DTI on its Annual Performance Plan 2016; WTO Trade Facilitation Agreement Annex to Protocol Amending Marrakesh Agreement

Meeting report

Department of Trade and Industry (DTI) on its Annual Performance Plan 2016
The DTI delegation included Mr Lionel October, Director General, Mr Garth Strachan, Deputy Director General: Industrial Development, Mr Macdonald Netshitenzhe, Chief Director: Policy and Legislation, Mr Yunus Hoosen, Head of Investment Promotion and Facilitation, and Ms Niki Kruger, Chief Director: Trade Negotiations.

Mr Lionel October, DTI Director General, provided insight on the global economic context. The International Monetary Fund (IMF) had in its January 2016 World Economic Outlook update, lowered its forecasts for global growth in both 2016 and 2017 by 0.2 percentage points. The IMF however at present forecast that global Gross Domestic Product (GDP) growth would reach 3.4% in 2016 and 3.6% in 2017. In the domestic economic context, SA’s economy grew by 0.7% in Quarter 3 of 2015, with manufacturing sitting at +6.2% and the services sector at +8.3% as main drivers. The emergence of severe drought conditions in five provinces posed a significant risk to the economic growth outlook. Recent sectoral output performance showed that some sectors of manufacturing like agro-processing, chemicals and transport equipment were doing well. This confirmed the necessity of the Industrial Policy Action Plan (IPAP) interventions as a key driver of economic growth.

On sectoral job performance, between Quarter 3 of 2010 and Quarter 3 of 2015, 2.1m jobs were created. The economy continued to create jobs. Substantial job gains were realised in agriculture, construction and financial services. Manufacturing employment had also stabilised. Unemployment continued to be a challenge because each year an additional 100 000 people entered the job market.

On trade performance, exports increased by R9.6bn or 3.7% to R271.7bn in Quarter 3 of 2015. SA’s imports increased by 11.9% to reach R284.5bn in Quarter 3 of 2015, after trending downwards in Quarter 1 and Quarter 2 of 2015.

The Strategic Goals and Strategic Objectives of the DTI were highlighted for its eight Programmes: Administration, International Trade and Economic Development, Special Economic Zones and Economic Transformation, Industrial Development, Consumer and Corporate Regulation, Incentive Development and Administration, Trade Export South Africa and Investment South Africa. Amendments were required for the DTI Strategic Plan as the Trade and Investment South Africa (TISA) Programme had been split into two programmes: Trade Export South Africa and Investment South Africa. Also, Chief Directorate: Africa Bilateral Economic Relations had been moved from the International Trade and Economic Development Programme to the Trade Export South Africa Programme.

The remainder of the briefing spoke to key interventions of the DTI. There had been an up-scaling of industrial policy by tabling the annual rolling Industrial Policy Action Plan (IPAP) to Cabinet and quarterly implementation reports were expected. An Africa regional development programme had been implemented for trade, investment and exports. Progress reports would be produced on the implementation of the agreed programme and the identification of projects for priority development areas within the Southern African Customs Union (SACU) and SADC - Free Trade Agreement (FTA). DTI would implement its Black Industrialist development programme as well as revitalising industrial parks. Key regulation interventions included two amendment bills dealing with the Companies Act and Copyright / Performers Protection Act. Four sets of regulations would be developed on liquor, companies, gambling and copyright for ministerial approval and publication. DTI planned to reduce its vacancy rate from 8.2% to 5%, employ more women in senior positions (moving from 48% to 50%) and increase its employment of people with disabilities from 2.9% to 3.1%. DTI would continue to strive to pay its creditors within 30 days as legislatively required.

The DTI’s budget for 2016/17 was R10.3bn. The Committee was provided with a provincial breakdown of manufacturing incentives for 2015/16 as well as provincial performance on infrastructure and services incentives for 2015/16.

Some strategic risks that could impede the achievement of the DTI’s strategic objectives were the inability to penetrate foreign markets and possible fraud and corruption risk due to the nature of the DTI’s operations. However the DTI was trying to manage the risks with mitigating actions like early warning systems on economic intelligence reporting and also the prioritisation of the African continent as a major source of demand.

Discussion
The Chairperson asked where SA was on the production of fuel cells and catalytic converters. He referred to slide 16 which spoke about private sector investment of R20bn. Mention was made of investments made by BMW, Ford and Nestle. He asked that the Committee be provided with a list of companies that had invested in SA over the last year and what those investments amounted to. He suggested that the DTI take a look at the Mogwase Industrial Park as it had a great deal of potential. Amongst products produced at the park were compressed wood products and fruit juices. These businesses struggled with gaining market access. He did note that there was an industrial park adjacent to the Mogwase Industrial Park that was faring much better.

Mr October responded that the DTI would send a team to Mogwase and do an assessment of the industrial park. He agreed to provide the Committee with a list of investments along with their values for the financial year 2015/16. On catalytic converters and fuel cells, he explained that there were two things to consider. The first was that SA was producing catalytic converters and had 10% of the world market. Fuel cells were however a new area. Demand for fuel cells to generate electricity needed to be created. The DTI had financed a black entrepreneur to build fuel cells for use at the Chamber of Mines. Companies realised that they did work and Impala Platinum (Implats) decided to come on board. Implats intended to use fuel cells to power mines. The DTI was also working on fuel stacks. He noted that the Department of Science and Technology was working with universities on hydrogen fuel cells. Fuel cells were still an industry in its infancy.

Ms E van Lingen (DA, Eastern Cape) asked for detail on the location of the Chinese motor vehicle production plant that was earmarked for the Eastern Cape. If SA was now exporting sugar to the European Union what was SA importing from the European Union in return. She pointed out that Minister of Finance, Mr Pravin Gordhan, had stated that all legislation now required a socio-economic impact assessment to be done, that is, the Socio Economic Impact Assessment System (SEIAS). Was DTI abiding by that statement? She appreciated the efforts of the DTI on its Energy Efficient Programme. The DTI had sent engineers to the motor vehicle industry in the Eastern Cape to provide assistance on having more energy efficient programmes. She asked DTI to try to convince the Minister of Energy to look into the prospect of low voltage connections. Energy efficiency was important and legislation in this regard needed to be finalised.

Mr October said that the Chinese car manufacturer was Beijing Automotive Works and feasibility studies in the Eastern Cape were still being completed.

Mr Macdonald Netshitenzhe, Chief Director: Policy and Legislation, replied on SEIAS, saying that it was started three to five years ago emanating from a decision from Cabinet that it needed to be done. DTI had been doing socio economic impact assessments on its legislation for the past five years. It was being rolled out to other government departments as well.  

Mr Garth Strachan, Deputy Director General: Industrial Development, replied that the DTI could provide the Committee with a list of companies that had been assisted. There were around 140 companies assisted. The Committee could also be provided with data on energy savings. He noted that President Zuma had created an intergovernmental clearing house to look at energy efficiency. The idea was to encourage clean tech industries. The town of Atlantis on the West Coast of the Western Cape was a green tech example.

Mr October said that the DTI would take up discussions with the Energy Cluster.

Ms Niki Kruger, Chief Director: Trade Negotiations, replied on the trade off with the EU noting that SA had to give the EU access to bring agricultural products into SA. In addition SA had to keep duties at zero. There were eleven tariff lines that the EU could bring into SA duty free. One of the duty free products was wheat. There was also agreement to negotiate on Geographic Indicators (GIs).

Mr Yunus Hoosen, Head of Investment Promotion and Facilitation, explained that the Chinese BAIC (Beijing Automobile International Corporation) investment deal had been signed in December 2015 when the Chinese head of state had visited SA. The BAIC Group intended to have two automotive plants in Africa and twenty four worldwide. SA was chosen for the location of its biggest plant in Africa. The investment was the biggest Chinese investment in Africa thus far. The feasibility study had been concluded and the intention was to produce 100 000 motor vehicles. Production was expected to start in November 2017. Port Elizabeth was earmarked as the location for the site and the Coega Industrial Development Zone was where the plant was likely to be built. A total of 2 500 direct jobs and 10 500 indirect jobs would be created. There was not only to be production of motor vehicles but also production of parts.

Mr S Mthimunye (ANC, Mpumalanga) was convinced that the drought that had hit SA recently did impact on markets. On the revitalisation of former Apartheid homeland areas, he asked why foodstuffs in those areas could not be produced by co-operatives. The co-operatives model worked out well in India. He pointed out that areas like KwaNdebele under Apartheid had bakeries and milk producers but after SA became a democracy these businesses were forced to close down as the homelands did not support them.  He asked what the DTI was doing to assist Evraz Highveld Steel. Jobs at Evraz Highveld Steel had been lost.

Mr October agreed that production in former homeland areas had been suppressed. Up until recently no investment was made in those areas. They had been neglected for the better part of 20 years. There was however a budget of R180m that had been set aside for investment in those areas. The Departments of Cooperative Governance and Traditional Affairs and that of the Presidency were in support of the programme. Food and agricultural product manufacturing was growing. There was huge potential and there would be greater market opportunities.

Mr Strachan noted the announcement on steel by the US government that it had put in place anti dumping and tariffs. There was thus a ban on the importation of Chinese steel. Steel was being imported into SA at a cost lower than the cost of production in SA. SA needed to protect its local steel industry. Steel producers like Evraz Highveld were under heavy pressure due to cheap imports. The main problem was the cost of production. There had been a lack of capital investment over the past couple of years. The DTI was trying to assist Evraz Highveld Steel by working with Business Rescue and the Industrial Development Corporation (IDC) to try to bring in a new investor. The idea in bringing in a new private investor was to assist with dealing with contingent liabilities and to keep the cost of production down. He pointed out that there was a global glut on steel. SA needed to import coking coal that was required for steel production. This pushed up production costs. He commented that the steel issue was complicated and that discussion on it could go on at length. 

Mr J Londt (DA, Western Cape) pointed out that in preparation for the upcoming local elections to get voters registered, it was realised that peoples’ identity documents were held by money lenders and loan sharks. How was the loan shark money lending market being monitored? He was concerned that unscrupulous lending could have a huge impact in the future. He asked what the DTI was doing to ensure that the loan shark industry was not taking advantage of the dire economic climate SA was in.

Mr October conceded that unfortunately in SA indebtedness and reckless lending was growing. In SA there was 41% indebtedness. It was a serious problem. The response to the problem would have to be two-fold. The first was to expand the power of the National Credit Regulator (NCR) to be more proactive on raids. The second aspect was to have a certain level of debt forgiveness where the person was not at fault in finding himself in a dire financial situation. This could apply to instances where a person had been retrenched. The Portfolio Committee on Trade and Industry had asked the NCR to do an international study on this. The NCR would also be better resourced.

Mr Netshitenzhe said that legislative amendments now required all credit providers to be registered with the NCR. The NCR was tasked with regulating misconduct. He pointed out that the SA Police Service (SAPS), the SA Revenue Service (SARS), the DTI, the Financial Services Board (FSB) and the NCR would have joint enforcement programmes.

Ms M Dikgale (ANC, Limpopo) asked what the DTI was doing in Limpopo Province. It did not have a harbour but it deserved some attention. On the revitalisation of industrial parks, if phase one was completed how far were the other phases. If a total of 1m jobs had been created, what was the breakdown of jobs created for each province? Given the job losses in mining, she asked what the DTI was doing to assist. 

Mr October responded that the DTI was working on the Musina Industrial Development Zone (IDZ). Feasibility studies and public consultations had been completed. A Chinese consortium was expected to invest in the IDZ. The issue of coking coal had been discussed in Limpopo Province and the investment was expected to be huge. It was expected that within the next three months the project would be declared an IDZ. A Memorandum of Understanding (MOU) had been signed when the Chinese head of state had visited SA. Limpopo Province was strategically located as the gateway to the rest of Africa. 

The Chairperson pointed out that the steel issue was complicated. He stated that opinions out there were that investment should not be made in mining. Civil society organisations said that there was no respect for workers at mines. A great deal of thought had to go into the issue of mining. Perhaps the Portfolio Committee on Mineral Resources had to brief the Committee.  

Trade Facilitation Agreement Annex to Protocol Amending WTO Marrakesh Agreement
Ms Kruger undertook the briefing. The Protocol was raised for the first time at the Singapore Ministerial Council in 1996. In July 2004, the mandate was undertaken to clarify and improve general agreement on tariffs and trade. It would cover freedom of transit, fees and formalities connected with importation and exportation as well as the publication and administration of trade regulations. The aim was further to enhance technical assistance and capacity building and to improve effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues.

Members were provided with detail on what was contained in the provisions of the Trade Facilitation Agreement (TFA). Timeframes leading to the implementation of the TFA were noted. The TFA was concluded in Bali in December 2013 and approved by those in attendance. There was a legal review of the Agreement from January 2014 which ended in April 2014. This led to the drafting of the Protocol of Amendment of the Marrakesh Agreement to include the TFA. The World Trade Organisation (WTO) General Council adopted the Protocol in November 2014 and opened it up for acceptance. Hence the internal ratification processes of countries commenced. The TFA would be of force and effect when two thirds of all WTO members had ratified it. Detail was provided on the state of play in SA on the TFA which eventually led to Cabinet giving its approval that the Protocol be submitted to Parliament for ratification. The Protocol was approved by the National Assembly in March 2016. The final step was approval by the National Council of Provinces (NCOP).

Discussion
Mr B Nthebe (ANC, North West) asked to what extent the Agreement spoke to Agenda 2063. He wished to see an East Africa – SA trade relationship opening up. He noted that there were also issues around the Southern African Customs Union (SACU).

Ms Kruger replied that SA had emphasised in discussions on the Trade Facilitation Agreement implementation, this had to enhance regional integration in Africa. Agreements had to benefit trade in Africa. It was hoped that all agreements worked well together and complemented each other.

Trade Facilitation Agreement: approval
The Chairperson placed the Agreement before the Committee for consideration. Members were all in favour of the Agreement.

The Committee therefore recommended that the National Council of Provinces (NCOP) in terms of section 231(2) of the Constitution approve the Agreement. . 
 
Committee Minutes
Minutes dated the 13 April 2016 were adopted unamended.

The meeting was adjourned.