Sugar Association regarding alternative energy sources briefing; Committee Reports on Transfer Pricing & Trade and Industry Budget

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Trade and Industry

13 May 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Formal consideration of the Committee’s report on Budget Vote 34: Trade and Industry

Recommendations for the Committee’s report on Budget Vote 34 focused mainly on the proposed Black Industrialist Development Programme and the opposing views Members had in curbing the illegal activities and non-compliance in the scrap metals industry. DTI clarified that there would be two types of financing for black industrialists. Concessional loan finance would be provided by the Development Finance Institutions (DFIs), mainly by the Public Investment Corporation (PIC) and the Industrial Development Corporation (IDC). The R23 billion that was announced would be provided by the IDC and the PIC and the Land Bank would make similar announcements. These contributions would then be coordinated and be made available, at very low interest rates, to qualifying black industrialists. DTI did not deal in loan finance and the R1 billion would be in the form of grants from existing incentive schemes and programmes. All the money would go to plant, equipment and machinery in the productive sectors of the economy. It would only be paid out if there was a clear plan of either expanding an existing or establishing a new facility.

Members questioned whether the Black Industrialist Development Programme spoke to broad-based empowerment and sought clarification that the money would not go to individuals and that there would be a coordination mechanism in place between the Economic Development Department (EDD) and the DTI to create a syndicated funding structure. Some Members wanted the export of scrap metal to be banned and a clear beneficiation process for local production be put in place.  This view was opposed by Members who held that it was a viable and legitimate industry and a whole industry should not be punished for the transgressions of a few operators. The DA and FF+ abstained from voting for the adoption of the report pending the submission of the budget to their respective caucuses. The EFF did not vote in favour of the report sighting that DTI would not be able to fulfill the objectives unless the IDC came under its oversight.  ANC Members voted for the adoption of the report and the Committee’s report on Budget Vote 34: Trade and Industry was adopted.

The Sugar Association of South Africa (SASA): The South African sugar industry and potential expansion of its product chain

The presentation dealt with the potential opportunities available through diversification into alternative energy. South Africa ranked as the 11th largest exporter globally with a total average industry income of R12 billion per annum and it made up 0.84% of the country’s Gross Domestic Product (GDP). Export earnings amounted to R2.5 billion per annum and 20 million tons of cane was produced annually with a value of approximately R7.7 billion per annum. The fibre (bagasse) of the cane stalk was also used in the production of renewable electricity and in the production of animal feeds, paper and chemicals. In addition, the industry also produced portable and industrial ethanol from sugars. There was a significant opportunity to expand production into fuel ethanol production as well. The three categories for renewable energy were cogenerated electricity, biomass electricity and bio-fuels. The sugar industry could contribute to addressing the current energy crisis. Minimal capital investments, agreements and grid connections secured sugar industry could export cumulatively 78 megawatts to national grid over a three to five year period. For fastest implementation, export sugar could be diverted to fuel ethanol and the industry would always be able to supply local sugar market. The most capital and cost efficient approach, also consistent with the Brazilian practice, was for brownfields sugar ethanol production. Potential jobs estimated at full and expanded capacity showed the creation of 26 498 jobs through sugar-electricity and 21 078 jobs through bio-ethanol production.

Some Members questioned the validity of the numbers in terms of possible job creation and there was a call to provide the Committee with more detail on these estimates. It was also a concern that through pursuing alternative revenue streams such as renewable energy, food security might be at risk. Members wanted detailed explanations on what the revenue ratio for the millers and the growers were; what the governance structures looked like and how the industry was promoting BEE and the participation of women, the youth and people with disabilities.

Committee Report on Transfer Pricing

Members had a heated debate on the effectiveness of developmental pricing as a means to drive local beneficiation and industrialisation. Members also argued on the role of the state and strategic interventions by the state in the certain economic sectors.  The ANC and the EFF were in favour of imposing a developmental price for raw minerals in relationship to manufacturing and production and an increased role for the state to play in driving industrialisation.

The DA formally noted objections to imposing developmental pricing and argued that it would essentially destroy one sector (mining) in favour of another (manufacturing), it would lead to job losses in the mining industry and that it would essentially only benefit multinationals and global automotive manufacturers. Members of the ANC and the EFF accused the DA of protecting ‘white monopoly capital’ and defending the status quo. Consideration for adoption for the Committee’s report on transfer pricing was postponed to the next meeting.

Meeting report

The Chairperson welcomed everyone to the meeting and the agenda for the meeting was adopted. She noted that the Committee had one or two areas that needed some clarification on the Committee’s report on Budget Vote 34 and the points should not be belaboured. She welcomed Mr R Mavunda (ANC), a Member of the Portfolio Committee on Energy to the meeting.

Formal consideration of the Committee’s report on Budget Vote 34

The Chairperson went through the report and the amendments that were made by the Content Advisor, Ms Margo Sheldon. She referred to page 12 and the Black Industrialist Development Programme. She asked where the R1 billion ring-fenced for the programme came from.  She asked for the status of the programme because statements had already been made in the House during other budget votes. 

Mr Lionel October, Director-General, DTI, clarified that the Black Industrialist Development Programme was still in the planning stage and hopefully in June 2015 the Deputy Minister would be able to submit a full policy, programme and action plan to Cabinet for adoption. There was an advisory group working on finalising the programme. DTI was working with all the development finance institutions (DFIs) like the Industrial Development Corporation (IDC), the Small Enterprise Finance Agency (SEFA), the Public Investment Corporation (PIC), Land Bank and the DTI. There would be two types of financing for black industrialists. Concessional loan finance would be provided by the DFIs, mainly by the PIC and IDC. The R23 billion that was announced would be provided by the IDC. The Department was trying to put all the DFIs and the DTI into a common structure where each would put a contribution toward financing of black industrialist. SEFA had already contributed R100 million, IDC had just announced the R23 billion and the PIC and the Land Bank would make similar announcements. These contributions would then be coordinated and be made available, at very low interest rates, to qualifying black industrialists. DTI did not deal in loan finance and the R1 billion would be in the form of grants from existing incentive schemes and programmes. Over the next three years the Department would roll out about R1 billion in grant incentives and the programme would be a mix of debt and grant finance. All the money would go to plant equipment and machinery in the productive sectors of the economy. It would only be paid out if there was a clear plan of either expanding an existing or establishing a new facility.

The Chairperson wanted clarification on how the money would be paid out.

Mr October replied that the money would be paid in much the same way the current DTI incentive programmes, such as the Manufacturing Competitiveness Enhancement Programme (MCEP) worked. Money was only paid out once the machinery was in operation. Whilst the grant was approved beforehand, money was only paid out once the inspectors verified that the machines had been switched on and were working.  A similar system would be adopted for the Black Industrialist Development Programme where the money would go to an individual company.

Mr D Macpherson (DA) asked how it would be ensured that these large sums of money supported local content, because it would be devastating if that money was used to purchase offshore equipment. He asked if there conditional grants on that basis.

Mr October replied that this was the thrust of the programme. The policy would be put together with the conditionalities for local content, but all the money would only go to local production anyway.  By putting the money into machinery and equipment local production would be ensured and the money could not be used to import.

Mr G Hill-Lewis (DA) wanted confirmation that these monies would not only benefit 100 people.

Mr October replied that DTI had set an internal departmental target of 100 black industrialists and it could be more or less. The Deputy Minister committed to try and create 100 new black companies over five years that would be assisted under this programme.  The money would not be given to individuals, but to companies engaging productive sectors of the economy.

Adv A Alberts (FF+) said the Broad-Based Black Economic Empowerment (B-BBEE) Act talked to broad-based empowerment and he asked how enriching 100 people talked to broad-based empowerment.

Mr October replied that whilst the aim was to create black industrialists, many of the companies could be broad-based in terms of their ownership structures. One of the best models that emerged on BBBEE would probably be from Standard Bank that gave 40% of its shares to staff and workers, 40% went to small businesses (including individuals) and 20% to community trusts. Broad-based ownership structures would be encouraged.

Mr M Kalako (ANC) asked if there was a coordinating mechanism in place that would deal with the money between the DTI and the Economic Development Department (EDD). He wanted to know how DTI planned to avoid giving money to people who were “chasing shares in companies”.

Mr October said one of the proposals in the past had been the establishment of a DFI coordinating mechanism which would be chaired by the DTI. This committee would be a formal structure between the DTI, PIC, IDC, SEFA and Land Bank. It would mean that if a company had been approved by one DFI it would be accepted by all DFIs to create a syndicated funding structure. Companies had to be more than 50% black owned and managed to qualify for grants or loans. There should be direct operational involvement by the black entrepreneur to ensure that passive investors only interested in acquiring shares did not access funding. Only the plant machinery and equipment would be financed and the money could not be used for buying shares. The bulk of the machinery risk would be borne by the industrialists themselves, because grant funding never made up more than 20% of the total funding and debt finance had to be paid back. This ensured that the entrepreneurs had to put the finance to productive use to earn a return on the capital.

Mr F Shivambu (EFF) was late to the meeting and the Chairperson noted that some of the issues raised by him previously had just been dealt with.

Mr Shivambu said the Minister of Economic Development mentioned different figures the previous day and he asked for clarification on what the correct figures were and what department or entity was responsible for the contributions.

The Chairperson said this had already been clarified. It was difficult to immediately state what benefits would arise under a particular incentive, because it usually took a couple of years to assess and determine the benefits. Nevertheless in future, the Department should give an overall assessment of expected benefits.

Mr October replied that DTI incentive schemes usually ran for five years and a midterm assessment on the impact of the programme was done as part of the normal monitoring processes. Incentives granted in the automotive industry showed the auto assembly sector employed about 30 000 people, the components sector employed about 80 000 people and the retail sector employed approximately 200 000 people. Over 300 000 people drew support from the automotive industry directly or indirectly. Exports amounted to over R100 billion to over 140 countries and it was a world class competitor. If it was not for the incentive programme there would be no automotive industry in South Africa and the country would have just been a distributor of imported vehicles. The case for industrial support in sectors was crystal clear.

The Director-General was excused to attend a meeting with the Select Committee on Trade and International Relations.

The Chairperson continued through the report and she asked Members to state their recommendations.

Mr Macpherson sad that in terms of MCEP, the recommendation should read, “in consultation with the Minister of Finance to continue allocating funds in the 2017/18 financial year to support the manufacturers to improve their competitiveness”.

Mr Kalako said his recommendation on the African Growth and Opportunity Act (AGOA) should read, “Continuing advocacy efforts to ensure a favourable resolution for South Africa’s inclusion in the extended AGOA.

Mr Shivambu said the concrete proposal made in terms of the Companies and Intellectual Property Commission (CIPC) was that there should be formal recognition of those that provided CIPC services. People who register companies on behalf of CIPC should be recognised and formally accredited to be guided within the CIPC framework.

The Chairperson said Mr Shivambu’s proposal might be covered in the Conclusion.

Mr Macpherson said he battled to see what the formal recommendation was and it was difficult to comprehend form an oral submission if it was not written down.

The Chairperson said the thrust of the proposal was clear and a decision should be taken whether there was agreement on the thrust of the proposal.

Mr Kalako said it was covered in the Conclusion.

Mr Mkongi referred to the recommendations on the Industrial Policy Action Plan (IPAP) and its impact and he said the legal enforcements on the scrap metal regulations should also be noted.

The Chairperson said this would interest Mr Mavhunda, because scrap metals used less energy than raw iron ore to process into steel. The question was why some sort of limit was not put export and it remained an important issue, because it had been raised before.

Mr Hill-Lewis said he maintained his position that to place a permanent or temporary ban on the export of scrap metals would destroy a massive and entirely legitimate industry that employed thousands in South Africa all because of the unlawful deeds of a handful of operators in that industry. The numbers on the theft of copper and export of scrap metals within the context of the entire industry; it was a very small percentage of a valid and legitimate industry. A government should not punish everyone for the sins of a few. The DA endorsed the comments around more robust monitoring and enforcement of regulations. The government was failing to implements its own rules and regulations and should not punish an entire industry for its failures.

Mr Shivambu said difficult decisions should be taken when industrialisation was prioritised. This Committee was committed to industrial development and beneficiation and the export of scrap metals did not support that commitment. The export of scrap metal should be illegal with a clear programme that supported local beneficiation of turning scrap metal into steel and it would contribute to energy conservation.

The Chairperson asked whether Mr Shivambu supported the review of scrap metal export and the increased and robust monitoring.

Mr Shivambu said the export of scrap metal should be banned and DTI should support those that turned scrap metal into steel locally.

Ms P Mantashe (ANC) agreed and said the position of the ANC called for radical economic transformation.

The Chairperson said it seemed there were two opposing views and she suggested Members met each other halfway. It might not be possible to call for an outright ban on the export of scrap metal because of all of the relevant legislation did not reside within DTI. She suggested that the Committee called for a review on the export of scrap metal.

Mr Kalako said the Minister of Economic Development had already stated that a process of negotiations would be started with steel producers. He suggested that the Committee supported those engagements. Because it was an issue on which EDD would have to take the lead. Members should express their views because it affected beneficiation within the trade and industry sectors.

The Chairperson added to the recommendations that “the utilisation of scrap metal in the production of steel uses significantly less energy”. She suggested that it be added in the recommendations that this matter was under discussion at ministerial level and asked that the Minister of Economic Development ensured that issues around scrap metals affecting the implementation of IPAP were effectively addressed. It should also include that the Committee called for more robust monitoring and enforcement.

Mr Shivambu said it was not clear enough and the current practices unabated. In most cases, government was not able to enforce laws related to businesses.

The Chairperson said every political party represented in the Committee had an ideological position and it was a constitutional right and she asked Members to review this report seriously. She moved that the report be formally adopted.  

Mr Shivambu suggested the first recommendation should note the 75% local procurement directive issued by the President during the 2015 State of the Nation Address (SONA). It should be legislated because there was really no way to enforce the procurement directive.

Mr Mkongi confirmed that it was an ANC policy position.

Mr Shivambu also proposed that IDC should be under DTI, because the Department was the implementing agency of the industrial policy. EDD would continue to deal with policy perspectives and coordination.

The proposal was not supported.

Mr Mkongi proposed that the recommendation included that the Minister of Economic Development should consider placing a moratorium on the export of scrap metals to ensure that such exports not compromise the industrialisation drive of South Africa.

The proposal was seconded.

Mr Hill-Lewis said a moratorium was a temporary ban and he asked what would happen in the interim.

Mr Kalako said it was a temporary ban whilst EDD ensured enforcement was put in place. The DA was correct in its position that there were compliant operators, but the moratorium was a temporary measure while the regulations were implemented. EDD should be taken to task to implement the regulations.

Mr Hill-Lewis said the Minister of Economic Development wanted to enforce the price preference system that was now in place he was free to do so and did not need a moratorium. He asked that the DA’s strenuous objections to the recommendation be noted.

Adv Alberts said the Committee needed to establish what the obligation to international law was before making recommendations.

The Chairperson said it was not precluded in terms of international law. She proposed that the recommendation remained as it was.

Ms P Mantashe proposed the adoption of the Committee’s report on Budget Vote 34: Trade and Industry.

The proposal was seconded by Mr Williams.

The G Hill-Lewis said the DA had to submit the budget reports for a caucus decision and an opinion on the report would be reserved until that decision. The DA would vote on the budget in the House.

Adv Alberts said the FF+ had the same position.

Mr Shivambu said despite the good efforts to drive industrialisation, the EFF did not think that the DTI would be able to fulfil these objectives if it did not have implementation agencies such as the IDC on its oversight. On that basis, the EFF did not agree to the adoption of the report.

The Committee’s report on Budget Vote 34: Trade and Industry was adopted when all Members of the ANC voted in favour of the report.

The Sugar Association of South Africa (SASA): The South African sugar industry and potential expansion of its product chain

Mr Rolf Lütge, Chairman, SASA, said the presentation would deal with the potential opportunities available through diversification into alternative energy. The South African sugar industry was mainly located in KwaZulu-Natal (KZN) and the industry was an important contributor to the South African economy. The global sugar industry had almost 120 producers, including the individual European Union (EU) member states. In its 2013 yearbook the International Sugar Organisation (ISO) ranked South Africa as the 18th largest sugar producer globally. South Africa further ranked as the 11th largest exporter globally and the industry was more than 150 years old. The total average industry income was R12 billion per annum and it made up 0.84% of the country’s Gross Domestic Product (GDP). Export earnings amounted to R2.5 billion per annum and 20 million tons of cane was produced annually with a value of approximately R7.7 billion per annum. The overall contribution to South Africa’s total agricultural output was 6% and the industry created about 79 000 (11% of agri employment) direct job opportunities and 350 000 indirect employment. Shared growth and sustainability was fundamental to the future of the industry. The strategic interventions and priorities for the industry were a stable regulatory environment, improved productivity and increased revenue. Much effort had been put into reducing costs and improving efficiency, but it was in diversified revenue streams that the industry was pinning its hopes of arresting shrinking margins among growers and millers.

Mr Lütge said the industry established a partnership with the Department of Rural Development and Land Reform (DRDLR), established the Shukela Training Centre for skills training and established research facilities through the South African terminals based in Durban. He gave an overview of the industry’s support initiatives in terms of land and rural development like the Grower Development Account with over R206 million invested for the development of black growers in the industry. The Sugar Industry Trust Fund for Education had assisted over 10 000 students from rural and urban communities with bursaries and various interventions and the Supplementary Payment Fund (SPF), which had been initiated in 2005/06, saw approximately R240 million distributed to growers to date.

There had been a significant decline in area under cane, cane yield and the number of growers since 2001 due to a variety of factors such as climate changes and production costs. It was however one of the most progressive commodities in terms of land transfers with 74 624 hectares transferred (22% of freehold commercial land under sugarcane production). Black ownership would exceed 50% as the pace of restitution gained momentum. He highlighted some of the success stories through an assessment of the impact of the recapitalisation and development programme. In order to remain competitive within the global market, the industry relied heavily on import protection. Cheap imports from heavily subsidised countries such as Brazil continued to undermine local producers and slowed the rate of sustainable growth.

Dr Marilyn Govender, Natural Resource Manager, SASA, said the sugarcane stalk comprised of 15% fibre, 15% sugar and 70% water. The fibre (bagasse) was also used in the production of renewable electricity and in the production of animal feeds, paper and chemicals. In addition, the industry also produced portable and industrial ethanol from sugars. There was a significant opportunity to expand production into fuel ethanol production as well. Sugarcane was one of the most efficient plants to convert sunlight into energy. The three categories for renewable energy were cogenerated electricity, biomass electricity and bio-fuels. Options premised on the principle that supply to existing domestic sugar market value streams and ethanol distilleries remained a priority. The sugar industry could contribute to addressing the current energy crisis. Minimal capital investments, agreements and grid connections secured sugar industry could export cumulatively 78 megawatts to the national grid over a three to five year period.

For fastest implementation, export sugar could be diverted to fuel ethanol and the industry would always be able to supply the local sugar market. The most capital and cost efficient approach, also consistent with the Brazilian practice, was for brownfields sugar ethanol production. This would lead to at least 2 to 3 large ethanol distilleries with diversion of 50% of sugars to ethanol. Jobs estimated at full and expanded capacity showed 26 498 jobs through sugar-electricity and 21 078 jobs through bio-ethanol production. The majority of these jobs would be concentrated in the agricultural aspect of renewable energy production.

Dr Govender gave an overview of the significant job creation, preferential procurement and rural development potential in addition to the economic value added benefits from renewable energy. The release of the request for proposals for the national cogeneration Independent Power Producer (IPP) programme which supported procurement of renewable cogeneration from sugarcane fibre was imminent. The bio-fuels regulatory framework and the subsidy models were under review by National Treasury.

Mr Lütge said SASA would appreciate future engagements on this issue and would make any required written submissions. The Committee was welcome to visit the organisation to experience the industry dynamics firsthand.

The Chairperson thanked SASA for the presentation and also welcomed the invitation to visit the organisation.

Discussion

Adv Alberts asked what the rationale for this plan was and whether the industry was under pressure. In terms of environmental impact, he asked if any studies had been done and what the environmental impact would be for generating power in the way the presentation suggested. Lastly he wanted know if SASA had applied for any IPP licenses as yet and if not, when the applications would be submitted.

Mr Lütge replied that the rationale behind the presentation was mainly to create awareness.

Dr Govender said the use of sugarcane as a fuel or energy source was a renewable source and it had all the renewable energy benefits such as renewable biomass and reduced carbon emissions. It was positive in terms of the environmental impact. This industry promoted best or best environmental management practices in the production of sugarcane. The necessary systems had been developed that promoted best environmental practices across the industry. SASA had not applied for IPP licenses yet, because the cogeneration needed to be launched first and thereafter the developers would apply for the necessary licenses. 

Mr Hill-Lewis questioned the relevance of these initiatives to DTI other than applications for grants at a later stage to fund capital expense. If the job numbers were as promising as suggested, although he suggested it sounded almost too good to be true, then the DTI would have no problem approving the grant applications. The presentation did not make it exactly clear what was required from the Committee, because the Department of Energy issued the call for proposals and the DTI already had a process in place by which to apply for grants. The Committee often got groups that appeared before the Committee promising “the creation of 100 000 jobs” and he cautioned SASA on over promising on job creation numbers, because it looked slightly over the top. It was presumed that he R7.7 billion generated per annum was the retail value, because it worked out to R385 per ton and he wanted to know what proportion of the R385 went to the farmer. It also worked out to R21 000 per hectare under cane and he asked how much of that went to the farmer. He asked why the margins for the millers were shrinking if there was tariff protection, because it was a fairly non-competitive and concentrated market in South Africa. It was understood that growers in South Africa were paid according to the sweetness of their cane. He asked how growers would be paid if the leaves and the bark would be burned. It was a concern because the milling companies in South Africa made enormous amounts of money and the first stage producers tended to get a raw deal.

Mr Lütge replied that SASA was close to making submissions to the Department of Energy and it was important for this Committee to understand the background and the challenges that might trip up those applications. A regulatory environment was required for the production of ethanol. In terms of the jobs that might become available, SASA was looking at the desirable scenario where the maximum was achieved which spoke to the R20 billion required and the projects it would entail. The resources were in place and the industry was ready to move as soon as the regulatory framework was put in place.  Access to funding would be a relevant topic in securing the support of the DTI, but it would not be SASA’s job in the future, but that of the individual milling companies that would be driving these projects. It was understood that far greater accuracy in detail was required on the jobs that would be created per project as well as the resultant benefits. The revenue generated by the industry on the milling side got put into a “pot” which got divided roughly according to a ratio of 35% to the millers and 65% to the growers. It meant that the R7.7 billion was already the 65% allocated to the growers and they were in fact rewarded the entire R385 per ton and the R21 000 per hectare. The shrinking margins for millers could be ascribed to the main underlying factor which was underutilised capacity. Cane production had reduced in many areas in this had resulted in intense competition between millers to get hold of the cane and to secure supply agreements. There were several mills in South African that were currently running between 50% and 60% capacity and it had a major effect on profitability and the bottom line. The lack of raw material was the main reason, but significantly increased input costs, particularly on the labour side also impacted the margins. Any given year a low world price would have a major impact on the revenue for both millers and growers. A lot of the mills were breaking even and when there were insufficient cane on the ground such as this year when a major drought was experienced, at least half of those mills were likely to incur losses. Both millers and growers were rigorously finding endeavours for alternative revenue streams. Sucrose and cane were easily quantified and growers were paid accordingly and it had no impact on the potential payments to be received for fibre.  Many of the cogeneration products would be dependent on the fibre left behind in the field such as the cane tops also being delivered to the mills in addition to the bagasse that was already created as a side product of the milling process. The millers and growers would have to come together to negotiate a price and as soon as a project would come into fruition, the two parties would have to get together to try and find a balance between the commitment to supplying the cane and to be remunerated for it.

Mr Williams asked how many of the 14 mills were black owned and black managed and what percentage of the average industry income of R12 billion went to black farmers and black entrepreneurs. He asked what SASA was doing to address farm worker exploitation and farms that employed illegal foreign workers.

Mr Lütge replied that 65% of the R12 billion went to the growers and approximately 10% of the supply came from black growers and it amounted to roughly R780 million paid out to black growers at this point in time. It was a constantly growing number and with the planned initiatives, the number was expected to grow year-on-year. The exploitation of farm workers was not likely to be an issue in the sugar industry as it would have been debated by now. There was however very little SASA could do in terms of monitoring or governing such practices or to collect statistics on it. It was a difficult question to answer directly and perhaps a written response in due course would be able to address the question.

Mr Shivambu asked for an explanation on the extent of small scale farmer involvement in this industry and what the level of their contribution was. Usually a problem with turning food items into oil became evident when the oil became so profitable that the food items suffered. He asked if there was a way to ensure industry stability. He asked what the linkages of the sugar industry to the confectionary sector were.

Mr Lütge replied that at this point in time there was no relation between oil and sugar. The fact of the matter was very little ethanol was being produced in South Africa and the oil price was unlikely to impact that, because the majority of it went into the production of portable alcohol.

Dr Govender said in terms of food security, all bio-fuel assessments and projects maintained that local market sugar supply would always be met while it would be the export sugar that would be diverted and then additional would be produced for the expansion of agricultural production. In essence, it would not be an issue for meeting local market supply demand. Much of the sugarcane production took place in rural areas and it served as a catalyst for bringing revenue into those areas. 

Mr Macpherson said maybe a discussion was needed on the future of small scale growers in the industry as an opportunity for empowerment and employment. He asked what the government was failing to do to improve the competitiveness of the industry and how the decisions by companies to sell vast tracks of land, especially in Durban and surrounding areas, affected the industry. He asked what SASA was using in terms of smart technology for farming and how did the continued pronouncements by the Minister of Rural Development and Land Reform on the capping of the size of farms were going to affect the sugar industry.

Mr Mkongi asked why this industry, like many others were shifting to renewable energy. He asked if it was possible that the Committee be provided with numbers on the governance structures of both SASA and the companies on the ground in terms of BEE and the involvement of women, youth and people with disabilities. He wanted to know how many of those people who underwent skills training became part of the governance structures and management. He asked if there was a programme in place in support of the Black Industrialist Development Programme and whether SASA wanted the Committee to intervene on the issue of tariff protection.

The Chairperson said the rest of the responses would have to be provided in writing and some of the answers already given could be expanded on in the written responses. She asked for some input from the Department.

Ms Thembelihle Ndukwana, Director: Agro-processing, DTI, said the Department, especially the agro-processing unit had been working very closely with the industry to enhance competitiveness and efficiency and to make sure that the industry was supported by the DTI’s incentive schemes. The Department supported the industry’s move to diversification, because it spoke to the sustainability of the sugar industry. SASA had given the assurance that these initiatives would not affect food security and DTI was continually engaging with the industry to ensure its growth.

Mr Macpherson asked the Chairperson to allow for his question to be answered.

The Chairperson said time did not allow for anymore responses.

Mr Mavunda welcomed the presentation and said this presentation should be held as a study group to have a more in depth understanding and more details could be provided, especially in terms of the job creation possibilities.

Mr Hill-Lewis said it was a concern that growers got locked into long term supply agreements with milling companies and they could not change the price later down the line when the fundamentals changed. The millers then took all of the benefits in terms of the increases in the ethanol price or the price of the electricity generators and the farmers got no benefits. He asked if this could also be addressed in the written response, as well as some comment on the kind of supply agreements growers and millers entered into.

The Chairperson said SASA was not a decision making body, but rather a coordinator of the growers and the millers. Their focus would be on the kind of legislation and perhaps anomalies that required amendment. There had not been any focus on the risk of land becoming non-arable in its efforts to become a source of alternative energy sources. She asked SASA to send the Committee some documentation that backed the presentation. It was the intention of the Committee to invite the South African Cane Growers Association and the millers separately. She asked SASA to also include in their written response what legislation needed to be addressed.

Committee Report on Transfer Pricing

The Chairperson noted that the areas on the report in ‘red’ were those areas the Committee needed to attend to. If taken back to the start of the process, it started with the cost of steel that was produced at a higher cost in South Africa than it would have cost to import. The importance of a developmental price for raw minerals in relationship to manufacturing and production was highlighted in the public hearings and colloquium.

The Committee went through the report and made some amendments to the wording.

Mr Macpherson wanted an objection noted on the words “developmental price for raw minerals in relationship to manufacturing and production”.

Mr Shivambu said he did not understand what the logical objection to the wording was, because there was a need to locally beneficiate and industrialise minerals and resources. Any logical and proper thinking person would agree that an intervention was needed. In addition, the state should play a direct role in the production and extraction of mineral resources to make it more accessible to those wanting to industrialise. It was not a new process because there was already a state owned mining company and perhaps it could play a role in the extraction of key minerals and resources so that it could be locally beneficiated and industrialised. It was not ideological discretion, but basic logic that should be considered. Those protecting private interests would always object to that.

Mr Hill-Lewis disagreed and said it was not logic at all. In order to beneficiate and kick start manufacturing in South Africa, the basics, which government already controlled, should be gotten right. These basics like the electricity supply and a stable labour environment were all things government could influence right now without having to force manufacturers and raw material producers to sell their products at a discount. There had already been a developmental pricing agreement in place up to two years ago and it had done nothing to transform the steel industry in South Africa.  The obsession with the developmental price was misplaced and it was not logical and it was not “the protection of entrenched interests”. The DA was absolutely in favour and had vocally supported efforts to diversify and to increase competition in South Africa’s heavy manufacturing. It was a statement of economic reality that in order to build up one industry, another should not be destroyed and it would not be beneficial to the economy in the long term.

Mr Mkongi agreed with Mr Shivambu and said many proposals had been made on this matter. At the last meeting it had been proposed that there should be an incremental process on administrative pricing. The government had been giving the private sector many incentives to assist, but the private sector was not prepared to assist with the development of the manufacturing industry. Members were asking that the private sector at least offered an administrative price to particular ailing companies, but the industry was only prepared to benefit from state incentives without giving anything back.

Mr Macpherson said there had been no research and no scientific position that had been put on the table that stated specific outcomes. It was a purely ideological debate and none of the proposals were made based on research or fact, but rather on an ideological position. The Committee, by trying to fall into a populist trap, was sacrificing the mining sector. The Committee had not even begun to discuss what it took to see beneficiation down the road. Members needed to be careful when making pronouncements about discounts on raw minerals, because the next steps should be worked out.

Mr Shivambu said it was not true that there was no scientific evidence that the cost of platinum group metals (PGMs) were not impacting the need for beneficiation and industrialise locally. All the role players in the sector had given more than enough evidence and even in the colloquium on transfer pricing the majority of the presentations gave hard concrete evidence that the prices of natural resources were the major stumbling blocks. Government’s proposal to legislate developmental pricing was a step in the right direction, but state ownership and control was important. Countries like Japan, Singapore and South Korea controlled key strategic sectors of their economies in order to assist successful industrialisation. It was not in the interest of privately owned mining capital to industrialise because they were making massive and unreasonable profits by exporting natural resources and even avoiding taxes locally. There should be some sense of direct and concrete intervention.

Mr Williams agreed that manufacturers gave sufficient evidence. It seemed that the government either had to defend and promote manufacturers or remained with the status quo. The DA wanted the status quo to remain, but it was not what the ANC wanted. 

Adv Alberts said there needed to be a balance between what was envisioned and protecting the industries that were actually creating the metals. A Free State company had indicated that they needed to actually shed jobs as it was. If a developmental price was imposed, he wanted to know how such companies would be assisted to keep those jobs. The Chinese were also now entering the market with the government’s assistance and they should also fall in line with this process. 

Mr Hill-Lewis said not one presentation had dealt with the potential job losses in the mining industry as a result of developmental pricing. One industry should not be punished in order to help another industry. It was in the interest of global catalytic converter production chains and in the interest of Toyota and other massive global automotive manufacturers to get cheaper PGMs. Those were hardly small black entrepreneurs and it should be clear whose interests were really being protected by the developmental pricing push. The state should be involved and do its job by delivering reliable electricity and stable and productive labour environment. The state’s job was also delivering on infrastructure that was needed to get goods in and out of the country and all these things should be done to assist the manufacturing industry. The Department of Labour showed that the average wage in mining was higher than the average wage in manufacturing. Mr Shivambu and Members of the ANC were proposing the destruction of higher paying mining jobs to create lower paying jobs in manufacturing. The plastics industry had a problem with import parity pricing, which was currently before the courts, which was different from developmental pricing. The DA was not defending the status quo, because the party wanted the mining and the manufacturing industry to be far more competitive and far more broad-based. This would not be achieved by destroying the mining industry.

Mr Shivambu said there should be a developmental mandate imposed on private corporations and that would not destroy the mining sector. The mineral and platinum resources in South Africa were to the advantage to the people of South Africa and there were nowhere else to take their investment, because 80% of the world’s minerals were here and that should be utilised to develop downstream industries in a much more durable way. The country would be left with dolomite areas with lots of diseases and degradation. It was unbelievable that a South African Member of Parliament could defend mining capital, which had been systematically destroying this country for a very long time. The trajectory of beneficiation and industrialisation needed to be redirected and that could only happen by taking the tough position. Lonmin was one of the biggest platinum producers and was avoiding taxes by creating ‘imaginary’ companies in Bermuda and these were the companies being protected from local beneficiation. Of course catalytic converters would benefit, but now they would benefit and industrialise in South Africa. By imposing developmental pricing those catalytic converters should come and industrialise in South Africa and not Malaysia. It was basic logic that any proper reasoning person should be able to accept.

Mr Mkongi said the role of the state was being reduced, because the argument was basically that the role of the state was stabilising the traffic through the privatisation of Eskom. It was an ideological argument that should not be entertained. If the role of the state was so clearly spelled out, the question should be asked what the role of white monopoly capital was in assisting the developmental agenda of the country. It was clear through the argument that the state should not strategically intervene in the economy. Academia that came and presented before the Committee reported that the impediments to industrialisation and beneficiation in South Africa were administered pricing, import parity pricing and transfer (mis)pricing. The DA had now picked administered pricing as one issue that would destroy the mining sector in the country. It was an obscured argument that the wages in the mining industry were more than the wages in the manufacturing industry and therefore that particular ‘fair wage’ industry would be destroyed. The argument forgot to mention the Marikana tragedy on the question of slave wages and the intervention by workers to ensure they participated in the negotiations. It showed when mining companies misrepresented during the wage negotiations and declared that they did not make profits, because the profits had been “transferred” to tax havens. It was bad faith negotiations and it was not picked by the DA as a fundamental challenge facing economic growth and economic development in South Africa.

Mr Macpherson said a headline in a newspaper two days earlier stated that Harmony Gold was going to cut jobs to reduce their labour force by 10% because of spiraling costs and the inability of the state to do its job. South African Airways (SAA), Eskom and South African Express were all technically bankrupt entities where the state had intervened. The state did not have the capacity to get involve in business because its function was to create an environment for businesses to start up and to flourish. The role of the state did not include dictating pricing. Venezuela was in disarray because of a misguided belief that the state was the be all and end all when it came to building an economy. The real beneficiaries of developmental pricing would be multinational companies.

Mr Shivambu said private companies, banks and airlines got liquidated daily. The role of the state and that of the private sector should be clearly identified. If given a proper developmental mandate, with effective monitoring, state owned companies and corporations should be able to deliver excellent services. It was an intellectually bankrupt argument to say that state participation automatically led to inefficiency, because it was not true, even globally and Transnet was an example in South Africa. China had the biggest economy in the world and it was owned by the state and the state had played a critical role in the development of the United States economy. The status quo was a crisis and there should be some sort of intervention.

Mr Williams said it seemed that every time the ANC government wanted to proceed with economic transformation in a developmental way in order to create a manufacturing sector in South Africa, the DA defended its fundamental supporters which were basically white monopoly capital. This government created the South African film industry. Their argument was the state should continue giving money to the private sector, but should not ask the sector to develop and transform to create a manufacturing sector.

Mr Hill-Lewis said Members’ job as legislators was to make decisions for the benefit of the entire economy and not just one sector. This policy would destroy high paying jobs in the mining sector to create low paying jobs in the manufacturing sector. A mining company was not forced to invest in platinum mining in South Africa, because it could also invest in a gold mine in Australia or a coal mine in China. It was about return on investment those investors were able to get and it had nothing to do with defending it. It had everything to do with defending the people employed by those companies that would be unemployed if this policy was implemented. Transnet was profitable because it had the highest port charges in the world. It was just about building roads and ports, but that was not even done properly. In the last ten years the government had not spent its infrastructure budget once.

Adv Alberts said the state did not necessarily have the expertise in all avenues and needed to create an environment for those people to create industries. Transnet was the worst example of a so-called successful state enterprise, because it stole R80 billion of its pensioners’ money over 20 years.

Mr Mkongi suggested the Members read up on the report on labour market intelligence partnerships and on the relationships between wages in mining and manufacturing. Now the argument was the only white monopoly capital had ‘expertise’. The argument of Mr Hill-Lewis did not incorporate the strides that had been made through the Presidential infrastructure drive since its adoption. This Committee went on oversight visits and saw the successes of government in terms of infrastructure development. The state had the capacity to drive transformation and white monopoly capital should not be defended by suggesting otherwise.

Mr Hill-Lewis said there was no argument what would be said to those mine workers when they lost jobs as a result of developmental pricing. The DA was defending the workers of South Africa who would be unemployed.

The Chairperson went through the rest of the report. She proposed that Members submit recommendations on the report by 16h00 so that the Committee Secretary had time to incorporate it and also to ensure Members would have time to study the report before the next meeting. She noted that in modern times no country had been able to industrialise without the state leading that economy through direct interventions.

The meeting was adjourned. 

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