The Minister of Trade and Industry spoke about the State of Nation Address with respect to the Department of Trade and Industry (DTI) mandate. Global demand in 2016 was expected to remain low. Commodity exporters were struggling. Drought was a key risk. Weak global demand in traditional markets constrained SA ability to use the weak exchange rate to export out of the global slowdown. SA had to accelerate transition from an economy dominated by production and export of basic commodities. South Africa had become an international player in the auto sector, with large investments announced by BMW and Beijing Auto Works. Grinrod was building a locomotive with an 80% local content level. The Minister reported on implementation progress with respect to machinery and transport equipment; clothing, textiles and footwear; investment; industrial development zones (IDZs) and the one stop investment centre, to be developed by the DTI. Business and government were agreed that partnerships had to be deepened. There was renewed focus on supporting labour-intensive and growth-enhancing sectors like clothing, textiles and footwear; agro-processing, business process services and tourism.
In discussion, the DA claimed that DTI was blaming everyone else, and not looking at its own contribution to problems. The DA was severely critical of the handling of the AGOA trade agreement, and claimed that BMW was investing in a less successful model in SA. The party also had critical questions and comments about the weak exchange rate. The EFF asked how much had been spent on incentives and tax rebates, and how many jobs had been created in return. The EFF was critical of unconditional DTI incentives, and stressed the need for state procurement as a driver of industrial growth. The party also called for structural engagement with shelf owners to promote locally produced products. There was a question from the ANC about whether international trade agreements needed reviewing. The Minister provided a thorough assessment of these criticisms and other comments. It was noted that tax incentives and grants came to R11.8 billion in 2014/15, related to the 12(i) incentive, but investments came to R47.8 billion and 307 069 jobs were projected
The Minister of Trade and Industry reviewed the outcome of the WTO Ministerial Conference held in Nairobi, Kenya. The main issue of contention at the 10th WTO conference was the future of the Doha Development Agenda (DDA), which placed the interests of developing countries at the heart of the work programme. Some developed countries argued that outstanding issues could not be solved within the DDA framework, whilst developing countries insisted on the reconfirmation of DDA principles and mandates. The Ministerial Declaration recognised that some countries believed that new approaches had to be considered. There was a commitment to advance with negotiations on all three pillars of agriculture. The centrality of development had to be maintained, as well as provisions for special and differential treatment.
In discussion, the DA asked about the relevance of the Doha and the WTO, and the implementation of the Trade Facilitation Agreement (TFA). The EFF had questions about products coming into SA without tariff intervention. The ANC was interested in cotton, food aid and the challenges of least developed countries (LDCs). The EFF claimed that the Apartheid regime was more protective than the SA government currently was.
Unilever presented details of the Unilever and DTI partnership in S12(i). The Unilever and DTI incentive scheme had resulted in three new factories built over three years, with an expenditure of R4 billion. Demographic detail included figures for graduate intake; manufacturing workforce, and a gender and racial breakdown. Local material sourcing stood at 45%. Unilever produced 700k tons annually, of which 9% was exported. In terms of amended B-BBEE codes, Unilever was awarded a level 6.
In discussion, Unilever was asked about recycling of waste. There were questions about Unilever turnover; disabilities, and the sourcing of machines and the vehicle fleet. The EFF questioned Unilever about township economic revitalisation. The party made critical comments about foreign ownership of Unilever, and claimed that it was merely promoting a consumer culture. It was asked what was done to add value in rural and semi-rural contexts. ANC Members had questions and comments about local tea production, and intellectual property issues related to fragrances. Unilever was advised that it could focus more on social responsibilities. There were questions and comments about exports, and the transformation of management.
Minister of Trade and Industry on SONA, with respect to the Department of Trade and Industry mandate
Dr Rob Davies, Minister of Trade and Industry, stated that global demand in 2016 was expected to remain low. The IMF had lowered its global growth forecast and all commodity exporters were struggling. The SA growth outlook was similar to peer countries. Drought was a key risk. Weak global demand in traditional markets constrained SA's ability to use the weak exchange rate to export out of the global slowdown. There was a need for SA to accelerate transition from an economy dominated by production and exports of basic commodities. South Africa had become an international player in the auto sector, with large investments announced by BMW and Beijing Auto Works. The African Union had decided that SA was to be the rail production hub for Africa. The DTI funded Grinrod R11 million for building a locomotive with an 80% local content level.
The Minister reported on implementation progress on machinery and transport equipment; clothing, textiles and footwear; investment; IDZs and the one stop shop investment centre, which would be developed by the DTI. It was to be the main interface between government and investors. Business and government were agreed that partnerships had to be deepened to ensure that SA was not downgraded, and to weather current difficult economic conditions. The President had noted in the SONA that the Nine-Point Plan had traction, and the DTI had built momentum in the Industrial Policy Action Plan (IPAP), beneficiation and private sector investment. There was a renewed focus on supporting labour-intensive and growth-enhancing sectors like clothing, textiles and footwear, agro-processing, business process services (BPS) and tourism. Existing incentives were to be refined to ensure the greatest possible benefit to the South African economy.
Mr B Mkongi (ANC) had recently read a paper by Dr Owen, professor of astronomy at Harvard University, dealing with the advent of the millennium, and what was termed the best and worst of times. He asked about the best and worst of times since 1994. What pillars survived the best and worst of times. There was a narrative that assumed that the South African economy was in the worst of times, and that the government could not provide service. Former President Mr Thabo Mbeki had been critical in an article about international trade agreements, which he argued needed to be reviewed. He asked if the Minister shared this viewpoint. He asked if the current stance could take the country to the best of times.
Mr D Macpherson (DA) commented that what he had heard the previous day and in the current meeting was that whatever was wrong "was somebody else’s fault". There had to be planning to face current realities. Investment in the Republic was down by 74%. There was policy uncertainty on the part of DTI. The Promotion and Protection of Investment Bill was problematic for the investment community. There were conspiracy theories about international markets. Trade agreements like the African Growth and Opportunity Act (AGOA) agreement had been bungled, due to inefficiency in DTI. It had hurt South Africa in the international community. DTI had to ask how it contributed to the problem. There was no sense in blaming headwinds and droughts. There had to be an end to gerrymandering figures. Figures on BMW investment were cited. But BMW was giving the country a lesser selling unit, instead of a more successful one. It would have an impact on jobs. A 500 000 per year worldwide seller was being replaced by one which could only reach a third of that. Government ought to have been celebrating the former edition of the old model, not its substitution. Government had begged for a weaker exchange rate to up exporting, but manufacturing was flat. He asked the Minister what his plans were to make manufacturing export driven. President Zuma had noted in the SONA that the weaker exchange rate would be good for tourism, but manufacturing also had to benefit. It would not do to simply reiterate IPAP. The economy had to be turned around, and there had to be the political will to do that.
Ms P Mantashe (ANC) asked about progress since 2009. There had been deterioration because of global factors, but domestic factors also played a part. She asked about the behaviour of some organisations that contributed to deterioration.
Mr F Shivambu (EFF) asked how much was spent on incentives and tax rebates, and how many jobs were yielded in return. He was not convinced that these interventions had been of any value. A lot of money was spent regarding Toyota, but not enough jobs were created. Value for money was not achieved. The issue to attend to was to attach conditions to developmental incentives. There had to be developmental conditions to incentives. Incentives granted to Toyota by DTI were unconditional. False excuses were made about locally producing components. Firms were saying that components were not available, when people were producing Toyota components just across the road. State procurement had to be prioritised as a driver of industrial growth. The requirement that government had to procure 70% of goods and services locally was not in the EFF manifesto, it was in fact in the ANC manifesto. In the first SONA after the 2014 elections, it stated that the State had to provide for 70% consumption of local production. The Black Industrialists Programme (BIP) had to have a focus on State consumption. The Deputy Minister of Agriculture had made reference to an abattoir owned by Kulufelo Mabonje that was on a huge scale, with R200 million involved, that did not have access to markets. Big retailers that owned shelf space could agree to support local production. There was no structural engagement with shelf owners. Retailers were using in-house products that were not from local producers. The BIP could be structured around shelf space.
The Chairperson remarked that it had emerged from oversight that there were competitive programmes, but more could be done about cutting clothing and textile imports. There was currently a solid platform for that. Grinrod had been congratulated the year before for manufacturing locomotives. One would have supposed that coaches were easier to manufacture than locomotives. She was surprised that it was not being done, as South Africa was capable of manufacturing bus bodies. She asked how many jobs would be created.
The Minister responded that the South African economy began to grow at the end of the nineteenth century with minerals, especially gold. Unskilled people were drawn in from South Africa and from elsewhere. A small manufacturing base was developed in the 1930s. That formed the political economy that was created. By the late 1960s gold mining was over its peak, and people were expelled and thrown into neighbouring countries and the then homelands. After the collapse of influx control, unskilled people were absorbed by the mines, who did not want university trained people. Pick and shovel work was required. That had been the political economy inherited from Apartheid in 1994. The transformation of such a political economy had been slow. The 2009 IPAP stated that there had to be structural changes towards radical economic transformation. Mining could no longer be heavily relied upon, there had to be movement up the value chain. All countries had to go through industrialisation, except outlying countries like Singapore. It was the only way to add real value. The objective in Africa was to work towards value-adding through processing. In global value chains the production of primary products formed the smallest part of value. South Africa embarked on the current course in 2009, at the worst of times. If South Africa had done what was done in 2009 in the best of times, the country might have been better off currently. However, we would be a lot worse off, if we had not done this. He would discuss trade agreements in the course of the later briefing on the WTO. More discussion was needed about international trade issues, but thus far South Africa had managed to get the best of what was possible to get. In international trade, the balance was very skewed against developing and emerging economies. Developed countries fought hard to retain market access. In the WTO at Nairobi, the debate very firmly on the table asked if development is an issue in international trade? What our focus has been is on the continent and on regional integration in Africa. Integration had to be broadened beyond regional communities. There was a fierce debate within the Southern African Development Community (SADC), whether SADC should be moved to a free trade area or a customs union. South Africa maintained that there had to be broadened integration with a strong developmental focus. There had to be infrastructure programmes and industrialisation. When they brought the Economic Partnership Agreement (EPA) one would see it is an improvement on the Trade Development and Cooperation Agreement (TDCA): there is more market access for South African products, some recognition of Geographic Indication and we have won back policy spaces that had been lost in bans on export taxes.
The Minister disagreed with Mr Macpherson that the AGOA trade agreement had been bungled. If the advice of Mr Macpherson and others had been followed, anti-dumping duties would have been removed and the chickens would have come in. The US demand was for anti-dumping duties to be removed. People had asked why South Africa had played hard with the US. DTI approach was to negotiate a quota, without compromising on anti-dumping duties. The US demand was double that what was ended up with. 65 000 tons was obtained. It was a victory, as it saved AGOA for the country. It came down to a choice between different shades of grey. It was not easy. It would have been easier to defer to the US and if asked to jump, to ask how high. He did not negotiate like that. He also did not agree that he had said that "it was everyone else’s fault". He had said in his speech in the National Assembly that anyone who denied international challenges, and had some plan stuck on a website, was selling the world snake oil. It would not work. It would not do to deny a global crisis and drought. Every economy that had mineral exports and was affected by drought would experience deleterious effects on its growth rate. It was not the intention to lament, there was rather a commitment to do more inside the domestic economy. What was wrong had to be fixed, and there had to be more rapid movement on what was right. He would query the cited figure of investment being down by 74%. The figure of $1.5 billion was cited, but local figures came to $3.4 billion, at the half-year mark. There might not have been increased investment in the mining industry, but mining exploration was doing better than was assumed. The mining industry was not the only investment portfolio. There were short-term portfolio type investments that in fact went the other way. In the investment pipeline people were coming to South Africa, especially those involved with fast-moving consumer goods. He challenged Mr Macpherson to state who had withdrawn because of the Investment Bill. There were parties in the WTO that wanted to move into a multi-lateral agreement. It was asked in a session of trade ministers at the WTO Conference what the "obligations" of investors were, and whether there was an international agreement on base erosion and profit shifting. Developed countries could not be imitated all the time. South Africa had to be a player.
The Minister continued that the Oxford Business Group stated that the negative narrative on the part of South African businessmen is not shared by international investors. They know the political discourse that is going on here but they make their own assessments and that is not the most fundamental thing. The CEO of BMW had told a different story about investment in SUV production. He wondered where Mr Macpherson got his information. SUVs which the BMW CEO referred to as Chelsea tractors was a growing segment of passenger vehicle production. This was putting Rosslyn in a stronger position not a weaker position.
The Minister noted that the exchange rate had the effect of making investment in South Africa more attractive. Exports in the motor industry could grow, especially to Africa. It was not to say that the exchange rate was a magic solution. It was formerly overvalued, but currently undervalued. Export industries would benefit, though not enough to replace the decline in mineral export prices. If the exchange rate were not reduced, earnings from mining would be less, and there would be a bigger crisis. There were conditions attached to investment. Anyone who entered the automotive scheme could get 20% or 30%. To enter level 4 there had to be supplier development, localisation, and more job creation. There had to be BEE performance. It was not sufficient to just rely on Tier 1 international suppliers. Tier 2 and 3 suppliers in South Africa had to be resorted to. Investors did not object to that. There were real jobs in the component industry. Conditions would be reviewed. The automotive industry had to have a motor programme. There could be no motor industry without that. The South African programme was not the most generous. But that was still better than no programme at all. Australia pulled its programme, and the motor industry rapidly declined. South African film incentives were competitive. In the US, much filming was done in New Orleans, not because it fitted story lines, but because incentives were better than in California. There were 200 000 people in the motor value chain. Half of that would be lost if there was no motor programme. South Africa provided one quarter to one third of the motor value chain. Tax incentives provided for direct investment. The clothing and textile programme supported competitiveness. State procurement could be a driver. One of the industrial drivers defined was infrastructure. Designations were sought that supported infrastructure procurement. He did not sign the optional protocol on procurement in the WTO. There had to be policy space for the use of localisation. Signing the protocol would have meant renouncing that and opening it up to everyone else. Localisation was used to support the manufacture of locomotives. He told the Chairperson that coaches were in fact also being manufactured. The definition employed in the BIP was a tight one. Black industrialists were not to be intermediaries. There was a procurement forum with SOEs. But procurement by private companies was also sought. There was a sub-minimum that had to be scored on supplier development, to earn BEE scorecards.
The Minister continued that there was a WTO rule related to trade related investment measures (TRIM). It was not possible to make a rule that 70% had to be bought from local sources. Foschini had made a commitment to local procurement. In the clothing and textile industry, industrial textiles were doing well, with products like tents, parachutes and bullet proof vests by Denel. Clothing manufacturers who wanted to import fabrics were beginning to see the disadvantages.
Mr Shivambu asked for exact figures on how much money had been spent on incentives and tax rebates, and jobs created in return. The question was what could be done outside of legislation to get shelf-owners to procure locally. There were 2 600 different products on supermarket shelves. There had to be an agreement or social accord about how much should be locally produced for shelves. Law makers had to be able to deal with such matters.
The Chairperson noted that information about incentives and jobs created was in fact available. The DG could be called on to deal with that.
Mr Macpherson said that there was political disagreement between himself and the Minister about how trade agreements were dealt with. South Africa had missed self-imposed deadlines. It took a letter from President Obama before the Department cattle-prodded itself to move on the AGOA agreement. The EU chamber of commerce had identified four to six investments that hinged on the Investment Bill. The American chamber of commerce stated that the Investment Bill was another nail in the investment coffin. The Minister had to be clear on what was said by other people, including his own department.
The Minister responded that an effort had been made to meet deadlines, but trading organisations rarely met deadlines. That held true for the Trans-Pacific Partnership (TPP) and the Doha round. The AGOA deadline was in fact set by the US. People who wanted to invest were not bothered about the Investment Bill. BMW had made its investment statement while the Bill was being debated.
Mr Mzwandile Masina, Trade and Industry Deputy Minister, added that there were five trade agreements with the USA, of which AGOA was one. South Africa would be in the AGOA agreement for the following ten years. After that, other agreements would be in force. Chickens were on their way to South Africa. Discussions about pork and beef were being finalised. US players cited BEE localisation and legislation as challenging, yet the US had similar legislation, including Buy Back America. South African interests had to be taken care of. South Africa would not be bullied. It could play hard, as long as it played according to the rules. There would be no sitting back, and doing nothing about the challenges faced. BRICS and the tri-partite agreement could work to stimulate the economy. Localisation was promoted through 30% allocated to SMMEs. There had been fruitful engagement with a company in Gauteng about local procurement.
Mr Lionel October, DTI Director-General, responded to Mr Shivambu that tax incentives and grants came to R11.8 billion in 2014/15, related to the 12(i) incentive. Investment came to R47.8 billion and 307 069 jobs were projected. There were dedicated incentives in the automotive and textile sectors. The automotive industry created 100 000 jobs, of which 30 000 were in assembly, and 70 000 in components. There were 68 000 clothing and textile jobs created; 200 000 jobs were created in agro-processing, and 100 000 in the filming industry. In the manufacturing sector there were also jobs created without incentives. In manufacturing, incentives were sustained throughout the entire industrial policy action. There was the counter-factual example of Australia, who withdrew programmes and the automotive industry was dead within four years, after a 50 year long establishment. It could be said that incentives had led directly to the creation of 1.7 million jobs.
The Minister noted that it was not only a matter of incentives, but also localisation, standards and the defence of borders. There was to be a developmental trade policy update. The first consignment of US chickens arrived on 11 February. It was not known when the first consignment of pork and beef would arrive, but regulatory issues had been cleared. South Africa was back to the same situation as everyone else in AGOA.
Minister on the outcome of 10th WTO Ministerial Conference (MC) in Nairobi
The Minister noted the original objectives of the Doha Development Agenda (DDA), which had been to place interests of developing countries at the heart of the work programme; reform in agriculture; enhanced exports of products of interest to developing countries, and policy space for developing countries. Developmental content of the DDA had steadily been eroded. Demands were made that would require developing countries to take steep cuts in their industrial tariffs. Developed countries demanded that emerging economies offer greater concessions. There was a move away from multilateral negotiations by some major economies and the rise of “plurilateral” negotiations among some WTO members, from which emerging economies and African countries were generally excluded. The 9th MC conference in Bali in 2013 delivered the Trade Facilitation Agreement (TFA). SA and others were concerned that that outcome lacked balance.
The main issue of contention in Nairobi was the future of the DDA. Some developed countries insisted that outstanding negotiation issues could not be solved within the DDA framework, while developing countries insisted on reconfirmation of DDA principles and mandates. No agreement was reached on the future of the DDA. The Ministerial Declaration recognised that some countries believed new approaches were required. There was a commitment to advance negotiations on all three pillars of agriculture. The Declaration maintained the centrality of development, and provisions for special and differential treatment. Elimination of export subsidies in agriculture by developed countries was to take immediate effect, with certain exceptions granted, and elimination of export subsidies by developing countries by 2018, with certain exceptions. Minimisation of commercial displacement of domestic production by food aid was agreed on by some disciplines. Two decisions were taken in respect of Least Developed Countries (LDCs). There was to be 'best endeavour' undertakings to ease access of LDC exports to preference-granting economies. The multilateral waiver for trade preferences for LDC services exports would be extended to 2030. South Africa and others successfully opposed proposals on anti-dumping and subsidies that would make it more difficult to address unfair trade.
The Chairperson remarked that the WTO was a topic that surfaced in the Portfolio Committee off and on. She referred to cotton and food aid. A certain position had been reached in Bali. She asked about LDC challenges. It was alarming that agreements had to be hung on to by the skin of the teeth to ensure that they did not die.
Mr Macpherson referred to an article in the Financial Times of 20 November. The question was posed whether trade talks could lead to the death of Doha. He asked what the feeling was among WTO members. Issues were still being dealt with that had been negotiated 14 years before. It appeared that the Doha had become less relevant. The question was whether the WTO would still be relevant in ten years time.
Mr N Koornhof (ANC) asked what an ideal agreement for developing countries would be.
Mr Shivambu referred to a colloquium on beneficiation. Polymers and plastics were entering the country without regulation or border control. He asked about products not subject to tariff regulation that were entering South Africa, on the micro-level. It was not correct for South Africa to become a dumping site for goods that could be produced locally. Jobs in the economic goods and services sector were at disaster level.
The Minister responded that the Financial Times article Mr Macpherson referred to was written before Nairobi. It expressed the views of the developed world. According to that view, the Doha was no longer relevant. At Nairobi most of the members had agreed to reaffirm the Doha mandate, but there were different levels of commitment to it. There had been slippage from the mandate after 2008. The fourth revision on agriculture was reaffirmed. Many would say that there were distortions in agriculture. There were trade advantages for developed countries. There were cotton subsidies that supported a few hundred cotton farmers in Texas, who contributed richly to party-political coffers. On the other hand Sahel cotton growers found the market difficult to enter. Countries like Burkino Faso and Senegal had continually to put forward their case. Influential groups in the developed world acted to the detriment of developing agricultural value chains. South Africa was part of G20. It could have shot for the moon and tried to remove all trade-distorting domestic support measures. Instead it was argued that some distortions had to go. There had to be accommodation to the sensitivities of developed countries. Agriculture remained relevant. Even those who wanted to ditch Doha were agreed on that. But because agriculture was important, it did not mean that it had to go into the Doha, which dealt with the trade dimension. There was a proposal from a developing country that SMMEs be dealt with. But if a subject was important, it did not mean that there had to be a trade rule related to it. The outcome of a trade agreement could be a trade rule that gave SMMEs in developed countries greater preference in the markets.
The Minister referred to e-commerce. The products on the Ali Baba website were all from one country. He wondered if South Africa needed something like that to promote the country. There was a lot of e-commerce in the country, but it was not used as an exporting tool. The question was whether there had to be a set of rules in the WTO about e-commerce. South Africa had to be careful what was requested of it. Strong countries wanted free trade, but they themselves had not used free trade to get to where they were. Care had to be taken that not too much was paid. If a modest deal for agriculture had to be paid for in terms of over the moon industrial tariffs, he would say no to that. In response to Mr Shivambu, he said that DTI was looking at certain industries, and had raised tariffs. The country was being flooded with imports. DTI applied to the International Trade Commission. If there was WTO legal space and an opportunity for productive development, it was done. People who had problems were advised to go to the International Trade Administration Commission (ITAC), and follow due procedure. Recommendations from ITAC had to be awaited. The poisoned chalice inherited from the Apartheid legacy, was that South Africa was defined as a developed country under the Uruguay round, which imposed obligations. If someone asked for clothing and textile tariffs to be raised, they had to be told that South Africa had a maximum bound rate. If SA crashed into the maximum bound rate it would get taken to the dispute settlements body at the WTO, and that country could get a ruling to stop South African exports to them.
The Minister replied to the question if there had to be a ruling that could enable the Republic to stop exports to countries that were using it as a dumping ground. After Nairobi, a commitment to tighten anti-dumping duties could make things more difficult. The current approach was to start off firm by firm, also giving them a chance to be heard. Work done on standards was a trade remedy. Goods were coming in that did not qualify in terms of standards. With respect to cotton and the LDCs, he noted that there were 38 LDCs. The LDCs wanted things duty-free and quota-free, with access to developed countries. But they were not united. The African LDCs did not want Bangladesh to have duty-free access to the US markets because that would deny them access to US markets for their own clothes and textiles. LDCs wanted duty-free and quota-free with preferences, but did not get it. Pleas were met with "best endeavour" language, which meant that people were told to do some more work while the matter was considered. But nothing was done. Food aid was sold by NGOs in some countries on the market, which distorted the market to the detriment of distressed farmers.
Mr Shivambu remarked on the statement by the Minister that the definition of South Africa as 'developed', was the poisoned chalice handed down from Apartheid. It was the current Finance Minister Pravin Gordhan that had initially signed all the agreements that formed the foundation of trade liberalisation and opening up. The late Kader Asmal signed an agreement in Algeria that provided a foundation for opening up. The fact was that the racist regime had been more protective than the current government was.
The Minister responded that the poisoned chalice handed down from the Apartheid era was the declaration of South Africa as a 'developed' country. It was done right at the end of the process with the National Economic Forum, before the transitional executive council. Nelson Mandela was not yet President at the time, only of the ANC. He made a phone call to Bill Clinton and got a carve-out for the motor industry. The thesis by Ambassador Faizel Ismail had pointed out that there was a changing global context. The early rounds had been more modest, as it was set in a pre-globalisation era. The Uruguay round established a WTO agreement signed in Marrakesh. It was a big trade liberalisation round. The fundamental parameters were set in global processes of which SA was not part. One was either in or out of trade agreements. In AGOA, SA had to pay with chickens to get in, and was better off for it. It was a matter of different shades of less than wonderful. The Uruguay round did not impose industrial tariffs on agriculture. The developed world was hugely competitive in industrial products at the time, and it shrieked and shouted for free trade. However, they did not practice what they preached with regard to agriculture. It did not help to argue in terms of how many jobs were at stake in South Africa. One was not dealing with nice developmental stuff, but rather with hard mercantilist self-interest.
The Chairperson remarked that hours had been spent discussing the topic in the previous term. Pascal Lamy, WTO Director General, even came out to the country and there were discussions with all stakeholders, including business and the unions. It has to be asked why South Africa had been considered developed? Its challenges were not understood at the time. Once classified as developed, it was hard to change. It had cut space to negotiate and manoeuvre in. The Marrakesh Agreement and the TFA had been approved, but only in the Committee, not yet in the House. She told the Minister that his contribution was appreciated. WTO matters had to be taken further.
Unilever South Africa presentation
The Chairperson noted that the Committee had visited the Unilever Indonsa factory recently, and had the opportunity to see the factory and operations managers. However, there had been no engagement on the 12(i).
Mr Sandeep Desai, Unilever SA Vice-President, took the Committee through details of the Unilever and DTI partnership in S12(i). The Unilever/DTI incentive scheme had resulted in three major new factories built over the preceding three years with expenditure of R4 billion. Demographic detail supplied figures related to graduate intake; the manufacturing workforce, and gender and racial breakdown. There was a targeted approach to recruit more women. Local material sourcing was at 45%. Unilever produced 700k tons annually, of which 9% was exported. In terms of amended B-BBEE codes, Unilever was awarded a level 6 with a 60% procurement recognition level. Unilever would implement activities to achieve points which would result in a level 7 discounted to level 8 in the first amended codes verification. A video was shown of the OLA vendors programme.
The Chairperson noted that Unilever emphasised that there had to be no waste. She asked if there were micro-industries devoted to that.
Mr Desai replied that the plastic bag industry generated waste. There was a small entrepreneur in Durban who recycled plastics. Wooden pallets had been used in Johannesburg. But there was the danger of wood splitting and entering the food. There was an entrepreneur who used recycled plastic to make plastic food pallets.
Mr Mkongi noted that Mr Shivambu had asked about overall turnover at Unilever. Unilever had cited 150 000 tons, and 1 000 products. He asked for clarification. He noted that the Unilever demographic did not refer to disabilities. Race was broken up into African, Coloured, Indian and White, but the slides only referred to Black. He asked about the sourcing of machines and the vehicle fleet. He asked about projected employment in terms of Vision 2020. Unilever was committed to cleanliness, but areas in the photographs were not clean.
Mr Koornhof asked if there were any Unilever factories in the Industrial Development Zones (IDZs), and if not, why not. He asked about incentives related to that.
Mr N Matiase (EFF) remarked that a rosy image was presented, but the reality on the ground looked quite different. The Gauteng government had committed to township economic revitalisation. If Unilever wanted to be a forerunner, it had to partner with the Gauteng government. He asked what the Unilever contribution had been thus far. He referred to ownership of Unilever. There was offshore and foreign ownership. Unilever mention a R4 billion contribution. He asked what the government contribution had been in terms of incentives. The Unilever strategy was to flow products into society, which promoted a consumer culture without extracting capital value. He asked what was being done to add value to people’s lives in rural and semi-rural settings, besides making consumers out of them. It did not help to create a 100 000 jobs if people were not helped to create their own jobs.
Ms P Mantashe (ANC) remarked that she was biased towards the poor and the downtrodden. She asked what prevented Unilever from maximising tea production. It was mentioned that Rooibos tea was successfully grown. There was tea production at Lusikisiki. She asked if Unilever would extend factories into IDZs outside Durban, and whether Black industrialists were being created. Women had to be trained to use Unilever products to their benefit.
Mr M Kalako (ANC) referred to intellectual property challenges around fragrances. He asked if all patents belonged to overseas interests. He asked about programmes initiated by Unilever to encourage South Africans through the universities. People had to be produced who could come up with ideas. He asked about programmes to assist people to develop fragrances locally. It was noted that it was difficult to export to neighbouring countries. There was resistance because of competition. Other Southern African countries faced the same problem. But South Africa was supposed to capture the African market.
The Chairperson referred to challenges around amended B-BBEE codes, and targets across the board. The demographic split was sometimes broken down, and at other times “Black” was an inclusive category. Under the Unilever future leaders graduate intake, the breakdown was according to percentage female and Black. It would be better to supply a matrix according to race, with gender in brackets. There were 19% women on the shop floor. The B-BBEE had to be made to work. Unilever had been awarded a level 6 designation according to the previous codes. Unilever presented itself as an island of cleanliness, but it also had social responsibilities. The visual images showed that dust was being kicked up on clean washing. The ground had to be cleaner.
Mr Desai responded that the overall turnover amounted to 1 700 different SKUs. There were 700 000 tons of product, and a R3 billion turnover. There were not many businesses that invested 25% of turnover.
Ms Antoinette Irvine, Unilever SA Vice-President, responded that the B-BBEE scorecard was approached as a totality. They would provide a report on disability and employment equity legislation. There had been the Gender Commission and other interventions. The employment equity plan referred to 38 cases of disclosure. Targets around employment equity were being revised.
Mr Desai responded with regard to demographics, that “Black” was broken down according to African, Coloured and Indian. Historically there was a strong Indian presence in Durban, hence Indians were over-indexed. The Unilever future leaders programme recruited graduates from universities, who were then fast-tracked over three or three and a half years into management positions. Graduates were given the opportunity of gaining six to nine months international experience in countries like China, Singapore, Argentina and Nigeria. There was accelerated development to leadership and management. African and female were heavily indexed.
Ms Irvine added that there was a three year employment equity plan. Demographic targets were being met. There was an investment in Black talent. Out of a Black management intake of 22, 11 went lost due to market factors. Work was being done on recruitment and retention strategies. There had to be change related to the shift between African and Indian.
Mr Desai responded with regard to sourcing of machinery. There was a mixed bag, mostly international. Boilers and compressors were obtained locally, as well as electrical elements and piping. There were not many South African manufacturers who could supply packing line machinery. Such were mostly from Europe and Asia, though not from the USA. He did not know about the truck fleet. Unilever worked with Barlow logistics, and did not own trucks. There were some Volvo trucks, and also Mercedes Benz, some of which might be made in South Africa. He would take the question to the parties concerned.
Mr Desai responded with regard to Vision 2020 employment statistics. Factories differed with regard to physical capacity. Every line did not necessarily run full-time in all factories. Some ran two shifts over five days. As volumes grew, shifts were increased. The Indonsa factory was built in 2011 and 590 people were employed within weeks. Unilever saw that it had to build bigger. The combined investment at Indonsa was R1.1 billion. Machinery was built for 2025, but the people project went up to 2016. As volumes grew there was a knock-on effect for raw material producers, and there was more employment. At Shoprite, Unilever people were employed to pack Unilever shelves. If Unilever could grow as anticipated there would be more and more jobs. Members had pointed out that the area was dirty, but the OLA ice-cream lady was self-employed with 12 people in her employ, which made a difference. 15 000 people were involved through the Knorrox kitchen queen initiative.
On putting Unilever factories in IDZs, Mr Desai responded that Unilever had visited Coega. Consumption in South Africa was concentrated in the north. It was not profitable to transport low value products over long distances. Unilever concentrated on high volume. Key distributors were Shoprite, Spar and Pick-n-Pay.
Ms Irvine added that the Unilever approach to upliftment was inclusive. Community building was contributed to. Unilever would be working with DTI advisor, Prof Ismail, in the following week on how to generate income and provide upliftment in communities through products. Right ideas and right partnerships were sought, as with government.
The Chairperson asked that Unilever engage with the Committee in writing. Challenges around amended B-BBEE codes had to be dealt with. In the past Unilever had been seen as up and coming in terms of the number of jobs created. Currently everyone had to be taken a step further. Detail was needed on disability. Mass production and exports had to be looked at. Exports to Southern and Central Africa had to be considered. Unilever had to go deeper. Customs had to be simplified. Unilever had to tell the Committee how it could help. Challenges had to be made known. The question of rebates had come up five years before. There were kinds of tissue currently made by China, that could be made by Sasol and sold to Unilever. Cardboard boxes could be made locally. Challenges had to be understood. The Committee was not dismissive of the OLA ice-cream vendor effort. But there were rumours that primary school children were getting credit, which was questionable practice. There was not yet clarity about transformation of management. The Committee would like to see more than 45% local material sourcing. As regards fragrances, France stole bushes from South Africa 200 years before, which it used in fragrances sold to the Republic. The Department of Science and Technology could be engaged. The plants used could be grown in arid soil with little water. It could be distilled on the premises and easily transported.
Ms Sibonile Dube, Unilever Corporate Affairs Director, responded that there would be a proper document on challenges. Increased targets implied that twice as much had to be spent on development. DTI had singled out the new codes as a priority. Issues of ownership and skills development would be attended to.
The Chairperson adjourned the meeting.