Industrial Policy Action Plan (IPAP 8); Steel industry: DTI briefing

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Trade and Industry

24 May 2016
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry presented on the Industrial Policy Action Plan (IPAP) of 2016/17 to 2017/18 that focused on the Economic Sectors, Employment and Infrastructure Development Cluster. Emphasis was placed on the fact that industrial policy was not the function of one department, but required collaboration with other sectors of the economy and government departments.

A major challenge that through all the themes and strategy of the IPAP was intra-governmental policy coordination and programme alignment. It was particularly difficult for South Africa to implement industrial policies and strategies due to the legacy of deep structural challenges.

Selected highlights from the current IPAP were discussed such as the clothing and textile, footwear, and leather (CFTL) industry; the business process services (BPS); agro-processing; metal fabrication, capital and rail transport equipment; Manufacturing Competitiveness Enhancement Programme (MCEP); the film industry; green industries; automotive sector; chemicals, cosmetics and pharmaceuticals industry; beneficiation from mining and steel companies; fuel cell technology; upstream oil and gas sector; and localization.

The key themes of the current IPAP were explained, including the need for policy platforms to be built to increase learning on existing programmes; leveraging the competitive advantage of the devalued currency; and building linkages between the primary agriculture and manufacturing sectors.

The key challenges facing IPAP included electricity supply constraints and elevated prices, especially from municipalities; securing port and rail network reforms; deep-seated and serious skills deficits; and management of the operational environment in the steel sector across the entire value chain.

On the steel sector, DTI emphasized its position of not passing higher tariffs on steel produced in South Africa to the downstream or secondary producers. The establishment of a pricing committee had been proposed by the Minister to address the continual tariff increases.

MPs asked how DTI measured success in local procurement; the measures put in place to protect its steel industry; the cost to taxpayers for industrialization incentives; whether to prefer solar energy to wind farms; the innovations that came with the new IPAP; the result of the training of 13 000 unemployed youths in the Monyetla work-readiness programme; the progress on the revitalization of industrial parks; details on the commitment of the United States overseas private investment corporation for a $400 million solar farm in South Africa; the extent to which black film makers and producers were benefiting from the film incentive programme and gaining international exposure;  what was lean manufacturing and engineering; linkages between agriculture and mining sectors; proper interpretation of the deeming policy within the steel sector; DTI’s power core generation strategy; progress report on DTI’s collaboration with the agriculture sector through the agriculture policy action plan and lessons learnt for other sectors; request for the commissioned report on intra-governmental coordination, and tariff increases by ArcelorMittal South Africa (AMSA).

Some Members believed that it was too long to wait until the 16 August to discuss the steel industry crisis with the Minister and that a meeting should be held during the parliamentary recess.

The Chairperson said that the DDG for Industrial Development would address the matter in a written response to the Committee. The Chairperson would write to the Minister and indicate the position of the Committee on the steel issue. She would also mention that the Committee was opposed to a deterioration of the matter, but it should be informed of any such deterioration if it happened, so that a special meeting could be convened to address this.

The terms of reference for the August colloquium on local public procurement were approved.

Meeting report

IPAP 2016/17 – 2017/18 Economic Sectors, Employment & Infrastructure Development Cluster
Mr Garth Strachan, DTI Deputy Director General: Industrial Development, noted that successful industrial policy was not the function of one department. In successful industrialised countries like Japan and South Korea, industrial policy and industrial strategy was driven across government departments. It was therefore important to note that the Industrial Policy Action Plan (IPAP) was a product of the Economic Sectors, Employment and Infrastructure Development Cluster. The biggest challenge in keeping up with other governments worldwide was intra-governmental policy coordination and programme alignment. It had been found that in areas such as autos, clothing, and textiles, where significant outcomes were achieved, a limited number of departments were involved. He noted that IPAP was not a new policy, but an action plan. DTI was learning to industrialise in a collaborative arrangement with the private sector in South Africa, and this was a difficult, complex process. IPAP was part of the Medium Term Strategic Framework (MTSF) and the President’s 9-point plan.

Industrial policy, programmes, and strategy in South Africa was even more difficult than it would be in other countries because of the deep structural fault lines present in the economy, which was energy intensive. Past industrialization was driven by minerals. The deep-seated skills problems reflected the existence of very significant structural problems. Each successive IPAP prioritized the need to deal with those structural problems. IPAP had also recognised that regulations could be secured either in a top-down approach or through a collaborative approach with the private sector, and this was increasingly emphasized in successive IPAPs.

The global economic conditions changed every year, and fundamentally. This year’s IPAP was taking place against very difficult global economic conditions. The after-shocks currently experienced were because the country was at the bottom of a global commodity boom and there was a massive crisis in the steel sector, which was affecting resource-dependent economies across the globe.

All leather and footwear factories opened over the last two years in South Africa were listed at the end of the DTI document. DTI was of the opinion that these newly opened factories were driven by private sector dynamics, and an entrepreneurial approach to unlocking considerable opportunities, coupled with the fact that DTI had deployed a whole set of policy instruments. In addition to the incentives provided by DTI, the sub-national clusters were functioning properly. He noted the Clothing and Textile Competitiveness Programme (CTCP). The key issue in those clusters was that across the value chain from textiles to manufacturers to retailers, supported by incentives, there were world class manufacturing capabilities developing in an integrated programme, which led to a large number of positive examples that could be cascaded across other sectors.

In response to the Chairperson asking for the period within which the 67 000 jobs were created, Mr Strachan said that DTI had supported the CTCP from its inception in 2008.

On business process services (BPS), DTI was working closely with the private sector to scale up the offering. The front of office core service capabilities had performed well, but there was a need to improve the back office through the provision of higher knowledge-intensity core service.

The achievements in the film industry were highlighted.

There was still a lot to be done in agro-processing. A DTI team had been established as it was conscious there was a need to increase labour intensity, and this could be achieved through agro-processing. DTI was working closely with the global multinationals to ensure that greater levels of value addition and labour intensity were achieved in the supply chain. A range of agro-processing companies had invested significantly towards this cause.

In terms of metal fabrication, capital and rail transport equipment (MCEP), South Africa had gone a long way to rebuilding rail industrial capabilities. This had been achieved in collaboration with companies like General Electric (GE), Bombardier, and Grindrod Rail. For the first time, South Africa had the capacity to make an traction motor for a rail locomotive, while other companies (including black-owned companies) had the capacity to make the actual motor itself, the drive train, and other critical components in the rail supply chain. Many of the companies supported by DTI were black-owned.

On green industries, South Africa’s renewable energy independent power producer procurement programme (REIPPP) had been very successful. The main challenge was to secure localization. DTI estimated that a total of R1.7 billion had been invested in the manufacturing of equipment and components, but it believed that the amount should be higher. The critical issue was smoothing demand because the demand fluctuated. DTI was working closely with the Independent Power Producer office, under the Department of Energy. DTI was working towards achieving higher levels of localization by working closely with the REIPPP office, and also in relation to the roll-out of the gas-based industrialization strategy.

The achievements in the automotives sector included the investment of R26 billion on average, over the last five years. The critical challenge in this sector was to secure stronger localization in the supply chains. DTI was working closely with all the automotive manufacturers to secure greater levels of localization in their supply chain, and this was supported by the DTI’s Automotive Supplier Competitive Initiative (ASCI), which supported supplier companies. The current Automotive Production and Development Programme (APDP) would come to an end in 2020. DTI had set up a task team led by Prof Justine Brynes and Prof Anthony Black from the University of Cape Town. The team also included senior DTI officials. This was the first time DTI would establish a team to carry out the work for a post-2020 autos master plan. It had also established an executive oversight committee, which was chaired by the Minister and comprised of representatives from the automobile industry. The critical issue was to provide policy certainty for investors in automotives to ramp up localization; to begin the possible production of motor cycles in South Africa; to place much emphasis on light, heavy and medium commercial vehicles; and most importantly, to use South Africa as a production hub for exports into the rest of Africa. Original equipment manufacturers (OEMs) were global companies, such as Mercedes Benz and Volkswagen. Automotive manufacturers produced some components for assembly and some other components in South Africa. However, they had global supply chains and could source components for vehicles from other parts of the world. Countries which were on the global technology and production curve had high levels of localization. In other words, first, second and third-tier suppliers to the OEMs were companies based in South Africa that either provided one component that was sourced from another tier of supplier.

ASCI was an initiative in DTI that worked closely with the regional equipment manufacturers, component manufacturers, and the national automobile components manufacturer. The critical issue was to ensure that these companies were supported on factory flow in order to produce the needed components and products at the required standard specification price and on time, using high class manufacturing capabilities. The ability to produce an automotive with all of its industrial complexities was a huge industrial capability for any country. Enormous economic spill-overs from the automotive sector had been identified. For instance, a huge number of highly skilled engineers and technicians were incubated in the entire supply chain. Often times, it was engineers or technicians working on an assembly line or in the supply chain that had the technical capabilities to set up an SME to get into this high value adding sector.

Great overlaps had been identified in chemicals, cosmetics, plastics and pharmaceuticals. An example is the Unilever investment of R1.2 billion supported by 12i Tax allowance. Many of the Unilever products which were in the chemical supply chain, were also in the agro-processing supply chain. DTI was close to achieving a significant investment in the Dube Trade Port. Details of this investment would be provided soon.

In terms of beneficiation, DTI was in a 7-week Mining Phakisa with mining companies and manufacturers. The Presidency would make the announcement in due course. Significant progress had been recorded in the mining sector. Recently, one of the major mining houses announced an R800 million purchase agreement to buy mining and capital equipment from a South African black-owned mining company.

As noted earlier, DTI could either pass top-down regulations that the private sector did not like or it could collaborate with the private sector to secure regulations that the private sector could work with, in order to encourage them to buy their equipment from local manufacturers since South Africa had global capabilities to produce mining equipment. The advantage in this arrangement would be the proximity of the private sector to their suppliers for maintenance and spare parts, and they could specify the type of modifications needed to the equipment. This buttressed the importance of intra-governmental coordination and for policy coherence being a critical factor. The Mining Charter had not required localization from mining companies that received mining licences through the MPRDA. Unless the Mining Charter included localization requirements and black economic empowerment requirements, mining companies with multi-billion rand procurement spend would still import these products.

On fuel cell technology, DTI was working closely with the Department of Science and Technology (DST) and global fuel cell manufacturers. DTI had a number of static and mobile fuel cell technology pilot projects in place. This could be a global competitive advantage for South Africa, with an additional benefit of raising aggregate demand for platinum in the country, which would lead to a boost in platinum mining.

On upstream oil and gas, DTI had been conducting research in this sector for the last one and half years. A final submission on this research was yet to be given to the Minister. The research was conducted by a team of private sector technical experts, including experts who had been responsible for gas-based industrialization in Qatar and Australia. The Minister would announce the composition of the team on oil and gas shortly. DTI was also working closely with the Independent Power Producers (IPP) office of the Department of Energy that worked closely with National Treasury, Transnet and the Transnet Ports Authority. The first request for proposals (RFPs) for the import of liquid natural gas had been launched for Saldana Bay, Richards Bay and Coega. This first stage of the gas-based industrialization strategy was aimed at importing the gas to assist in the creation of a gas market, especially for industrial uses. The next stage was to cross the hurdles of the cost of investment to bring the liquid natural gas in Mozambique, the fourth biggest natural gas reserve in the world,. This would require either a pipeline or sea carriage of liquid natural gas to Richards Bay, which was a long-term project. DTI was also working with DST on the exploration that was already happening for the possibility of shale gas, especially through the use of new technologies. Significant progress had been recorded in Saldana Bay. At the moment, there were 36 companies in the investment pipeline, but there were a few issues yet to be sorted out, including the back of port land use and regulatory loops yet to be closed.

Robertson and Caine, the biggest luxury recreational boat builders in South Africa were already 25 years old. In the midst of the global recession, South Africa had been able to continue with the building of the luxury recreational vehicle sector, and was now working on creating small working boats. Procurement had been a critical instrument for this project. For the first time in 30 years, nine of the top boats ordered by the Transnet National Ports Authority were being built in South Africa by South African companies, and at South Africa’s ports, with the support of infrastructure investments and incentives that would raise the aggregate demand by using the procurement instrument.

DTI appreciated the fact that the Committee would hold a colloquium on localization. DTI had made arrangements for local procurement. There was a need to make procurement a stand-alone programme. It was common to notice a lack of compliance across government departments and state-owned enterprise (SOEs), as well as inadequate compliance in some sectors of government departments such as rail, energy and other designations. It was important to make the issue of compliance a clear audit function. Unless strategic sourcing and supplier development capabilities were built in government, the regulations passed might not be implemented. At the moment, the procurement team spent 90% of the time visiting municipalities, provincial governments, and government departments to assist with building their strategic capabilities. The procurement accords that connected the private sector to local procurement, and was signed in 2011 had achieved very little attraction. The current situation required getting the private sector to buy into procurement and work closely with the regional equipment manufacturers that brought different sectors together, with the aim of building relationships and/or partnerships for localization and empowerment.

With regard to industrial financing, DTI still had a long way to go in setting up a stronger and better system of industrial financing, incentives and export credit. The data however, suggested that a huge amount of progress had been made, including the close relationship with the Industrial Development Corporation (IDC) and the disbursement of the industrial financing, which was different from the incentives mainly administered by DTI and sometimes by the DST and National Treasury. DTI was starting a massive project with the Development Bank of Southern Africa (DBSA). The critical issue was to ensure that engineering and service companies from South Africa were properly financed, as the financial support offered by financial institutions of other countries came with several conditions.
The data for the National Empowerment Fund (NEF), Manufacturing Competitiveness Enhancement Programme (MCEP), Automotive Investment Scheme (AIS), Enterprise Development Progamme, 12i Tax allowance incentive scheme, and the Aquaculture Development and Enhancement Programme (ADEP) were provided (slides 26 and 27 of document). DTI was working towards moving away from an open architecture process like the MCEP, where companies across the sectors were supported, to a sector-specific incentive programme, providing incentives for the foundry industries like the rail supply chain and value-added agro-processing sectors.

Critical to the discussion on incentives was the condition of reciprocity, which emphasized the need for building capabilities. DTI had established an Africa export council that would map out all exporting companies across all sectors, the countries they exported to, and the products exported. DTI worked closely with the private sector to ensure the building up of South Africa’s export credit insurance capabilities. Often times, the private sector was able to provide export credit, but the cost of such financing was usually very high.

Foreign investment under IPAP was investment especially in the manufacturing sectors of the economy. DTI’s opinion was that although there were indications of high investments in the manufacturing sector, such investments could be better. Examples of investments in the manufacturing sector and the industrial development zones (IDZs) were highlighted (slide 28).

Four years ago, when DTI started raising IPAP, it was noted that high tariffs for exports out of South African ports was a major problem. DTI therefore engaged with Transnet, the Transnet National Ports Authority, and the Ports Regulator. DTI was now able to achieve traction, and cargo dues for the export of value-added products were now collected. DTI still had to work with Transnet to ensure that Transnet’s demand strategy and financing for infrastructure was not adversely impacted during the process of adjusting the tariffs.

The first key theme of IPAP was to build on the policy platforms, learnings and achievements of existing programmes that had been successful. This would be done by utilizing and strengthening other industrial policy instruments across sectors; building on existing capabilities, identifying areas where competitive capabilities and advantages existed; working closely with global OEMs and domestic champions across the sectors; focusing on labour-intensive sectors; concentrating on the new sectors such as oil and gas, the locomotive capabilities that were already built, mining capital equipment, heavy commercial vehicles and ship building; strengthening public procurement by ensuring compliance and enforcement, cluster alignment of all policy levers; as well as directing efforts at financing and incentive instruments.

DTI also needed to leverage the competitive advantage of the devalued currency, which explained the emphasis placed on exports, exports to Africa, exports of agro-processed products that were based on retail expansion into the rest of Africa, as well as exports of rail, locomotives, components, automotives, chemicals, steel, and fabricated products in the infrastructure build programmes in Africa. DTI had to deploy a set of incentives to achieve this.

It was proposed that the Committee should invite the Technology Localization Implementation Unit (TLIU) at the CSIR for a briefing. The unit had a team of engineers that were supported by the United Nations Industrial Development Organisation. The TLIU deployed engineers to help companies that could not provide components in rail to the required specifications at the right price, using world class manufacturing techniques, to develop their capabilities.

DTI had no control over the carbon tax, which fell under the responsibility of National Treasury. It was however working on the National Cleaner Production Centre of South Africa that worked with a large range of energy intensive production companies to ensure that less energy-intensive and carbon mitigation production processes were put in place.

It was important to build the linkages between the primary agriculture and mining manufacturing sector. The idea that agriculture was not a technology incentive sector had to be done away with. It was therefore necessary for the production sectors of the economy to be linked to services.

The key challenges facing IPAP included electricity supply constraints and elevated prices, especially from municipalities; securing port and rail network reforms; deep-seated and serious skills deficits; and management of the operational environment in the steel sector across the entire value chain.

Steel Sector
Mr Garth Strachan, DTI DDG: Industrial Development, said DTI had raised tariffs on ten items, and had followed the due process required by the World Trade Organisation (WTO). DTI could not sign off overnight on curve increases. Upon agreement of the process in High Tech, the Minister of Trade and Industry signed off on the tariff increases on the condition that the primary steel producer would not increase prices as a result of the tariff. The primary steel producer indicated that it had to increase the prices in some cases, due to the dramatic increase of the input cost.

In terms of steel intensive products, inadequate investment in new planting technology was identified when the primary steel producer was at the top of the commodity super-cycle in the boom years. The resultant effect of this inadequate investment was repeated breakdowns of steel manufacturing production, which meant that the company had become uncompetitive, falling behind the global technology curve despite repeated efforts to build a collaborative relationship with the company. At that time, because of import parity pricing in the designation where DTI had to stipulate every item that was deemed local, DTI deemed all steel (including imported steel) as local. Now that there was a very significant problem, DTI was removing the deeming from the designation, which would take time because DTI had to work with the National Treasury, and issue new instruction notes for all the designations.

DTI was conscious of not passing higher prices of steel produced in South Africa to the downstream. It was difficult to get back steel production capabilities after they had been lost. Once market conditions improved, South Africa would have no influence on the market prices, and would become importers and price takers of steel producers in other countries. Nevertheless, there was a need to support the downstream. Rebates existed for importing steel, re-rolling steel products, and exporting steel with added value. South Africa was currently behind the curve in protecting its steel industry.

DTI could not give a definite response on when the pricing committee would be established. It was only aware of the fact that the Ministers had approved the establishment of this committee.

A greater percentage of resources were currently being invested in the steel sector. DTI had a technical team of experts within the department, and had brought engineers from outside the department to work on a consultancy basis. Meetings were currently held with the mining companies to consider the means by which cheaper iron ore prices could be passed through the value chain as the cheapest steel prices.

Discussion
Mr A Williams (ANC) asked how DTI measured success in local procurement through the figures presented or was local content measured per product. What measures had been put in place to bring South Africa back to the front of the curve in protecting its steel industry? Were there any other sectors of the economy that South Africa was also behind the curve in protecting them, and if so, what measures had been put in place?

Mr D Macpherson (DA) said that the idea behind IPAP itself was not bad. However, IPAP had failed to diagnose the constraint inputs that were needed to make IPAP work. DTI’s declaration of intergovernmental cooperation was sincere, but was without coherent actions. The success of IPAP was hinged on DTI’s ability to take inter-departmental cooperation seriously.

Mr J Esterhuizen (IFP) said that government’s subsidies for the industrialization programme could be misleading, especially since the subsidies placed a financial burden on the taxpayers and the economy as a whole. He expressed concern about the target of 75% local procurement, and also on the trend of state entities like Transnet, with in-house manufacturing capabilities. Transnet still imported most components from China.

Mr N Koornhod (ANC) noted that a substantial amount of investment was directed towards solar under the green industries. He asked if DTI in conjunction with other departments, had carried out a study to decide if it was better to adopt a solar energy option for South Africa, instead of the wind-farms option.

Mr B Mkongi (ANC) asked what innovation came with the current IPAP that was different from the previous ones; what other radical transformation came with IPAP, apart from those in the steel industry. How could IPAP assist in improving the aggregate demand for manufactured goods in South Africa?

Ms P Mantashe (ANC) asked what the resultant effect of training 13 000 unemployed youths under the Monyetla work-readiness programme was; if the programme created an impact in reducing the numbers of unemployed youths; and if the trained youths had been deployed or employed in any of the shoe-manufacturing factories. She asked for a progress report on the revitalization of industrial parks programme; how DTI carried out monitoring and evaluation on the revitalization of those parks; and what the value for money was from the investment made to this programme of revitalization.

Mr S Tleane (ANC), member of the Portfolio Committee on Economic Development, asked for more details on the commitment of the US overseas private investment corporation (OPIC) that had approved funding for a $400 million solar farm in South Africa. It was important to know when the commitment was made in order to monitor the project’s state of development.

Ms E Coleman (ANC), Chairperson of the Portfolio Committee on Economic Development, expressed interest in the film incentive programme, noting that the programme was one that would benefit South Africa in many ways. She asked the extent to which film owners and producers had benefited from the programme, the level of exposure that these black film makers and producers had received to enable them to become renowned global film producers. She asked for details on the level of transformation in the aerospace sector.

The Chairperson asked DTI to convert the different monetary values and figures in the presentation to Rand. She sought explanation on the meaning of ‘lean manufacturing and engineering’; the linkages between agriculture and mining; and a proper interpretation of the deeming policy in the steel sector.

Mr Strachan responded that the measurement for the designation of any product for local procurement was set out in an instruction note issued by the National Treasury. The process involved was quite complex, as it entailed a verification instrument in verifying the local content. DTI was working towards creating electronic platforms for verification and traceability.

A number of countries had deployed robust instruments to protect their steel industry. It was therefore, necessary for South Africa to deploy resources towards the protection of its own steel industry. DTI was responsible for the protection of the primary steel production capabilities in South Africa, through the use of policy instruments that supported the downstream manufacturers.

It was pointed out that before 1990, the apartheid government negotiated a settlement at the WTO, which deemed South Africa as a developed country. This resulted in the taking away of the policy space meant for tariffs. This problem was worsened by a further lowering of tariffs by the transitional government. All of this led to a situation where the space between the applied and the bound rate was very little. Tariffs were therefore, deployed in a constrained situation. DTI indeed lowered tariffs where the need arose, and supported same. DTI was engaging with Kumba on the provision of iron ore at a discounted price.

Mr Strachan replied that the critical issue in IPAP was intra-governmental policy coherence and programme alignment. The Mineral and Petroleum Resources Development Act (MPRDA) and the Mining Charter were problematic in this regard. DTI did its best to work closely with other departments when the need arose. Nonetheless, complex operational and policy issues still existed.

There was no such thing as subsidies. Subsidies were in fact, a breach of the WTO regulations. What existed instead were incentives and tax incentives. The critical issues surrounding all the tax expenditure, the tax incentives or the unbudgeted incentives for the industrial financing of the export credit insurance and working capital facilities was additionality and conditionality. Additionality raised questions of whether the investment would have happened without an incentive, while conditionality referred to conditions that were set for investments. Conditionality was central to all DTI investments, and all incentives came with conditionalities, with the exception of the Black Industrialist Programme. DTI still had a long way to go in building capacity to monitor the conditionality across all the incentives.

On whether Transnet rail engineering would become an original equipment manufacturer itself or was responsible for managing the procurement that was the responsibility of the original equipment manufacturer, was a big policy debate.

In terms of renewable energy, DTI noted that there was a strong bias towards solar.

Each iteration of IPAP was not something new. Instead, IPAP built on the achievements in autos, clothing and textiles, and other sectors; and introduced new sectors and new incentives, by working closely with the private sector. Industrialization was a slow and complex process that most countries have refused to venture into. The complexities around industrialization were even more so in South Africa because of the need to achieve transformation, equity and address deep structural problems, such as unemployment and skills shortages.

Mr Strachan commented that aggregate demand could only be raised in two ways, which were through public procurement in the domestic economy or private sector procurement in the domestic economy. For the first time since 2010, DTI began to raise aggregate demand through public sector procurement in various designations. Considerable progress had been achieved in this. The other option was to localize the private sector. No progress had been recorded on this option. There could be no formation of small and medium enterprises (SMEs) without raising aggregate demand. It was only the state and large industrial development led by big companies (including multinational companies) that raised aggregate demand through local manufacture, supply chains, and downstream value addition. Aggregate demand could also be raised through exports. Only a few companies in South Africa exported very few products to very few countries. This explained the focus of IPAP 2016 on revitalizing the export councils, and better support for export companies, existing exporters, and potential export-ready companies across the value chains.

On the training programme for youths, 90% of the trainees had secured jobs in the core sectors. The key to the BPS was the existence of a close working relationship with the private sector. The Business Trust that was used to design the incentives, had evaluated the Monyetla programme and the BPS incentive.

It would be impossible to get investments from big companies if emphasis was laid on equity provisions in those companies. There was an equity equivalence instrument that fell under the role of the DTI Empowerment and Enterprise Development Division, which had recorded significant progress so far.

On the investment to solar farms, the investment committed by the US had taken place. The investments in the renewable energy Independent Power Producer Programme were tenders that were submitted by the IPP office. Companies secured those tenders to invest in energy generation, especially solar and wind. The critical issue surrounding the tenders was the need to stipulate localization requirements that would help in raising aggregate demand for the components in solar. The components needed to be manufactured in order to achieve labour intensity. The IPP office had once suggested the exclusion of local content, but DTI worked closely with the office to raise local demand for locally manufactured products.

The film incentive did not fall under DTI’s role, but all DTI incentives contained black economic empowerment and transformation requirements.

Aerospace did not have enough capabilities. Denel produced components for the aerospace, and was also capable of systems integration. It did not have the capacity to produce aircraft.

Lean or world class manufacturing referred to the application of the latest technology, supply issues, and required standards to global specifications. It also highlighted the fact that manufacturing in key sectors was becoming increasingly less labour-intensive.

The linkages in the production sectors were critical, and it emphasized the need for intergovernmental coherence. The National Development Plan specified that exports in tradeable services should be embarked upon, but the services sector was supported by the primary production sectors.

Mr Strachan said the mixed signals around designations and the lack of policy coherence and programme alignment was a critical problem that should be dealt with.

Ms Ncunyana Zukiswa, DTI Chief Director: Industrial Policy, said that DTI and the National Film Foundation had launched a support programme that was targeted at emerging black film makers. This was borne out of the need to cater for black film makers under the film incentive programme. In 2015, DTI supported 30 emerging producers who were taken to the Cannes Film Festival, to further expose these film makers to the international standards of the industry. Two films had been screened through DTI’s support programme, which were ‘Ayanda’ screened at the Cannes film festival, and ‘Happiness is a four-letter word’, screened in 2016. The list of films produced by black film makers was not exhaustive, and details could be submitted to the Committee if need be.

Industrial parks did not fall within the ambit of industrial development. However, it was noted that DTI had set aside R189 million towards the revitalization of the industrial parks. Six industrial parks had been targeted for the 2016/17 financial year that started on 1 April.

The Monyetla work-readiness programme emphasized the partnerships between the private sector and government. The private sector usually signed an undertaking to absorb these youths after the completion of the training, which explained the high absorption rate.

DTI commissioned a study in 2015 that concluded that intra-governmental coordination was a key hindrance in achieving the potential of the agricultural sector. One of the key action programmes considered by IPAP 2016 was the systematic alignment of various sectors, and emphasis on the defragmentation of DTI’s interventions across the various spheres of government.

Mr Macpherson asked for a copy of the commissioned report on intra-governmental coordination.

Mr Esterhuizen said that the key achievements on incentives would be misleading if the extent of the state incentives and the financial burden on taxpayers was not mentioned. The downstream manufacturers did not benefit from the ArcelorMittal agreement. It was important to look after the interests of the country. Industrialization could not be achieved only through regulations. It was important to tackle corruption, and create an environment for the private sector to flourish, and this could be achieved through the involvement of all South African citizens.

Mr A Alberts (FF+) asked about the power core generation strategy put in place by DTI, since it had become clear that Eskom was unable to generate the capacity required, and more people were beginning to generate their own power. DTI along with the Departments of Energy and Public Enterprises had a role to play in ensuring that cost-effective power was generated to boost the economy.

Mr Williams asked for a report on how South Africa could reverse back to a developing country as opposed to the developed country status it was recognised as by the WTO, since it was the only way it could protect its industries on the curve. He asked the pros and cons of such reversion or recognition.

Mr Mkongi asked for a progress report on DTI’s collaboration with the agriculture sector through the agriculture policy action plan, as well as the lessons learnt from such collaboration that could be incorporated into other sectors of the economy. In terms of the relationship between the upstream and the downstream, the primary production capabilities of the country could not be compromised. He asked for an explanation on the relationship between the upstream and downstream manufacturing sectors.

Mr Strachan said that the problem with the film industry was that pre and post-production was usually done outside South Africa. The economic multipliers for shooting the films in South Africa were very large, and could accommodate the set, food, uniforms, costume, and so on.

It was suggested that Mr Albert’s question should be directed to the Departments of Energy and Public Enterprises. Nevertheless, DTI confirmed the commencement of own-generation of power, which was different from co-generation. Co-generation of power implied a connection to the national grid. This was another area that needed policy coherence, certainty, and a clear strategy going forward.

It was noted that tariffs were within the ambit of High-Tech.

DTI worked with the Department of Agriculture, Forestry and Fisheries in relation to IPAP. Preparations were underway for an Agriculture Phakisa, and DTI was cooperating with the preparations. Even though investments in agriculture had declined drastically, agriculture exports that included value-added exports had increased. It was still important to secure the policy coordination, programme alignment, and policy certainty in this sector.

Under the previous government, industrialization was driven by the mining companies, with emphasis on the upstream. Not much emphasis was placed on the downstream, even though it was energy-intensive. Support should be given to the upstream that focused on mining capital equipment, while beneficiation should be gotten for the downstream. More value should be added to the downstream.

Mr Macpherson referred to DTI’s submission that policy inputs could not protect the primary steel producers at the expense of the downstream or secondary producers. He noted that this was what obtained in the case of ArcelorMittal, where the downstream/secondary steel users were asked to sort out the issues caused by ArcelorMittal South Africa (AMSA). The statement released by DTI on 28 August 2015 on the conditions for the tariff protection which were very clear. Despite a media release in February 2016 that buttressed the point that tariff protection measures of primary steel producers do not result in the passing of higher steel prices to the downstream, full price increases initiated by AMSA were implemented. The idea of a pricing committee was not specifically mentioned in August 2015, but was depicted by the article attached to the documents that emanated from the Business Day newspaper. The article mentioned that a proposed pricing committee or task team would monitor ArcelorMittal’s implementation of pricing principles that had been agreed to. The Committee was not aware of these pricing principles, and whether the pricing committee had been constituted and had commenced work.
AMSA would normally give the downstream steel manufacturers two weeks’ notice to implement their prices. AMSA’s policy of supplying customers with components based on their historic offtake agreement was problematic in the sense that new customers that could not import items due to the high tariff rates, would not be able to buy products from AMSA. The Minister was yet to appear before the Committee to deal with the issues around the value chain and steel, as expected.

Mr Esterhuizen said that AMSA was getting away with exploitation without any consequences. AMSA was the only beneficiary of the increased import tariffs and was now pushing for another one.

Mr Kalako said that the steel issue was of great concern to the Committee. He proposed that a meeting should be held with AMSA, together with the Portfolio Committee on Economic Development, to deal with the current issues facing the steel industry.

Mr Mkongi said that the challenges facing the steel industry should be treated as a national crisis, which it actually was. He proposed that the matter should be processed through the Chairperson. He asked what the relationship was between the tariff increase and the developmental pricing already proposed by the Committee.

Mr Alberts proposed another meeting where the Minister and AMSA were present to discuss the pending issues on steel.

Ms Coleman also proposed a joint sitting where the two Ministers would be present to deal with the policy surrounding steel.

The Chairperson noted that discussion on this matter was originally scheduled for August. The Minister’s absence at meetings was due to his deployment by the President. However, he had confirmed his attendance at the 16 August 2016 committee meeting. It had become necessary to attach conditionalities to all agreements that were made with AMSA.

Mr Strachan said that the processes of the Competition Commission fell within the role of the Economic Development Department (EDD). The establishment of the High Tech committee was under the Minister of Economic Development. The rebates for the downstream were not for AMSA, but AMSA also applied its own rebate. DTI had embarked on tariff applications for downstream, as none of the downstream companies had applied for tariffs. The downstream companies had complained about the costly rate of applying for tariffs. Scrap metal was also critical to this debate, as many other steel companies made use of scrap metal instead of iron ore.

Ms Coleman said that High Tech was a shared responsibility between the EDD and DTI. EDD was only responsible for policy, while High Tech was concerned with implementation. DTI was therefore responsible for tariff issues.

The Chairperson noted the 16 August 2016 committee meeting had been revised to accommodate the Minister to discuss the steel industry and tariff increases. The Copyright Amendment Bill would be processed no later than 20 September 2016.

Mr Macpherson raised a concern about the continual increase in tariffs by ArcelorMittal and delaying this matter until the scheduled 16 August meeting. He proposed a Committee meeting during the recess to address the issue.

The Chairperson said that Mr Strachan would address the issues directed at him and forward a written response to the Committee. The Chairperson would write to the Minister and indicate the position reached by the Committee on the steel issue. She would also mention that the Committee was opposed to a deterioration of the matter, but it should be informed of any such deterioration if it happened, so that a special meeting could be convened to address this.

Mr Mkongi asked what power the Committee had to propose a moratorium on a price increase.

The Chairperson replied that the letter to be sent to the Minister would set out the demands of the Committee in clear terms.

Terms of reference on the August colloquium on local public procurement
The Committee adopted the terms of reference.

Consideration of minutes
The Committee adopted the minutes of its March, April and May meetings.

The meeting was adjourned.
 

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