Integrated Manufacturing Strategy; NSTF/NACI Recommendations on Growth and Innovation Study

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Trade and Industry

18 March 2003
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
19 March 2003
INTEGRATED MANUFACTURING STRATEGY; NSTF/NACI RECOMMENDATIONS ON GROWTH AND INNOVATION STUDY

Chairperson:

Dr R Davies (ANC)

Relevant documents
 

NSTF/NAGI Presentation
Presentation by Department of Trade and Industry (available on 27 March 2003)

SUMMARY
Members raised the following concerns with the Department of Trade and Industry presentation on the Integrated Manufacturing Strategy (IMS): the efforts of the IMS to alleviate poverty and create employment, the fact that the export-led approach of the economy does not actually create employment and the Department was asked to explain its plans to guard against the current "brain drain".

During the discussion on the NSTF/NACI presentation on the Growth and Innovation Study the Committee sought clarity on the manner in which the study would alleviate poverty, and NSTF/NACI was asked to give its recommendations aimed at addressing the problem of the low rate of production of Mathematics and Science graduates.

MINUTES
Integrated Manufacturing Strategy
Dr Alistair Ruiters, DTI Director General, conducted the presentation. He noted that he had not prepared a document because all the information contained in his briefing notes is contained in the booklets to be made available before the Minister of Trade and Industry's budget speech.

One of the key challenges for the Department was defining what precisely a value matrix is, and a significant amount of work was done to educate management on the adoption of the Integrated Manufacturing Strategy (IMS). Both organised labour and the business sector were involved in the consensus-building process. Success has been achieved in localising the IMS, because all departments of government in all three spheres were consulted and involved. A very important factor for the successful implementation of the IMS is knowledge, and for this reason a presentation was delivered to South African universities, the South African Vice Chancellors Association as well as a number of research institutions, in an effort to understand exactly what the IMS is. The "M' in "IMS" does not only deal with manufacturing, but involves all the other sectors that make a very important contribution to economy growth and employment creation.

The following are some of the key issues that were identified:

- The definition of "competitiveness" and the struggle to find a balance between competitiveness and increasing the number of economic imperatives.

- The second is ensuring government has the necessary capacity "to choose winners".

- The third is a knowledge intensive sector, and in this case "knowledge" refers to the ICT sector. This sector is involved with a high level of technology and there is a need for skills, with the result that the large number of unskilled South African's are excluded from this sector because they do not possess the requisite skills.

- The fourth is the role to be played by the State in industrial development, and whether it should be a catalyst or a facilitator? Should the State play a passive or active role in directing economic activity in South Africa without being prescriptive? This was one of the underlying themes in the discussions.

- The fifth issue has to do with government co-ordination, and whether the Department has the responsibility to manage policies and programmes that fall outside its mandate, but that are necessary to ensure competitiveness. A good example would be the Department's role in the research and development initiative, which actually falls within the jurisdiction of the Department of Science and Technology. This project has to be aligned with the Department's IMS so that the two can support each other. The approach adopted by other countries was considered in an attempt to identify the role of government here. The Japanese Department of Trade and Industry has been combined with the Department of Finance to become the Ministry of the Economy, and is responsible for the all economic functions as a unit. During the 1970s to 1980s the United Kingdom's Department of Trade and Industry pushed for the promotion of certain markets so that it could benefit fiscal and regulatory aspects of the economy. The result is that today there are more regulators, consumer agencies, parastatals in place. Now that they are around, the new role to be played by the Department of Trade and Industry has to be considered afresh. If the service provided by those other institutions are "sharper", what then is the role to be played by the Department of Trade and Industry?

- The sixth issue that arose was geographic spread because the so-called "Golden Triangle", the Western Cape, Gauteng and KwaZulu-Natal provinces, receive the bulk of the investment. Yet the reality of the matter is that those provinces are in fact the most productive regions. The question which arises is how the Department can stimulate demand and increase productivity in the rural areas.

- The seventh issue is whether the IMS actually addresses the provision of basic services, and this matter has to be discussed further. Is it possible to stimulate the service sector that deals with service delivery? This has been done successfully in other jurisdictions where the government has provided incentives for meeting basic services, such as the provision of grants, all with the aim of having a viable economy.

- The eighth issue is whether the Department will review its supply site measures, and whether it can explore alternatives to the SMME finance arrangements.

- The ninth issue is the importance of the sector summits, as forerunners to some of the sector strategies that would be devised later.

- The tenth issue is the "80-20% split" which indicates that 80% of the customers of the Department only use 20% of the Department's offerings. Approximately 10 000 calls are received each week by the Department's call centres, and about 90% of these calls have to do with registration of companies. The Department's aim here is to tailor those standard offerings that are delivered every day, such as company registrations, to meet that demand. The 20% refers to those people who want customised services, and are usually placed at the high end of the market and are very valuable to the economy, but providing them with a service take s a significant amount of time.

- The eleventh issue that arose is whether the Department can actually deliver on all its promises.

- The twelfth is how the IMS would ensure that Black Economic Empowerment (BEE), HIV/AIDS as well as gender concerns are accommodated.

- One of the final matters that arose dealt with how the Department would define its collective action.

There were certain policy alignments that also arose for discussion, as contained in the slide presentation. The Committee would receive a full briefing on the implementation of the IMS next week, and the next step in the process is to present the IMS to Cabinet. The DG then referred to about five of the slides:
Slide entitled "Sub Sector process" indicates a new approach initiated by the Department and it allows the Department to be more specific and less generic.
Slide entitled "Target Level" provides for a more specific approach as well, and indicates that there are now four basic levels of upgrading. This is important because it allows the Department to identify the cost involved, otherwise it would amount to giving a blank cheque.
Slide entitled "Research" indicates that the IMS is all about creating value and not adding value in terms of the four points listed. The research and development strategy is important here, and it has to receive investments so that the process can be completed. It was discovered that small businesses, BEE initiatives and sectors do not talk to each other. The Department's aim here is to facilitate such dialogue so that a single economy can be created with one vision.
Slide: "Levels" indicates that the approaches will be formulated in the sector summits.
Slide: "Evaluation Levels" slide indicates that the first level involves the standardisation of the Council of Trade and Industry Institutions (COTII), and the second involves the streamlining of the customised services.

Discussion
Ms C September (ANC) sought clarity on the litmus test used by the Department to continue on this path. The President's 2001, 2002 and 2003 State of the Nation Addresses dealt with micro-reform, and this had much to do with whether the litmus test would conform to an industrial strategy aimed at meeting the basic needs, including Reconstruction and Development Programme (RDP) infrastructure. If so, it would then be correct to argue that the research and development strategy, the Human Resource Development Strategy (HRDS) etc. all flow into one another.

The DG stated that before he answers any questions it has been brought to Members' attention that there is a clear split between "strategy" and "implementation". Members will remember that during May 2002 the Department was requested to draft a strategic vision for what exactly will be done with regard to industry development in terms of the challenges facing the Department. The Department produced a document which will form the basis of a consensus-building process across various stakeholders and government departments. The aim here is to find a common goal with regard to the IMS common-speak. Today's presentation was aimed at merely familiarising Members with some of the key areas, and the answers to these questions will be presented during the much more in-depth discussion scheduled for Tuesday 25 March 2003.

The DG responded to Ms September's question by stating that the Department, via its outreach work, managed to surpass the number of companies registered in the whole of 2002 by November of that year, with the same resources at its disposal. This process began in 2000, but the conceptual process culminated in May 2002. The Department has never before managed to disburse more than 100 licences per month, yet it currently registers more than 500 per month. This is the effect of an extensive outreach campaign.

Ms September asked whether the industrial policy does respond to the Department's infrastructural needs for rural constituencies, so as to expand on the specific objectives planned for those areas.

The DG replied that conceptual consensus has been reached on the future of the South African economy. This plan is not merely a conceptual document but is detailed and outlines the specifics of the interaction, and does address the major concerns raised.

Ms B Ntuli (ANC) stated that the presentation contained more questions than answers, and contended that it does not contain any plan for the implementation of the Integrated Sustainable Rural Development Programme (ISRDP) or the Urban Renewal Programme (URP). Clarity is thus sought on how exactly the IMS plans to support and involve the really poor communities and create employment and economic growth within them. Does the IMS really make an impact on the ground?

Ms J Moloi (ANC) referred to statements made by the DG about the employment in six areas aimed at eradicating poverty, and sought clarity on these six areas.

Mr Rasmeni sought clarity on what precisely the Integrated Development Project (IDP) entails in the relevant areas.

The DG responded that the IMS is fundamentally about the creation of one economy in which all South African's can take part. During 2002 a total of 5 000 new small businesses were registered, and this is fundamental to implementation of the IMS. It is thus clear that the process has already begun and it is ongoing.

The Chair stated that the last few slides referred to by the DG were interesting, but contended that it was not obvious to him how their content answered certain questions posed earlier by Members. It has to be remembered that these are not polarised choices because both job creation and economic growth can be achieved here, but the emphasis has to be on the measures aimed at promoting income generating activities for those that have been previously marginalised by the economy. What are the key areas of market failure? An obvious one has to be the integrated value matrices with the link between the fiscal economy on the one hand, and placing an emphasis on market generating opportunities and BEE initiatives. This has to be a key market failure.

Mr D Lockey (ANC) noted that the stated aim of Government for 2003 is to push back the frontiers of poverty, and Government now has to reach out to those communities which make up more or less half of the total population. During the public hearings on industrial policy this Committee looked at some of the key constraints being experienced here, and found that most submissions focused on downstream activities and the need for more jobs within the food sector. This is an important matter because the Director General of the Department of Agriculture has stated that investment in infrastructure is not the solution here. The approach being adopted here is far too wide and, even though it is in keeping with current thinking, the Department has to look at a competitive advantage that can be developed in a global economy.

The DG responded that the report of the Director-General of the Department of Agriculture deals fundamentally with the implementation of the IMS, and was considered by the Cabinet Lekgotla in January 2003. Again, the Department has answered these concerns and they will be presented to Members during the meeting of 25 March 2003.

Mr Lockey stated that, with regard to the export-led approach, it was contended during the public hearings that this approach favours the developed side of the economy, and it does not yield sufficient benefits with regard to employment creation or poverty alleviation.

The DG responded that whether it is an export-led approach is not the issue here, but rather that employment creation is so important to the Department that it would support any enterprise that creates jobs and growth. The reality is that growth has been exhibited in those sectors, because they have a strong and competitive leadership and management structure.

Mr Lockey contended that the transportation manufacturing industry does not in fact create jobs but actually sheds employment, as evidenced by the statistics for that industry.

The DG replied that those unemployment statistics from 1995 highlight two real issues. The first is that between 1995 and 1999 many South African industries were engaged in a job-shedding exercise, and during 2002 it was the first time that the automobile manufacturing industry illustrated a positive yield. Indirect jobs are created by that industry because the manufacturing of a motor vehicle involves so many different industries that it increases the capacity of the sector to generate jobs. Examples of such indirect employment would be the leather seats, plastic and upholstery used in the motor vehicles, which would necessitate the involvement of the leather and plastic industries. The value matrix devised by the Department allows it to look at all those other industries that provide input here.

The automobile manufacturing industry is export-led because, truth be told, there is really a very small domestic demand because South Africans cannot afford the vehicles produced. The reality of the matter is thus that the industry then has to produce vehicles that have to meet the demands of German consumers etc. An allied problem here is the low rate of household income.

There is a distinction to be made between a domestic and export-led economy, and South Africa has to be able to be competitive with international players. It is to this end that the Department would support any industry that would benefit the South African economy and which focuses equally on employment creation and securing economic opportunities.

Mr S Rasmeni (ANC) referred to the DG's statement about the Department interacting with nine metro councils and asked if the rest of the councils had been consulted as well. The problem that can be created here is that Apartheid-type practices are being carried out, as all the focus seems to be placed on urban areas and the rural areas are being excluded. If this is not addressed, the Department will continue to experience the problems it faces with regard to geographical spread.

The DG replied that DTI currently receives 10 000 calls per week, and this clearly indicates that the Department is reaching many more people than ever before, and this includes those from the most rural communities. Many metro councils outside Gauteng were spoken to, including the Western Cape, KwaZulu-Natal, Mpumalanga and the Eastern Cape, and a huge effort was made to consult as many as possible.

Two things have to be borne in mind about geographical spread: all the role players must share a common vision and every activity must involve a set of actions that lead to a point where the effort is successful. It has to be remembered that there is a difference between the activities of the Department and economic growth, and this can be quantified with regard to the impact on the sector, as well as financial and economic considerations. During 2002 the Strategic Investment Programme (SIP) identified a total of 10 000 jobs monthly, and these were not restricted to the urban areas alone, and R2,7b has so far been generated. This is being continued on a daily basis.

Mr Lockey referred to the skills versus investment debate, and contended that skills have to be developed here. Skills cannot be developed in a vacuum, and government instead has to adopt a pro-active stance and invest in development in those areas in which there is market failure.

Mr Rasmeni sought clarity on the current partnerships between the Department and other government departments, especially with regard to skills development. The DG had indicated that there are certain areas that are currently experiencing a skills shortage problem. He asked what these areas are so that Members can be aware of the challenges to be addressed. How big a challenge is being posed here?

The DG replied to these questions by stating that the Department has extended a programme aimed at bringing in graduates into the ICT sector. This was not only done at the country's major universities, but was launched via a national radio station aimed at getting more youth to become involved in the sector.

Mr Rasmeni sought clarity on the Department's relationships with funding agencies and how the Department would use these agencies to strengthen the profits of the Department.

Ms Moloi proposed that there may very well be an overlap with various other government departments here, and this potential problem has to be addressed. There may even be a need for concurrent roles to be played in all spheres of government.

The DG responded to these questions by stating that these bodies were addressed on the matter and it was discussed extensively with other Departments, as well as with the South African Local Government Association (SALGA).

National Advisory Council on Innovation / National Science and Technology Forum: Recommendations on Growth and Innovation Study
Dr John Stewart, from the National Advisory Council on Innovation (NACI), and Dr James Hlongwane, CEO of the National Science and Technology Forum (NSTF), submitted the presentation (see document).

Discussion
Mr P Nefolovhodwe (AZAPO) asked NSTF/NACI to explain the link between technology development and innovation and poverty eradication or, in other words, how programmes facilitating access to technology improves the lot of South Africans.

Ms Ntuli referred to the eradication of poverty and asked NSTF/NACI to explain how it would disseminate information to reach those in the rural areas, bearing in mind that most of the poor live in those areas. Could NSTF/NACI also explain its relationship with the provincial and local government structures?

Dr Stewart replied to these questions by referring Members to the slides in the presentation dealing with the silk industry, and stated that people in the rural communities derive a direct benefit from that industry. Some of the technology used does not require great levels of training, with the result that people can benefit from them. Furthermore, where sophisticated industry is established, there is a trickle-down effect with resultant economic growth in surrounding areas.

Mr Nefolovhodwe asked how individuals that want to develop new technology would be able to access this type of support if they are not affiliated to the organisations mentioned during the presentation.

Dr Stewart responded that this is a difficult question but suggested that if this is at a low level, such as a child with a novel idea, then such support or avenues could probably be explored via his/her school. The National Research Foundation (NRF) plays an important role here, but it is located sort of higher-up on the scale.

Mr Rasmeni asked NSTF/NACI to explain whether there are any support programmes in place aimed at capacitating municipalities with regard to science and technology, especially in those areas in which service payments and the consumption of the service by the community has to be monitored. Municipalities are currently flooded by private companies who want to be contracted to monitor service payments and service delivery, whereas it appears that the CSIR could instead be used to perform this function.

Dr Stewart replied that this is a difficult question as well because NACI operates at a high level, whereas CSIR obtains funding from the Science Vote for projects. But a fair share of income has to be received from the system.

Mr Rasmeni referred to the presentation indicating South Africa's low rate of production of mathematics and science graduates, and proposed that perhaps sometimes too much is expected in this regard. Instead focus should be placed on the "early stages of learning", especially in the poorer communities. What is NSTF/NACI doing aggressively here?

The Chair referred to the problems raised with regard to Mathematics and Science, and proposed that the manner in which these subjects are currently being taught has to be improved.

Dr Hlongwane replied that he does not want to provide a negative answer, but stated that the Apartheid strategy was a very good one in the sense that it meant to benefit some and oppress others. No counter-strategy has yet been designed to reverse this, and one of the major pillars of the Apartheid strategy was the education system, which still exists today. The NSDF is concerned with the current state of the education system, especially the Mathematics, Science and Technology subjects.

The problem here is that Mathematics and Science are not compulsory subjects, and a subject like Technology is not even known in the black schools. Yet presently Mathematics, Science and Technology have been made compulsory subjects for all Grades R-9 learners. The rationale behind this decision is that these subjects are pivotal to growing the economy of any country, but they are unknown to black South Africans because the education system was designed to make them labourers. At least one school in every district should include these as mandatory subjects, and this was taken so seriously that the Deputy Minister of Science and Technology was asked to focus on this.

It is important that the Department of Education changes the current style of education via the National Curriculum Statement, and the NSTF is monitoring very closely what that Department will be doing in this regard.

The Chair stated that this Committee agrees with the importance of research and development for economic development but contended that this is a much more complicated issue, because the contracting out of this function would lead to short-term research being conducted.

Dr Stewart responded that this has to be looked at carefully. South Africa has to gain extra expertise by encouraging commercial companies to conduct research in South Africa, and this has to be done to ensure that South Africa generates its own expertise locally to stop the "brain drain". This is important so that South Africa itself can export its research and development services.

The Chair stated that the DG referred to an "80-20% split" and proposed that this can be addressed via the Department's customer service package because it does contain various support structures in place for research and development. There is no need for the private sector itself to become involved here.

Dr Stewart replied that he would like some time to reflect more deeply on this matter because it has not really been addressed in the presentation, but contended that it does already happen, to some extent.

Ms Ntuli asked NSTF/NACI to explain any attempts to stop the "brain drain".

Dr Stewart responded that this is an important matter, and efforts have to be made to repatriate some skills from places outside South Africa.

Ms Ntuli asked NSTF/NACI to explain how it would help the manufacturers to create jobs.

Dr Stewart replied that some of these industries do benefit development within rural communities, but it also benefits the urban area in which manufacturing takes place.

The meeting was adjourned.

 

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