Department of Trade and Industry on its Annual Performance Plan, with Deputy Minister

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Meeting Summary

The Department of Trade and Industry briefed the Committee on its Annual Performance Plan.

In his preliminary remarks, the Deputy Minister said the structural fault lines of the South African economy continued to impede the ability of the economy to grow in order to create jobs. One of the challenges was an over-dependence on volatile mineral commodities. The situation was exacerbated by the weakening global economy recovery. Even with interventions the way the economy was it was difficult to create sufficient jobs to lower the unemployment rate. There was therefore a need to speed up implementation of radical economic transformation. The Strategic Plan and the Annual Performance Plan of the Department of Trade and Industry was based on the imperatives of radical economic transformation. The DTI would be prioritising the implementation of the Industrial Policy Action Plan (IPAP) with the emphasis on job creation in various industries and sectors. There would also the sustained rolling out of the Black Industrialist Programme across SA. In addition there would be the prioritising of the investment one stop shop ie InvestSA. Offices would be opened up in all provinces in order to provide support to potential investors.

In its main presentation, the Department said that strategic goals for the DTI included facilitating transformation of the economy to promote industrial development, investment, competitiveness and employment creation. Further, it planned to facilitate broad based economic participation through targeted interventions to achieve more inclusive growth and build mutually beneficial regional and global relations to advance SA’s trade, industrial policy and economic development objectives. The DTI had eight Programmes in all ie Administration, International Trade and Economic Development, Special Economic Zones and Economic Transformation, Industrial Development, Consumer and Corporate Regulation, Incentive Development and Administration, Trade Export SA and lastly Investment SA.

The Committee was given insight into the economic outlook for SA. There was weak global economic recovery. SA’s domestic economy in 2016 was affected by the drop in commodity prices as well as drought that had affected certain areas. However it was expected that things would improve in 2017. Employment increased by 235 000 in the October – December 2016 Quarter however employment declined in the mining and construction sectors. The Southern African Development Community (SADC) remained the biggest market for SA’s manufactured goods in Africa accounting for almost 88% of total manufactured exports to Africa. SA’s exports to the world decreased 1.1% from R275bn in Quarter 3 2016 to R272bn in Quarter4 2016. Imports contracted by 2.5% reaching R274bn in Quarter 4 2016 from R281bn in Quarter 3 2016. In Quarter 4 2016, SA’S trade deficit with the rest of the world improved to R2bn from R6bn in Quarter 3 2016. Members were provided with an overview of key planned interventions for the 2017/18 financial year. On industrial development with the aim of upscaling industrial policy the annual rolling IPAP would be submitted to cabinet for tabling. There was planned investment facilitation in targeted sectors amounting to R45bn. Key interventions in broadening participation was planned increased investment through Special Economic Zones (SEZs) and Industrial Parks. The intention was to have 70 new black industrialists supported in IPAP sectors.  Key interventions on regulation were to have policies and bills to enforce fair business practises. Key interventions on improving the administration of the DTI were to have a staff turnover rate of 6.8%, employment of persons with disability at 3.5% and to have a figure of 50% on the employment of women in senior management positions. The idea was to attract, develop and retain professional and skilled officials. The intention was also to pay all suppliers within 30 days. A total of 65 outreach engagements and 49 exhibitions were planned. The Committee was also provided with detail on the budget of the DTI. For 2017/18 the budget of the DTI totalled R9.2bn.

The Committee appreciated the concise and to the point manner in which the briefing was made. Members raised concerns about the dire state of affairs at Evras Highveld Steel. The DTI was asked whether they were aware of what Evras Highveld’s plans were to improve things. What interventions did the DTI itself have to improve things at Evras Highveld Steel? Would the 4500 jobs that had been lost in the steel industry be able to be recouped? Given that the Africa Growth and Opportunities Act (AGOA) had been renewed in 2016 would there now be increased trade with the United States. The DTI was asked what effect SA’s junk status downgrade had on foreign direct investment. Would investors be willing to further invest in SA? The DTI was asked when it was going to halt the export of SA’s raw materials abroad. Members raised concerns about the lack of economic activity in the former Bantustan homelands. Why was the DTI not triggering economic opportunities in those types of areas? It was strongly felt that the DTI needed to do more in the former Bantustan homelands and in general rural areas. There seemed to be an urban bias in the efforts of the DTI. Members mentioned that in Africa there was a great deal of talk about the coming of the Fourth Industrial Revolution. What was DTI’s take on it? Members pointed out that radical economic transformation was not evident in the detail that the DTI had presented to the Committee. Concerns were raised as to whether there was procurement by government entities from local sources. There was a tendency by entities to import things when they could have sourced them locally. The DTI was asked to offer assistance in the Eastern Cape Province where the citrus industry had not too long ago been hard hit by drought. Members asked that if the United States could impose stringent import tariffs on the imports of steel why the DTI could not do the same to protect SA’s local steel industry. Members commented that perhaps there had been a skewed view about the importation of poultry from the United States. An investigation was being done to look at issues that affected the poultry industry. 

Meeting report

The Minister of Trade and Industry Dr Rob Davies extended an apology for not being able to attend the meeting.

Introductory remarks by Deputy Minister of Trade and Industry
Mr Gratitude Bulelani Magwanishe, Deputy Minister of Trade and Industry, said that the structural fault lines of the South African economy continued to impede the ability of the economy to grow in order to create jobs. One of the challenges was an over-dependence on volatile mineral commodities. The situation was exacerbated by the weakening global economy recovery. This year would mark a full year in which the global economy had been in financial crisis. Developed and developing countries experienced economic growth which was half of what it was before the global financial crisis had started. SA was not unique in experiencing disappointing growth. SA had in the mid 2000s experienced growth of 5% during the commodities super cycle and government had implemented interventions to reduce poverty and unemployment. Even with interventions the way the economy was it was difficult to create sufficient jobs to lower the unemployment rate. There was therefore a need to speed up implementation of radical economic transformation. This would change the structure of the economy which would grow productive sectors like agriculture and sectors like mining, the latter adding value to SA’s mineral wealth not just exporting raw materials. SA’s long term socio economic stability demanded that ownership and access to resources, the nation’s wealth be spread more equitably than what it was currently. This demand for a more equitable distribution of wealth was not unique to SA.

The global rise of populism even in some of the most developed countries reflected growing disillusionment with the widely held economic systems that had been in place. Even institutions like the International Monetary Fund (IMF), the World Bank and the US Federal Reserve have taken note of the narrative on issues like unemployment, inequality and inclusive growth. For SA, with its deep pockets of poverty, it necessitated a more interventionist set of policies than other countries. The Strategic Plan and the Annual Performance Plan of the Department of Trade and Industry was based on the imperatives of radical economic transformation. The DTI would be prioritising the implementation of the Industrial Policy Action Plan (IPAP) with the emphasis on job creation in various industries and sectors. There would also the sustained rolling out of the Black Industrialist Programme across SA. In addition there would be the prioritising of the investment one stop shop: ie InvestSA. Offices would be opened up in all provinces in order to provide support to potential investors. Members were encouraged to pass on details of InvestSA to their constituencies. Preparations were being made for intense discussions with the United Kingdom to ensure that trade relations were maintained in lieu of UK’s exit from the European Union.

Briefing by the Department of Trade and Industry (DTI) on its Strategic Plan, Annual Performance Plan and Budget
The delegation from the DTI comprised of Mr Lionel October Director General, Mr Garth Strachan Deputy Director General, Mr Macdonald Netshitenzhe Acting Deputy Director General, Ms Malebo Mabitje-Thompson, Ms Hayley Rodkin Chief Director: Strategy Management and Public Entity Oversight, Mr Steven Hanival Chief Economist, Ms Jodie Scholtz Group Chief Executive Officer and Mr Shabeer Khan Chief Financial Officer.

Mr Lionel October, Director General, DTI, undertook the briefing. He stated that SA was back in the top 25 countries when it came to foreign direct investment. Strategic goals for the DTI included facilitating transformation of the economy to promote industrial development, investment, competitiveness and employment creation. It was also to facilitate broad based economic participation through targeted interventions to achieve more inclusive growth. Additionally, the Department planned to build mutually beneficial regional and global relations to advance SA’s trade, industrial policy and economic development objectives.

The DTI had eight Programmes in all ie Administration, International Trade and Economic Development, Special Economic Zones and Economic Transformation, Industrial Development, Consumer and Corporate Regulation, Incentive Development and Administration, Trade Export SA and lastly Investment SA.

The Committee was given insight into the economic outlook for SA. There was weak global economic recovery. SA’s domestic economy in 2016 was affected by the drop in commodity prices as well as drought that had affected certain areas. However it was expected that things would improve in 2017. Employment increased by 235 000 in the October – December 2016 Quarter; however employment declined in the mining and construction sectors. The Southern African Development Community (SADC) remained the biggest market for SA’s manufactured goods in Africa accounting for almost 88% of total manufactured exports to Africa. SA’s exports to the world decreased 1.1% from R275bn in Quarter 3 2016 to R272bn in Quarter4 2016. Imports contracted by 2.5% reaching R274bn in Quarter 4 2016 from R281bn in Quarter 3 2016. In Quarter 4 2016, SA’S trade deficit with the rest of the world improved to R2bn from R6bn in Quarter 3 2016.

Members were provided with an overview of key planned interventions for the 2017/18 financial year. On industrial development with the aim of upscaling industrial policy the annual rolling IPAP would be submitted to cabinet for tabling. Quarterly implementation reports would be produced. The projected value of investments across all incentives to be leveraged from projects came to R15bn. Key interventions on trade, investment and exports was to facilitate foreign and domestic investment and provide a one-stop shop ie InvestSA for investment promotion, investor facilitation and aftercare support for investors. There was planned investment facilitation in targeted sectors amounting to R45bn. Key interventions in broadening participation was planned increased investment through Special Economic Zones (SEZs) and Industrial Parks. Two SEZs had been submitted to Minister Davies for designation. Two implementation reports on Industrial Parks had also been submitted to Minister Davies. There would also be implementation of the Broad-Based Black Economic Empowerment (B-BBEE) Amendment Act and Codes of Good Practice for B-BBEE. Black Industrialists development programmes would also be implemented. The intention was to have 70 new black industrialists supported in IPAP sectors.  Key interventions on regulation were to have policies and bills to enforce fair business practises. Four Socio-Economic Impact Assessment System (SEIAS) reports on Companies, Gambling, Liquor and Credit Amendment Act would be developed for Ministerial approval. There would also be six bills on Companies, Gambling, Liquor, Credit, Copyright and Performers Protections Amendment Acts to be developed for Ministerial approval. In addition, 24 education and awareness workshops on policies and legislation was planned and a report to be produced for Ministerial approval. Key interventions on improving the administration of the DTI were to have a staff turnover rate of 6.8%, employment of persons with disability at 3.5% and to have a figure of 50% on the employment of women in senior management positions. The idea was to attract, develop and retain professional and skilled officials. The intention was also to pay all suppliers within 30 days. A total of 65 outreach engagements and 49 exhibitions were planned. 

The Committee was also provided with detail on the budget of the DTI. For 2017/18 the budget of the DTI totalled R9.2bn.

Discussion
The Committee appreciated the concise and to the point manner in which the briefing was made.

The Chairperson said that when the Committee went on oversight to Mpumalanga Province it had visited Evras Highveld Steel. Members were informed that there were plans in place. Did Evras Highveld Steel inform the DTI what its plans were? He further asked for details on incentives for industrial parks.

Mr October replied that part of the plan was to save the steel industry. There would be a package to save Highveld Steel. The DTI had started work on industrial parks. A number of industrial parks had been targeted.

Ms Jodie Scholtz, Group Chief Executive Officer, dti, said that on industrial parks there were four phases. The Annual Performance Plan did not provide much detail on it.

Mr W Faber (DA, Northern Cape), on the IPAP and on the Black Industrialist Programme, asked whether Evras Highveld Steel was coming on board. Would it be possible for the steel industry to restore the 4500 jobs that had been lost? Given that the Africa Growth and Opportunities Act (AGOA) had been renewed in 2016 he asked whether trade with the United States would be increased. Why had business with the United States not increased? He also asked what effect the downgrade in SA’s status would affect foreign direct investment. Why would investors be willing to further invest in SA? He pointed out that if Moody’s downgraded SA then then country could go down to non investment grade. He noted that it took Colombia twelve years to get out of its downgrade.

Mr October explained that steel was part of the IPAP. The AGOA agreement was still valid for ten years. This was for both the agriculture and the automotive industry. BMW was now able to export automobiles directly from its plants in SA to the United States. It all depended on the US economy. If the US economy was not doing well then they would import less. The US market was stable. SA’s growth came from Africa.  When demand from China dropped then commodity prices fell. Regarding SA’s junk status, he said that when government borrows then it increased the cost of capital. The DTI tended to focus on manufacturing, agriculture and mining. The DTI had a clear industrial policy investment plan. The downgrade had affected the image and perceptions that people had of SA. Stabilisation was needed and it helped that SA had sound foundations. The DTI staff went abroad to China to attract investment for Special Economic Zones (SEZs).

Mr Garth Strachan, Deputy Director General, dti, explained that Highveld Steel had been bought by Evras. At present Evras was in business rescue. DTI hoped to save some part of Evras. Unfortunately there was a global glut in steel worldwide. Amongst developing and developed countries a total of at least seven steel producers had been lost. In comparison SA was doing relatively well.

Mr M Chabangu (EFF, Free State) pointed out that in QuaQua in the Free State factories had been closed down. The DTI was asked when it intended to reopen them. In addition, he asked what the DTI was doing to stop the exporting of SA’s raw materials abroad.

Ms Malebo Mabitje-Thompson, Chief Operations Office, dti, explained that the new Special Economic Zone in the Free State would be a catalyst to bring investments into the Province. 

Mr S Mthimunye (ANC, Mpumalanga) said that he had observed that in two former homelands in Mpumalanga Province there was zero industrial action. Was there any SEZ planned? There was no economic activity for the people in the area. The DTI was asked what it was doing to assist and educate people to realise their potentials. Why was the DTI not triggering opportunities in these types of areas? He asked for how long must people in these areas still be labourers. He also asked for a provincial breakdown of the Black Industrialist Programme. In Africa there was also a great deal of talk about the coming of the Fourth Industrial Revolution.

Deputy Minister Magwanishi, on outreach programmes, said that it had a greater impact if it was done by cluster departments which included departments like small business development, economic development etc. The DTI would go to rural areas to help unlock areas of opportunity. The DTI did have programmes in place. The DTI was for instance possibly assisting an individual in Mpumalanga with finance who had built an automobile. On innovations, the DTI held competitions where persons could submit ideas. People would be assisted from idea level to Black Industrialist level. Preparations had to be made for the Fourth Industrial Revolution. It should be managed in such a way that it should not bring about a win/lose situation. The DTI was engaging with partners on the approach/form that the Revolution would take. SA should be part of the Fourth Industrial Revolution and not be recipients of it.

Mr Macdonald Netshitenzhe, Acting Deputy Director General, added that on awareness and advocacy the DTI was educating and making people aware of policy and legislation.

Mr October said that it seemed as if the DTI was being asked to expedite Special Economic Zones and Industrial Parks in the former homeland areas. He conceded that government did not have a policy on homeland areas. They had been neglected for a long time. The DTI did however have a programme in its Annual Performance Plan. The results could be seen at Coega in the Eastern Cape Province. There were 36 investors in the Coega Zone. It however took fifteen years to get where they were. The reality was that only a small part of the population would become entrepreneurs. The majority would be workers. Hence the DTI wished to build factories. Special Economic Zones needed to draw investors. Provinces were in charge of Special Economic Zones. The DTI covered the three-year start off phase of Special Economic Zones. Eight Special Economic Zones had already been done. The idea was to have one in each province. Black Industrialist transformation had to go hand in hand with ownership changes in Special Economic Zones.      

Ms Mabitje-Thompson provided the provincial breakdown as requested but she said that the figures would change by the end of the week.

Mr M Rayi (ANC, Eastern Cape) said that there seemed to be different themes for different years. The theme now was radical economic transformation but unfortunately it was not seen in the detail that the DTI had presented. The Committee needed to see the elements of radical economic transformation reflected in the detail. He asked why in manufacturing/ construction had the PMI dropped. Why had business confidence also dropped? The DTI was asked what it was doing to correct things. He liked the idea of a one-stop shop and hoped that it would be taken to provinces as well. He noted that procurement by entities of government was a problem. Entities like Transnet tend to import things that they could have sourced locally. Where was the pilot project kicking off on the employment of unemployed graduates? The DTI was asked whether the project would be extended to all provinces. He also asked what the DTI’s intervention at Evras Highveld Steel was to be. He pointed out that the former Bantustan areas was a huge concern. How was government going to deal with them? They seem to have been forgotten. There were areas that were now dead as far as economic activity was concerned. He was aware that there could not be Industrial Parks in all Bantustan areas. 

Mr October stated that the DTI had just started the Industrial Park Programme and the Former Homeland Programme. The DTI had to be careful as it was no use giving persons incentives and funding when there was no market for their product. He said lots of issues were covered in the detail that was provided to the Committee.

Mr Strachan stated that the DTI worked to save many steel plants. At Evras Highveld Steel there had been contingent liability, environmental degradation and no investment. Evras Highland Steel had sweated its assets. It was going to be a difficult exercise to save them. He added that the United States had placed a 500% anti dumping tariff on the import of steel. SA’s handling of its steel crisis was seen as exemplary abroad.

Ms Scholtz said that Minister Davies had two years ago required there to be 75% local procurement by entities.

Mr L Magwebu (DA, Eastern Cape) stated that the briefing had mentioned that there was a turnaround in the drought situation that affected the agricultural sector. It was only four weeks ago that the citrus industry in the Eastern Cape was in distress because of drought. The citrus industry in the Eastern Cape was the second largest industry behind manufacturing. The citrus industry’s Gross Domestic Product contribution was R1.5bn. Jobs of seasonal workers were being threatened. Was the DTI aware of the situation? The DTI was asked what it was doing to save the citrus industry.

Mr October explained that the DTI was working closely with the Department of Agriculture. He clarified that the drought he had referred to was drought that had affected the maize industry. He agreed that citrus was a major employer in SA. The DTI intended to get a full update on the situation in the Eastern Cape. It was a priority. There were nine agriparks. 

Mr Faber referred to the Khusile and Madhupi Power Plants and pointed out the steel to construct them had mainly come from China. He had heard that the United States was trying to stop China from dumping steel. Why did the DTI not done the same to stop China from dumping steel in SA. Local steel manufacturing companies could have been saved. He asked why the DTI could not impose high tariffs on the importation of steel so as to protect the local steel industry.

Mr October said that it was not about who was to blame on what happened to SA’s local steel industry. Government and industry needed to work together. There was a shortage of steel before 2008 and steel giants had made a killing. Now the same giants were suffering. The IPAP did have a rescue plan for the industry. The Industrial Development Corporation had put up a R100m loan facility to keep Highveld Steel going. Incentives were not provided to businesses unless they got onto the Broad-Based Black Economic Empowerment (B-BBEE) Scorecard.

Mr B Nthebe (ANC, North West) confirmed that the Committee had visited Evras Highveld Steel. The Committee had however only gotten a one sided view on the issue of steel dumping. He added that there was also a persistent view about the effect of the AGOA on the local poultry industry. There was an investigation being done about the poultry issue to look at the issues that affect the industry. There had been a skewed view about it. He was disappointed that the one stop shop initiative of the DTI was going to be started off in provinces that already had infrastructure. When was the focus going to shift to rural areas? The transformational agenda was not yet there. Were state entities procuring locally?
 
Mr October heard what was being said about the DTI needing to accelerate its work on radical economic transformation. He agreed that Transnet, the Passenger Rail Agency of SA (PRASA) and other state owned entities were huge buyers of steel. Provinces and municipalities were also huge procurers. The path was simultaneous ie industrialisation and transformation. 

The Chairperson said that when Special Economic Zones and Industrial Economic Zones were discussed ways had to be found to communicate to provinces. Many of the issues that members raised were covered in emails that the DTI regularly sent to members. The Committee was on a continuous process of requesting information from the DTI. This was not the end of the conversation.

Mr Mthimunye did not agree with the Chairperson’s sentiments and wished to engage with the DTI further. Investment still had an urban bias.

Mr Rayi was still concerned about procurement by government entities. He suggested that a meeting be held with the DTI and other departments along with all entities. Ministers and Director Generals should be present. He was also not satisfied with the responses of efforts in Bantustans. Another meeting with DTI was needed around an action plan on Bantustans.

In closing Deputy Minister Magwanisi agreed that the imbalances of the past needed to be corrected. The Committee needed to be updated on the Black Industrialist Programme. The DTI should prioritise Bantustans and rural areas. 

The Chairperson said that members felt that inequality in provinces was unacceptable.

Committee Minutes
Minutes dated 3 May 2017 was adopted as amended.

The meeting was adjourned.

 

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