to manufacturers.
Mr October added that there was an oversupply of steel in the global market currently, and because everyone was slowing down demand was low, which resulted in prices falling. The dti was in discussion with the steel companies. They were facing falling revenue, and intermittent electricity that was becoming more expensive and actually made up around 20% or 30% of their costing. The solution was to create more demand for steel. South Africa itself needed to build more railway tracks, even revitalise its townships, but also needed construction projects, so all this pointed to the fact that industrialisation was therefore key. The electricity problems were exacerbating a lot of the issues.
The Chairperson asked how the Members, as representatives of their provinces, could locate infrastructure programmes in their areas and in the infrastructure development programmes of government. The Committee visited the Small Enterprise Development Agency (SEDA) in Port Elizabeth, and the Director was very proud because it had produced the first young black millionaire. The Select Committee had to make a decision on which countries in Africa could be visited as part of oversight and he asked that the Committee be informed of Trade Fairs. Noting that the Committee had already also visited some programmes funded by the Department of Economic Development, he noted that there might be a possibility of having morning session in Saldanha.
Mr Faber asked if the delegation had any information on the Northern Cape Economic Corridor as it could revitalise the Northern Cape. He explained that it was apparently an entire economic corridor, not just railway lines, from Kimberley all the way to the West coast. He said he had emailed details to the Department's Parliamentary Liaison Officer.
Mr October said he did not have information for the specific corridor, but spoke about the area that the Department was involved in; which was a solar corridor in Upington. There was a new SEZ in Upington on which feasibility tests were being completed, and another around Port Nolloth. The Department’s infrastructure was helping around that. He would get the details of the Northern Cape corridor for Mr Faber.
Mr Nthebe applauded the Department on the presentation and its work. He agreed that if the Department wanted to improve the trade balance, there was a need to expand the export base. He suggested that South Africa should celebrate the tripartite agreement as it would open the country up to a R600 million market.
Mr Nthebe referred to the Clean Energy initiatives in Upington and claimed that some were referring to it as "the Spanish Invasion". He was worried that it was a major project, yet with very little community investment programmes or skills development. He urged that there must be processes for imparting skills, so that the people in the community could become involved in the maintenance of the solar panels. He did not know what exactly would be the practical solution to this issue, but the Department and its partners needed to figure out how best to resolve it, along with the government. South Africa appreciated foreign investment but this must be able to be taken to the people, in an inclusive manner.
Mr Nthebe also supported the intra-Africa trade processes, and reiterated that whether South Africa was able to stimulate domestically, regionally or globally, it must always ensure its people were getting the opportunities.
Mr October responded that the dti knew that a core task would be skills development. There needed to be greater involvement of all South Africans. The dti recognised the need to bring in foreign technology but indigenise it.
Dr Vawda reiterated the need for engaging the universities about ensuring job-oriented courses.
The Chairperson interjected to say that Minister of Higher Education and Training, Mr Blade Nzimande, had also reported on this. The visit to Mossel Bay showed that there was very little training, and he was told privately that those in Mossel Bay were being despatched to Saldhana for training. The women were much better at welding. Training was already in place, and there was no need to look to the universities to offer more. In addition, a visit to the South African Nuclear Energy Corporation (NECSA) showed that training was also being done. At the moment NECSA was training over 100 young people at this facility, who already had basic training, and there was accommodation for the students there.
The Department promised to send details of Trade Fairs in which dti was involved to the Committee.
Mr October asked that the details of specific problems raised in the Committee should be sent to the Department, including the details of the factory in Port Elizabeth, which he would ask the Clothing and Textile Team from dti to visit.
The Chairperson commended the Department for its plan.
The Chairperson tabled the minutes of the previous meeting and were adopted, subject to the inclusion of an item that had not been mentioned.
The Chairperson outlined the programme for the Select Committee on Economic Development and it was noted that it may not be possible to achieve a quorum, but the Secretary would call Members to ascertain their availability.
The meeting was adjourned.
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